e424b3
Filed pursuant to Rule 424(b)(3)
Registration No. 333-155700
Prospectus
Dr Pepper Snapple Group,
Inc.
Offer to Exchange
all outstanding unregistered 6.12% Senior Notes due 2013
($250,000,000 aggregate principal amount)
for
6.12% Senior Notes due 2013 that have been registered
under the Securities Act of 1933
and
all outstanding unregistered 6.82% Senior Notes due 2018
($1,200,000,000 aggregate principal amount)
for
6.82% Senior Notes due 2018 that have been registered
under the Securities Act of 1933
and
all outstanding unregistered 7.45% Senior Notes due 2038
($250,000,000 aggregate principal amount)
for
7.45% Senior Notes due 2038 that have been registered
under the Securities Act of 1933
Fully and unconditionally guaranteed as to payment of
principal and interest by the Subsidiary Guarantors
This prospectus and accompanying letter of transmittal relate to
our proposed offer to exchange up to $250,000,000 aggregate
principal amount of 6.12% exchange senior notes due 2013,
$1,200,000,000 aggregate principal amount of 6.82% exchange
senior notes due 2018 and $250,000,000 aggregate principal
amount of 7.45% exchange senior notes due 2038, which are
registered under the Securities Act of 1933, as amended, for any
and all of its unregistered 6.12% senior notes due 2013,
unregistered 6.82% senior notes due 2018 and unregistered
7.45% senior notes due 2038 that were issued on
April 30, 2008. The exchange notes are guaranteed as to
payment of principal and interest by all of our domestic
subsidiaries (except for two immaterial subsidiaries associated
with our charitable foundations) (the subsidiary
guarantors). The unregistered notes have certain transfer
restrictions. The exchange notes will be freely transferable.
The principal features of the exchange offer are as follows:
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY 14, 2009, UNLESS WE EXTEND THE
OFFER.
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You may withdraw tendered outstanding unregistered notes at any
time prior to the expiration of the exchange offer.
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We will exchange all outstanding unregistered notes that are
validly tendered and not validly withdrawn prior to the
expiration of the exchange offer for an equal principal amount
of exchange notes.
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The terms of the exchange notes to be issued are substantially
similar to the unregistered notes, except they are registered
under the Securities Act, do not have any transfer restrictions,
do not have registration rights or rights to additional interest
and are not subject to the special mandatory redemption feature.
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The exchange of unregistered notes for exchange notes pursuant
to the exchange offer will not be a taxable event for
U.S. federal income tax purposes.
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We will not receive any proceeds from the exchange offer.
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We do not intend to apply for listing of the exchange notes on
any securities exchange or automated quotation system.
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Please see Risk Factors beginning on page 10
for a discussion of certain factors you should consider in
connection with the exchange offer.
Neither the U.S. Securities and Exchange Commission nor
any other federal or state agency has approved or disapproved of
these securities to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus
is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 12, 2008.
Each holder of an unregistered note wishing to accept the
exchange offer must deliver the unregistered note to be
exchanged, together with the letter of transmittal that
accompanies this prospectus and any other required
documentation, to the exchange agent identified in this
prospectus. Alternatively, you may effect a tender of
unregistered notes by book-entry transfer into the exchange
agents account at The Depository Trust Company
(DTC). All deliveries are at the risk of the holder.
You can find detailed instructions concerning delivery in the
section called The Exchange Offer in this prospectus
and in the accompanying letter of transmittal.
If you are a broker-dealer that receives exchange notes for your
own account, you must acknowledge that you will deliver a
prospectus in connection with any resale of the exchange notes.
The letter of transmittal accompanying this prospectus states
that, by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an
underwriter within the meaning of the Securities
Act. You may use this prospectus, as we may amend or supplement
it in the future, for your resales of exchange notes. We will
use commercially reasonable efforts to have the registration
statement, of which this prospectus forms a part, remain
effective until 180 days after the exchange offer expires
for use by the participating broker-dealers. We will also amend
or supplement this prospectus during this
180-day
period, if requested by one or more participating
broker-dealers, in order to expedite or facilitate such resales.
Table of
Contents
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F-1
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ABOUT
THIS PROSPECTUS
References to DPS, our company,
we, us and our refer to Dr
Pepper Snapple Group, Inc. and its subsidiaries, except in each
case where otherwise indicated or the context otherwise requires.
You should rely only on the information contained in this
prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus
is accurate only as of the date of this prospectus. Our
business, financial condition, results of operations and
prospects may have changed since this date.
The fiscal years presented in this prospectus are the 52-week
periods ended December 31, 2007 and 2006, which we refer to
as 2007 and 2006, respectively, the
52-week period ended January 1, 2006, which we refer to as
2005, and the 53-week period ended January 2,
2005, which we refer to as 2004. Beginning in 2006,
our fiscal year ends on December 31 of each year. In 2005 and
2004, the year end date represented the Sunday closest to
December 31.
Whenever we refer in this prospectus to the 6.12% senior
notes due 2013, 6.82% senior notes due 2018 and the
7.45% senior notes due 2038 issued on April 30, 2008,
we will refer to them as the unregistered notes.
Whenever we refer in this prospectus to the registered
6.12% senior notes due 2013, the registered
6.82% senior notes due 2018 and the registered
7.45% senior notes due 2038, we will refer to them as the
exchange notes. The unregistered notes and the
exchange notes are collectively referred to as the
notes.
MARKET
AND INDUSTRY DATA
The market and industry data in this prospectus is from
independent industry sources, including ACNielsen, Beverage
Digest and Canadean. Although we believe that these independent
sources are reliable, we have not verified the accuracy or
completeness of this data or any assumptions underlying such
data.
ACNielsen, a business of The Nielsen Company, is a marketing
information provider, primarily serving consumer packaged goods
manufacturers and retailers. We use ACNielsen data as our
primary management tool to
track market performance because it has broad and deep data
coverage, is based on consumer transactions at retailers, and is
reported to us monthly. ACNielsen data provides measurement and
analysis of marketplace trends such as market share, retail
pricing, promotional activity and distribution across various
channels, retailers and geographies. Measured categories
provided to us by ACNielsen Scantrack include flavored
(non-cola) carbonated soft drinks (CSDs), energy
drinks, single-serve bottled water, non-alcoholic mixers and
non-carbonated beverages, including ready-to-drink teas,
single-serve and multi-serve juice and juice drinks, and sports
drinks. ACNielsen also provides data on other food items such as
apple sauce. The ACNielsen data we present in this prospectus is
from ACNielsens Scantrack service, which compiles data
based on scanner transactions in certain sales channels,
including grocery stores, mass merchandisers, drug chains,
convenience stores and gas stations. However, this data does not
include the fountain or vending channels, Wal-Mart or small
independent retail outlets, which together represent a
meaningful portion of the U.S. liquid refreshment beverage
market and of our net sales and volume.
Beverage Digest is an independent beverage research company that
publishes an annual Beverage Digest Fact Book. We use Beverage
Digest primarily to track market share information and broad
beverage and channel trends. This annual publication provides a
compilation of data supplied by beverage companies. Beverage
Digest covers the following categories: CSDs, energy drinks,
bottled water and non-carbonated beverages (including
ready-to-drink teas, juice and juice drinks and sports drinks).
Beverage Digest data does not include multi-serve juice products
or bottled water in packages of 1.5 liters or more. Data is
reported for certain sales channels, including grocery stores,
mass merchandisers, club stores, drug chains, convenience
stores, gas stations, fountains, vending machines and the
up-and-down-the-street
channel consisting of small independent retail outlets.
We use both ACNielsen and Beverage Digest to assess both our own
and our competitors performance and market share in the
United States. Different market share rankings can result for a
specific beverage category depending on whether data from
ACNielsen or Beverage Digest is used, in part because of the
differences in the sales channels reported by each source. For
example, because the fountain channel (where we have a
relatively small business except for Dr Pepper) is not included
in ACNielsen data, our market share using the ACNielsen data is
generally higher for our CSD portfolio than the Beverage Digest
data, which does include the fountain channel.
Canadean is a market research and data management company
focusing on the international beverage industry and its
suppliers. Beverage categories measured by Canadean include
packaged water, carbonates, juice, nectars, still drinks,
iced/ready-to-drink tea drinks, squash/syrups and fruit powders,
sports drinks and energy drinks. Canadean provides data for
certain sales channels, including off-premise distribution such
as supermarkets, hypermarkets, department stores, mom and
pop outlets, delicatessens, pharmacies/drugstores, street
stalls, specialist drink shops and on-premise distribution such
as vending machines, quick service restaurants, eating, drinking
and accommodation establishments and institutions. We use
Canadean data to assess both our own and our competitors
performance and market share in Canada and Mexico.
In this prospectus, all information regarding the beverage
market in the United States is from Beverage Digest, and, except
as otherwise indicated, is from 2006. All information regarding
the beverage market in Canada and Mexico is from Canadean and is
from 2006. All information regarding our brand market positions
in the United States is from ACNielsen and is based on retail
dollar sales in 2007. All information regarding our brand market
positions in Canada is from ACNielsen and is based on volume in
2007. All information regarding our brand market positions in
Mexico is from Canadean and is based on volume in 2007.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements including,
in particular, statements about future events, future financial
performance, plans, strategies, expectations, prospects,
competitive environment, regulation and availability of raw
materials. Forward-looking statements include all statements
that are not historical facts and can be identified by the use
of forward-looking terminology such as the words
may, will, expect,
anticipate, believe,
estimate, plan, intend or
the negative of these terms or similar expressions in this
prospectus. We have based these forward-looking statements on
our current views with respect to future events and financial
performance. Our actual financial performance could differ
materially from those projected in the forward-looking
statements due to the inherent uncertainty of estimates,
forecasts and projections, and our financial performance
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may be better or worse than anticipated. Given these
uncertainties, you should not put undue reliance on any
forward-looking statements.
Our forward-looking statements are subject to risks and
uncertainties, including:
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the highly competitive markets in which we operate and our
ability to compete with companies that have significant
financial resources;
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changes in consumer preferences, trends and health concerns;
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increases in cost of materials or supplies used in our business;
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shortages of materials used in our business;
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substantial disruption at our beverage concentrates
manufacturing facility or our other manufacturing facilities;
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our products meeting health and safety standards or
contamination of our products;
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need for substantial investment and restructuring at our
production, distribution and other facilities;
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weather and climate changes;
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maintaining our relationships with our large retail customers;
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dependence on third-party bottling and distribution companies;
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infringement of our intellectual property rights by third
parties, intellectual property claims against us or adverse
events regarding licensed intellectual property;
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litigation claims or legal proceedings against us;
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our ability to comply with, or changes in, governmental
regulations in the countries in which we operate;
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strikes or work stoppages;
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our ability to retain or recruit qualified personnel;
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increases in the cost of employee benefits;
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disruptions to our information systems and third-party service
providers;
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failure of our acquisition and integration strategies;
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future impairment of our goodwill and other intangible assets;
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need to service a significant amount of debt;
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negative impact on our financial results caused by recent global
financial events;
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completing our current organizational restructuring;
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risks relating to our agreement to indemnify, and be indemnified
by, Cadbury for certain taxes; and
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other factors discussed under Risk Factors and
elsewhere in this prospectus.
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Forward-looking statements represent our estimates and
assumptions only as of the date that they were made. We do not
undertake any duty to update the forward-looking statements, and
the estimates and assumptions associated with them, after the
date of this prospectus, except to the extent required by
applicable securities laws. All of the forward-looking
statements are qualified in their entirety by reference to the
factors discussed above and under Risk Factors and
elsewhere in this prospectus. These risk factors may not be
exhaustive as we operate in a continually changing business
environment with new risks emerging from time to time that we
are unable to predict or that we currently do not expect to have
a material adverse effect on our business. You should carefully
read this prospectus in its entirety as it contains important
information about our business and the risks we face.
iii
SUMMARY
The following summary contains basic information about our
company and the exchange offer. It likely does not contain all
of the information that is important to you. Before you make an
investment decision, you should review this prospectus in its
entirety, including the risk factors, our financial statements
and the related notes appearing elsewhere in this prospectus.
Dr Pepper
Snapple Group, Inc.
Formation
of Our Company and Separation from Cadbury
Cadbury Schweppes plc (Cadbury Schweppes) separated
its beverage business in the United States, Canada, Mexico and
the Caribbean (the Americas Beverages business) from
its global confectionery business and its other beverage
business (located principally in Australia) by contributing the
subsidiaries that operated its Americas Beverages business to Dr
Pepper Snapple Group, Inc. The separation involved a number of
steps, and as a result of these steps:
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On May 2, 2008, Cadbury plc (Cadbury plc)
became the parent company of Cadbury Schweppes.
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On May 7, 2008, Cadbury plc separated its Americas
Beverages business from its global confectionery business by
contributing the subsidiaries that operated its Americas
Beverages business to us. In return for the transfer of the
Americas Beverages business, we distributed our common stock to
Cadbury plc shareholders. On May 7, 2008, we became an
independent publicly-traded company listed on the New York Stock
Exchange under the symbol DPS.
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Cadbury plc and Cadbury Schweppes are hereafter collectively
referred to as Cadbury unless otherwise indicated.
Prior to separation, Dr Pepper Snapple Group, Inc. did not have
any operations.
In connection with the distribution of the Dr Pepper Snapple
Group, Inc. common stock, we filed a Registration Statement on
Form 10 (File
No. 001-33829)
with the Securities and Exchange Commission (the
SEC) that was declared effective on April 22,
2008. The Registration Statement on Form 10 describes the
details of the distribution and provides information regarding
our business and management.
We entered into a Separation and Distribution Agreement,
Transition Services Agreement, Tax Sharing and Indemnification
Agreement (Tax Indemnity Agreement) and Employee
Matters Agreement with Cadbury, each dated as of May 1,
2008. Upon separation from Cadbury, we settled debt and other
balances with Cadbury, eliminated Cadburys net investment
in us and purchased certain assets from Cadbury related to the
our business.
Our
Business
We are a leading integrated brand owner, bottler and distributor
of non-alcoholic beverages in the United States, Canada, and
Mexico with a diverse portfolio of flavored (non-cola)
carbonated soft drinks (CSDs) and non-carbonated
beverages (NCBs), including ready-to-drink teas,
juices, juice drinks and mixers. Our brand portfolio includes
popular CSD brands such as Dr Pepper, 7UP, Sunkist, A&W,
Canada Dry, Schweppes, Squirt and Peñafiel, and NCB brands
such as Snapple, Motts, Hawaiian Punch, Clamato,
Mr & Mrs T, Margaritaville and Roses. Our
largest brand, Dr Pepper, is the #2 selling flavored CSD in
the United States according to ACNielsen. We have some of the
most recognized beverage brands in North America, with
significant consumer awareness levels and long histories that
evoke strong emotional connections with consumers.
We operate as a brand owner, a bottler and a distributor through
our four segments. We believe our brand ownership, bottling and
distribution are more integrated than the U.S. operations
of our principal competitors and that this differentiation
provides us with a competitive advantage. We believe our
integrated business model strengthens our route-to-market,
provides opportunities for net sales and profit growth through
the alignment of the economic interests of our brand ownership
and our bottling and distribution businesses, enables us to be
more
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flexible and responsive to the changing needs of our large
retail customers and allows us to more fully leverage our scale
and reduce costs by creating greater geographic manufacturing
and distribution coverage.
Due to the integrated nature of our business model, we manage
our business to maximize profitability for the company as a
whole. While we were a subsidiary of Cadbury, we historically
maintained our books and records, managed our business and
reported our results based on International Financial Reporting
Standards (IFRS). Our segment information has been
prepared and presented on the basis which management uses to
assess the performance of our segments, which is principally in
accordance with IFRS. In addition, our current segment reporting
structure is largely the result of acquiring and combining
various portions of our business over the past several years. As
a result, profitability trends in individual segments may not be
consistent with the profitability of the company as a whole or
comparable to our competitors. For example, certain funding and
manufacturing arrangements between our Beverages concentrates
and Finished Goods segments and our Bottling Group segment
reduce the profitability of our Bottling Group segment while
benefiting our other segments. The performance of our business
and the compensation of our senior management team are largely
dependent on the success of our integrated business model.
We report our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
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Our Beverage Concentrates segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
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Our Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
NCB brands.
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Our Bottling Group segment reflects sales from the manufacture,
bottling
and/or
distribution of finished beverages, including sales of our own
brands and third-party owned brands.
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Our Mexico and the Caribbean segment reflects sales from the
manufacture, bottling
and/or
distribution of both concentrates and finished beverages in
those geographies.
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We have significant intersegment transactions. For example, our
Bottling Group segment purchases concentrates at an arms
length price from our Beverage Concentrates segment. We expect
these purchases to account for approximately one-third of our
Beverage Concentrates segment annual net sales and therefore
drive a similar proportion of our Beverage Concentrates segment
profitability. In addition, our Bottling Group segment purchases
finished beverages from our Finished Goods segment and our
Finished Goods segment purchases finished beverages from our
Bottling Group segment. All intersegment transactions are
eliminated in preparing our consolidated results of operations.
We incur selling, general and administrative expenses in each of
our segments. In our segment reporting, the selling, general and
administrative expenses of our Bottling Group and Mexico and the
Caribbean segments relate primarily to those segments. However,
as a result of our historical segment reporting policies,
certain combined selling activities that support our Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between those two segments. We also
incur certain centralized finance and corporate costs that
support our entire business, which have not been directly
allocated to our respective segments but rather have been
allocated primarily to our Beverage Concentrates segment.
The beverage market is subject to some seasonal variations. Our
beverage sales are generally higher during the warmer months and
also can be influenced by the timing of holidays and religious
festivals as well as weather fluctuations.
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Summary
of the Exchange Offer
On April 30, 2008, we issued $250 million aggregate
principal amount of unregistered 6.12% senior notes due
2013, $1,200 million aggregate principal amount of
unregistered 6.82% senior notes due 2018 and
$250 million aggregate principal amount of unregistered
7.45% senior notes due 2038. The unregistered notes are
fully and unconditionally guaranteed as to payment of principal
and interest by each of the subsidiary guarantors. On the same
day, we and the initial purchasers of the unregistered notes
entered into a registration rights agreement in which we agreed
that you, as a holder of unregistered notes, would be entitled
to exchange your unregistered notes for exchange notes
registered under the Securities Act. This exchange offer is
intended to satisfy these rights. After the exchange offer is
completed, you will no longer be entitled to any registration
rights with respect to your notes. The exchange notes will be
our obligations and will be entitled to the benefits of the
indenture relating to the notes. The exchange notes will also be
fully and unconditionally guaranteed as to payment of principal
and interest by each of the subsidiary guarantors listed in the
Table of Additional Registrants. The form and terms of the
exchange notes are identical in all material respects to the
form and terms of the unregistered notes, except that:
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the exchange notes have been registered under the Securities Act
and, therefore, will contain no restrictive legends;
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the exchange notes will not have registration rights;
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the exchange notes will not have rights to additional
interest; and
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the exchange notes will not be subject to the special mandatory
redemption feature, because we consummated our separation from
Cadbury on May 7, 2008.
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The Exchange Offer |
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We are offering to exchange any and all of our 6.12% exchange
senior notes due 2013, 6.82% exchange senior notes due 2018 and
7.45% exchange senior notes due 2038, which have been registered
under the Securities Act, for any and all of our outstanding
unregistered 6.12% senior notes due 2013, unregistered
6.82% senior notes due 2018 and unregistered
7.45% senior notes due 2038 that were issued on
April 30, 2008. As of the date of this prospectus,
$250 million in aggregate principal amount of our
unregistered 6.12% senior notes due 2013,
$1,200 million in aggregate principal amount of our
unregistered 6.82% senior notes due 2018 and
$250 million in aggregate principal amount of our
unregistered 7.45% senior notes due 2038 are outstanding. |
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Expiration of the Exchange Offer |
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The exchange offer will expire at 5:00 p.m., New York City
time, on January 14, 2009, unless we decide to extend the
exchange offer. |
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Conditions of the Exchange Offer |
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We will not be required to accept for exchange any unregistered
notes, and may amend or terminate the exchange offer if any of
the following conditions or events occurs: |
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the exchange offer or the making of any exchange by
a holder of unregistered notes violates applicable law or any
applicable interpretation of the staff of the SEC;
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any action or proceeding shall have been instituted
or threatened with respect to the exchange offer which, in our
reasonable judgment, would impair our ability to proceed with
the exchange offer; and
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any laws, rules or regulations or applicable
interpretations of the staff of the SEC are issued or
promulgated which, in our good faith determination, do not
permit us to effect the exchange offer.
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We will give oral or written notice of any non-acceptance,
amendment or termination to the registered holders of the
unregistered notes as promptly as practicable. We reserve the
right to waive any conditions of the exchange offer. |
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Resale of the Exchange Notes |
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Based on interpretative letters of the SEC staff to third
parties unrelated to us, we believe that you can resell and
transfer the exchange notes you receive pursuant to this
exchange offer without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that: |
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any exchange notes to be received by you will be
acquired in the ordinary course of your business;
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you are not engaged in, do not intend to engage in
and have no arrangement or understanding with any person to
engage in, the distribution of the unregistered notes or
exchange notes;
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you are not an affiliate (as defined in
Rule 405 under the Securities Act) of ours, or, if you are
such an affiliate, you will comply with the registration and
prospectus delivery requirements of the Securities Act to the
extent applicable;
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if you are a broker-dealer, you have not entered
into any arrangement or understanding with us or any of our
affiliates to distribute the exchange notes; and
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you are not acting on behalf of any person or entity
that could not truthfully make these representations.
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If you wish to participate in the exchange offer, you must
represent to us that these conditions have been met. |
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If you are a broker-dealer and you will receive exchange notes
for your own account in exchange for unregistered notes that
were acquired as a result of market-making activities or other
trading activities, you will be required to acknowledge that you
will deliver a prospectus in connection with any resale of the
exchange notes. See Plan of Distribution for a
description of the prospectus delivery obligations of
broker-dealers. |
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Accrued Interest on the Exchange Notes and Unregistered
Notes
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The unregistered notes accrue interest from and including
April 30, 2008. The first interest payment on the
unregistered notes was made on November 1, 2008. The
exchange notes will accrue interest from and including
November 1, 2008. We will pay interest on the exchange
notes semiannually on May 1 and November 1 of each year,
commencing May 1, 2009. |
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Holders of unregistered notes that are accepted for exchange
will be deemed to have waived the right to receive any payment
in respect of interest accrued from the date of the last
interest payment date in respect of the unregistered notes until
the date of the issuance of the exchange notes. Consequently,
holders of exchange notes will receive the same interest
payments that they would have received had they not accepted the
exchange offer. |
4
|
|
|
Procedures for Tendering Unregistered Notes
|
|
If you wish to participate in the exchange offer, you must: |
|
|
|
transmit a properly completed and signed letter of
transmittal, and all other documents required by the letter of
transmittal, to the exchange agent at the address set forth in
the letter of transmittal. These materials must be received by
the exchange agent before 5:00 p.m., New York City time, on
January 14, 2009, the expiration date of the exchange
offer. You must also provide physical delivery of your
unregistered notes to the exchange agents address as set
forth in the letter of transmittal. The letter of transmittal
must also contain the representations you must make to us as
described under The Exchange Offer Procedures
for Tendering; or
|
|
|
|
you may effect a tender of unregistered notes
electronically by book-entry transfer into the exchange
agents account at DTC. By tendering the unregistered notes
by book-entry transfer, you must agree to be bound by the terms
of the letter of transmittal.
|
|
Special Procedures for Beneficial Owners
|
|
If you are a beneficial owner of unregistered notes that are
held through a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender such unregistered notes,
you should contact the registered holder promptly and instruct
them to tender your unregistered notes on your behalf. |
|
Guaranteed Delivery Procedures for Unregistered Notes
|
|
If you cannot meet the expiration deadline, or you cannot
deliver on time your unregistered notes, the letter of
transmittal or any other required documentation, or comply on
time with DTCs standard operating procedures for
electronic tenders, you may tender your unregistered notes
according to the guaranteed delivery procedures set forth under
The Exchange Offer Guaranteed Delivery
Procedures. |
|
Acceptance of Outstanding Notes and Delivery of Exchange
Notes
|
|
Subject to customary conditions, we will accept outstanding
unregistered notes that are properly tendered in the exchange
offer and not withdrawn prior to the expiration date. The
exchange notes will be delivered as promptly as practicable
following the expiration date. |
|
Withdrawal Rights
|
|
You may withdraw the tender of your unregistered notes at any
time prior to 5:00 p.m., New York City time, on
January 14, 2009, the expiration date. |
|
Consequences of Failure to Exchange
|
|
If you are eligible to participate in this exchange offer and
you do not tender your unregistered notes as described in this
prospectus, your unregistered notes may continue to be subject
to transfer restrictions. As a result of the transfer
restrictions and the availability of exchange notes, the market
for the unregistered notes is likely to be much less liquid than
before this exchange offer. The unregistered notes will, after
this exchange offer, bear interest at the same rate as the
exchange notes. The unregistered notes will not retain any
rights under the registration rights agreement. |
|
Certain United States Federal Income Tax Considerations
|
|
The exchange of the unregistered notes for exchange notes
pursuant to the exchange offer will not be a taxable event for
U.S. federal income tax purposes. See Certain United
States Federal Income Tax Considerations. |
|
Exchange Agent
|
|
Wells Fargo Bank, N.A., the trustee under the indenture, is
serving as exchange agent in connection with the exchange offer. |
|
Use of Proceeds
|
|
We will not receive any proceeds from the issuance of exchange
notes in the exchange offer. |
5
Summary
Description of the Exchange Notes
The following is a brief summary of some of the terms of the
exchange notes. For a more complete description of the terms of
the exchange notes, see Description of the Exchange
Notes in this prospectus.
|
|
|
Issuer
|
|
Dr Pepper Snapple Group, Inc. |
|
Exchange Notes
|
|
$250,000,000 aggregate principal amount of 6.12% exchange senior
notes due 2013. |
|
|
|
$1,200,000,000 aggregate principal amount of 6.82% exchange
senior notes due 2018. |
|
|
|
$250,000,000 aggregate principal amount of 7.45% exchange senior
notes due 2038. |
|
Maturities
|
|
The 6.12% exchange senior notes will mature on May 1, 2013. |
|
|
|
The 6.82% exchange senior notes will mature on May 1, 2018. |
|
|
|
The 7.45% exchange senior notes will mature on May 1, 2038. |
|
Interest Payment Dates
|
|
May 1 and November 1 of each year, commencing May 1, 2009. |
|
Optional Redemption
|
|
We may redeem the exchange notes of any series, in whole or in
part from time to time, at our option, at a redemption price
equal to the greater of (1) 100% of the principal amount of
the exchange notes being redeemed and (2) the sum of the
present value of the remaining scheduled payments of principal
and interest in respect of the exchange notes being redeemed
(exclusive of interest accrued to the date of redemption)
discounted to the redemption date on a semi-annual basis
(assuming a
360-day year
of twelve
30-day
months), at the Treasury Rate (as defined herein) plus
45 basis points in the case of 2013 notes, 45 basis
points in the case of 2018 notes and 45 basis points in the
case of the 2038 notes, plus, in each case, accrued and unpaid
interest to the date of redemption. See Description of the
Exchange Notes Optional Redemption. |
|
Offer to Repurchase Upon Change of Control Triggering
Event
|
|
Upon the occurrence of a Change of Control Triggering
Event (as defined herein), we will be required, unless we
have exercised our right to redeem the exchange notes, within a
specified period, to make an offer to purchase all exchange
notes at a price equal to 101% of the principal amount, plus any
accrued and unpaid interest to the date of repurchase. See
Description of the Exchange Notes Offer to
Repurchase Upon a Change of Control Triggering Event. |
|
Guarantees
|
|
The exchange notes will be fully and unconditionally guaranteed
by all of our subsidiary guarantors. |
|
Ranking
|
|
The exchange notes will be our unsecured and unsubordinated
obligations and will rank equally with all of our current and
future unsecured and unsubordinated indebtedness, including any
borrowings under our senior credit facility, and senior to all
of our future subordinated debt. The guarantees will be the
subsidiary guarantors unsecured and unsubordinated
obligations and will rank equally with all of the subsidiary
guarantors current and future unsecured and unsubordinated
indebtedness, including their guarantees of the senior credit
facility, and senior to all of the subsidiary guarantors
future subordinated debt. The exchange notes and the guarantees
will effectively rank junior to any of our and the subsidiary
guarantors current and future secured indebtedness to the |
6
|
|
|
|
|
extent of the value of the assets securing such indebtedness. As
of September 30, 2008, our and the subsidiary
guarantors total secured indebtedness was approximately
$19 million. |
|
|
|
The exchange notes will not be guaranteed by all of our
subsidiaries and will therefore be effectively subordinated to
all existing and future liabilities of our subsidiaries that are
not guaranteeing the notes. For the nine months ended
September 30, 2008, our non-guarantor subsidiaries
accounted for $463 million and $118 million of our net
sales and income from operations, respectively, representing 11%
and 18%, respectively, of our net sales and income from
operations on a combined basis. As of September 30, 2008,
the total liabilities of our non-guarantor subsidiaries were
$118 million, including trade payables, and the total
assets of such subsidiaries were $564 million. |
|
Certain Covenants
|
|
The indenture governing the exchange notes will, among other
things, limit our ability to: |
|
|
|
incur indebtedness secured by principal properties;
|
|
|
|
enter into certain sale and leaseback transactions
with respect to principal properties; and
|
|
|
|
enter into certain mergers, consolidations and
transfers of substantially all of our assets.
|
|
|
|
The above restrictions are subject to significant exceptions.
See Description of the Exchange Notes Certain
Covenants. |
|
Sinking Fund
|
|
None. |
|
Form and Denomination
|
|
The exchange notes will be issued only in fully registered form
without coupons in minimum denominations of $2,000 and larger
integral multiples of $1,000. |
|
Absence of Existing Trading Market for the Exchange
Notes; No Listing
|
|
There is no existing market for the exchange notes. See
Risk Factors Risks Related to the Exchange
Notes and the Exchange Offer You may be unable to
sell your exchange notes if a trading market for the exchange
notes does not develop. We do not intend to apply for
listing of the exchange notes on any securities exchange or
automated quotation system. |
|
Use of Proceeds
|
|
We will not receive any proceeds from the issuance of exchange
notes pursuant to the exchange offer. |
|
Additional Notes Issuances
|
|
We may from time to time without the consent of the holders of
the exchange notes create and issue additional exchange notes of
the same series as the notes offered hereby. |
|
Trustee
|
|
Wells Fargo Bank, N.A. |
|
Risk Factors
|
|
See Risk Factors and the other information in this
prospectus for a discussion of risk factors related to our
business. |
Corporate
Information
Dr Pepper Snapple Group, Inc. is a corporation organized under
the laws of the State of Delaware. Our principal executive
offices are located at 5301 Legacy Drive, Plano, Texas 75024,
and our telephone number is
(972) 673-7000.
Our worldwide web address is www.drpeppersnapplegroup.com.
Information contained on our website is not a part of this
prospectus.
7
Summary
Historical Financial Data
The following table presents our summary historical financial
data. Our summary historical financial data presented below as
of and for the nine months ended September 30, 2008 and
2007 have been derived from our unaudited condensed consolidated
statements, included elsewhere in this prospectus. Our summary
historical financial data presented below as of
December 31, 2007 and 2006 and for the three fiscal years
2007, 2006 and 2005 have been derived from our audited combined
financial statements, included elsewhere in this prospectus. Our
summary historical balance sheet data presented below as of
January 1, 2006 (the last day of fiscal 2005) have
been derived from our accounting records, which are unaudited.
Upon separation, effective May 7, 2008, DPS became an
independent company, with a new consolidated reporting
structure. For the periods prior to May 7, 2008, the
condensed combined financial statements have been prepared on a
carve-out basis from Cadburys consolidated
financial statements using the historical results of operations,
assets and liabilities attributable to Cadburys Americas
Beverages business and including allocations of expenses from
Cadbury. The historical Cadburys Americas Beverages
information is the Companys predecessor financial
information. The Company eliminated from its financial results
all intercompany transactions between entities included in the
combination and the intercompany transactions with its equity
method investees.
The results included below and elsewhere in this prospectus are
not necessarily indicative of the Companys future
performance and do not reflect DPS financial performance
had it been an independent, publicly-traded company during the
periods prior to May 7, 2008. You should read this
information along with the information included in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the audited and
unaudited financial statements and the related notes thereto
included elsewhere in this prospectus.
On May 2, 2006, we acquired approximately 55% of the
outstanding shares of Dr Pepper/Seven Up Bottling Group, Inc.
(DPSUBG), which combined with our pre-existing 45%
ownership, resulted in our full ownership of DPSUBG.
DPSUBGs results have been included in the individual line
items within our combined financial statements beginning on
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for under the equity method and reflected
in the line item captioned equity in earnings of
unconsolidated subsidiaries, net of tax. In addition, on
June 9, 2006 we acquired the assets of All American
Bottling Company, on August 7, 2006 we acquired Seven Up
Bottling Company of San Francisco and on July 11, 2007
we acquired Southeast-Atlantic Beverage Corp.
(SeaBev). Each of these four acquisitions is
included in our combined financial statements beginning on its
date of acquisition. As a result, our financial data is not
necessarily comparable on a period-to-period basis.
The summary historical financial and other data in the following
tables should be read in conjunction with
Capitalization, Selected Historical Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
audited and unaudited financial statements and the related notes
thereto included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,369
|
|
|
$
|
4,347
|
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
Cost of sales
|
|
|
2,003
|
|
|
|
1,984
|
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,366
|
|
|
|
2,363
|
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
2,085
|
|
Selling, general and administrative expenses
|
|
|
1,586
|
|
|
|
1,527
|
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
1,179
|
|
Depreciation and amortization
|
|
|
84
|
|
|
|
69
|
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
31
|
|
|
|
36
|
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
Gain on disposal of property and intangible assets, net
|
|
|
(3
|
)
|
|
|
|
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
668
|
|
|
|
731
|
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
Interest expense
|
|
|
199
|
|
|
|
195
|
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
Interest income
|
|
|
(30
|
)
|
|
|
(38
|
)
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
|
Other (income) expense
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
507
|
|
|
|
576
|
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
Provision for income taxes
|
|
|
199
|
|
|
|
218
|
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
308
|
|
|
|
358
|
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
309
|
|
|
|
359
|
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
359
|
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(1)
|
|
$
|
1.21
|
|
|
$
|
1.42
|
|
|
$
|
1.96
|
|
|
$
|
2.01
|
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
239
|
|
|
$
|
34
|
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
Total assets
|
|
|
9,822
|
|
|
|
10,896
|
|
|
|
10,528
|
|
|
|
9,346
|
|
|
|
7,433
|
|
Current portion of long-term debt
|
|
|
35
|
|
|
|
258
|
|
|
|
126
|
|
|
|
708
|
|
|
|
404
|
|
Long-term debt
|
|
|
3,587
|
|
|
|
2,969
|
|
|
|
2,912
|
|
|
|
3,084
|
|
|
|
2,858
|
|
Other non-current liabilities
|
|
|
2,002
|
|
|
|
1,381
|
|
|
|
1,460
|
|
|
|
1,321
|
|
|
|
1,013
|
|
Total invested equity
|
|
|
3,330
|
|
|
|
4,992
|
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
2,426
|
|
Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities(2)
|
|
$
|
523
|
|
|
$
|
706
|
|
|
$
|
603
|
|
|
$
|
581
|
|
|
$
|
583
|
|
Investing activities
|
|
|
1,175
|
|
|
|
(1,450
|
)
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
Financing activities(2)
|
|
|
(1,523
|
)
|
|
|
742
|
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
Depreciation expense(3)
|
|
|
102
|
|
|
|
89
|
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
Amortization expense(3)
|
|
|
44
|
|
|
|
38
|
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
Capital expenditures
|
|
|
(203
|
)
|
|
|
(123
|
)
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
|
(1) |
|
Earnings per share (EPS) are computed by dividing
net income by the weighted average number of common shares
outstanding for the period. For all periods prior to May 7,
2008, the number of basic shares used is the number of shares
outstanding on May 7, 2008, as no common stock of DPS was
traded prior to May 7, 2008 and no DPS equity awards were
outstanding for the prior periods. As of May 7, 2008, the
number of basic shares includes the 512,580 shares related
to former Cadbury Schweppes benefit plans converted to DPS
shares on a daily volume weighted average. |
|
(2) |
|
The cash provided by operating and financing activities for the
nine months ended September 30, 2007, reflect the effects
of the restatement to cash flows, as more fully described in
Note 19 to our unaudited condensed consolidated financial
statements. |
|
(3) |
|
The depreciation and amortization expenses reflected in this
section of the table represent our total depreciation and
amortization expenses as reflected on our combined statements of
cash flows. Depreciation and amortization expenses in our
combined statements of operations data are reflected in various
line items including depreciation and amortization
and cost of sales. |
9
RISK
FACTORS
You should carefully consider the risks described below
before making a decision to participate in the exchange offer.
You should also consider the other information included in this
prospectus before making a decision to participate in the
exchange offer. Any of the following risks, as well as other
risks and uncertainties, could harm our business and financial
results and cause the value of the notes to decline, which in
turn could cause you to lose all or part of your investment.
Risks
Related to Our Business
We
operate in highly competitive markets.
Our industry is highly competitive. We compete with
multinational corporations with significant financial resources,
including
Coca-Cola
and PepsiCo. These competitors can use their resources and scale
to rapidly respond to competitive pressures and changes in
consumer preferences by introducing new products, reducing
prices or increasing promotional activities. We also compete
against a variety of smaller, regional and private label
manufacturers. Smaller companies may be more innovative, better
able to bring new products to market and better able to quickly
exploit and serve niche markets. Our inability to compete
effectively could result in a decline in our sales. As a result,
we may have to reduce our prices or increase our spending on
marketing, advertising and product innovation. Any of these
could negatively affect our business and financial performance.
We may
not effectively respond to changing consumer preferences,
trends, health concerns and other factors.
Consumers preferences can change due to a variety of
factors, including aging of the population, social trends,
negative publicity, economic downturn or other factors. For
example, consumers are increasingly concerned about health and
wellness, and demand for regular CSDs has decreased as consumers
have shifted towards low or no calorie soft drinks and,
increasingly, to NCBs, such as water, ready-to-drink teas and
sports drinks. If we do not effectively anticipate these trends
and changing consumer preferences, then quickly develop new
products in response, our sales could suffer. Developing and
launching new products can be risky and expensive. We may not be
successful in responding to changing markets and consumer
preferences, and some of our competitors may be better able to
respond to these changes, either of which could negatively
affect our business and financial performance.
Costs
for our raw materials may increase substantially.
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, high fructose corn syrup (HFCS) and other
sweeteners, juice, fruit, electricity, fuel and water. The cost
of the raw materials can fluctuate substantially. For example,
aluminum, glass, PET and HFCS prices increased significantly in
recent periods. In addition, we are significantly impacted by
increases in fuel costs due to the large truck fleet we operate
in our distribution businesses. Under many of our supply
arrangements, the price we pay for raw materials fluctuates
along with certain changes in underlying commodities costs, such
as aluminum in the case of cans, natural gas in the case of
glass bottles, resin in the case of PET bottles and caps, corn
in the case of HFCS and pulp in the case of paperboard
packaging. We expect these increases to continue to exert
pressure on our costs and we may not be able to pass along any
such increases to our customers or consumers, which could
negatively affect our business and financial performance.
Certain
raw materials we use are available from a limited number of
suppliers and shortages could occur.
Some raw materials we use, such as aluminum cans and ends, glass
bottles, PET bottles, HFCS and other ingredients, are available
from only a few suppliers. If these suppliers are unable or
unwilling to meet our requirements, we could suffer shortages or
substantial cost increases. Changing suppliers can require long
lead times. The failure of our suppliers to meet our needs could
occur for many reasons, including fires, natural disasters,
weather, manufacturing problems, disease, crop failure, strikes,
transportation interruption, government regulation, political
instability and terrorism. A failure of supply could also occur
due to suppliers financial difficulties, including
bankruptcy. Some of these risks may be more acute where the
supplier or its plant is located in riskier or
10
less-developed countries or regions. Any significant
interruption to supply or cost increase could substantially harm
our business and financial performance.
Substantial
disruption to production at our beverage concentrates or other
manufacturing facilities could occur.
A disruption in production at our beverage concentrates
manufacturing facility, which manufactures almost all of our
concentrates, could have a material adverse effect on our
business. In addition, a disruption could occur at any of our
other facilities or those of our suppliers, bottlers or
distributors. The disruption could occur for many reasons,
including fire, natural disasters, weather, manufacturing
problems, disease, strikes, transportation interruption,
government regulation or terrorism. Alternative facilities with
sufficient capacity or capabilities may not be available, may
cost substantially more or may take a significant time to start
production, each of which could negatively affect our business
and financial performance.
Our
products may not meet health and safety standards or could
become contaminated.
We have adopted various quality, environmental, health and
safety standards. However, our products may still not meet these
standards or could otherwise become contaminated. A failure to
meet these standards or contamination could occur in our
operations or those of our bottlers, distributors or suppliers.
This could result in expensive production interruptions, recalls
and liability claims. Moreover, negative publicity could be
generated from false, unfounded or nominal liability claims or
limited recalls. Any of these failures or occurrences could
negatively affect our business and financial performance.
Our
facilities and operations may require substantial investment and
upgrading.
We are engaged in an ongoing program of investment and upgrading
in our manufacturing, distribution and other facilities. We
expect to incur substantial costs to upgrade or keep up-to-date
various facilities and equipment or restructure our operations,
including closing existing facilities or opening new ones. If
our investment and restructuring costs are higher than
anticipated or our business does not develop as anticipated to
appropriately utilize new or upgraded facilities, our costs and
financial performance could be negatively affected.
Weather
and climate changes could adversely affect our
business.
Unseasonable or unusual weather or long-term climate changes may
negatively impact the price or availability of raw materials,
energy and fuel, and demand for our products. Unusually cool
weather during the summer months may result in reduced demand
for our products and have a negative effect on our business and
financial performance.
We
depend on a small number of large retailers for a significant
portion of our sales.
Food and beverage retailers in the United States have been
consolidating. Consolidation has resulted in large,
sophisticated retailers with increased buying power. They are in
a better position to resist our price increases and demand lower
prices. They also have leverage to require us to provide larger,
more tailored promotional and product delivery programs. If we,
and our bottlers and distributors, do not successfully provide
appropriate marketing, product, packaging, pricing and service
to these retailers, our product availability, sales and margins
could suffer. Certain retailers make up a significant percentage
of our products retail volume, including volume sold by
our bottlers and distributors. For example, Wal-Mart Stores,
Inc., the largest retailer of our products, represented
approximately 10% of our net sales in 2007. Some retailers also
offer their own private label products that compete with some of
our brands. The loss of sales of any of our products in a major
retailer could have a material adverse effect on our business
and financial performance.
We
depend on third-party bottling and distribution companies for a
substantial portion of our business.
We generate a substantial portion of our net sales from sales of
beverage concentrates to third-party bottling companies. During
2007, approximately two-thirds of our beverage concentrates
volume was sold to bottlers that we do not own. Some of these
bottlers are partly owned by our competitors, and much of their
business comes from
11
selling our competitors products. In addition, some of the
products we manufacture are distributed by third parties. As
independent companies, these bottlers and distributors make
their own business decisions. They may have the right to
determine whether, and to what extent, they produce and
distribute our products, our competitors products and
their own products. They may devote more resources to other
products or take other actions detrimental to our brands. In
most cases, they are able to terminate their bottling and
distribution arrangements with us without cause. We may need to
increase support for our brands in their territories and may not
be able to pass on price increases to them. Their financial
condition could also be adversely affected by conditions beyond
our control and our business could suffer. Any of these factors
could negatively affect our business and financial performance.
Our
intellectual property rights could be infringed or we could
infringe the intellectual property rights of others and adverse
events regarding licensed intellectual property, including
termination of distribution rights, could harm our
business.
We possess intellectual property that is important to our
business. This intellectual property includes ingredient
formulas, trademarks, copyrights, patents, business processes
and other trade secrets. See Business
Intellectual Property and Trademarks for more information.
We and third parties, including competitors, could come into
conflict over intellectual property rights. Litigation could
disrupt our business, divert management attention and cost a
substantial amount to protect our rights or defend ourselves
against claims. We cannot be certain that the steps we take to
protect our rights will be sufficient or that others will not
infringe or misappropriate our rights. If we are unable to
protect our intellectual property rights, our brands, products
and business could be harmed.
We also license various trademarks from third parties and
license our trademarks to third parties. In some countries,
other companies own a particular trademark which we own in the
United States, Canada or Mexico. For example, the Dr Pepper
trademark and formula is owned by
Coca-Cola in
certain other countries. Adverse events affecting those third
parties or their products could affect our use of the trademark
and negatively impact our brands.
In some cases, we license products from third-parties which we
distribute. The licensor may be able to terminate the license
arrangement upon an agreed period of notice, in some cases
without payment to us of any termination fee. The termination of
any material license arrangement could adversely affect our
business and financial performance. For example, following its
acquisition by
Coca-Cola on
August 30, 2007, Energy Brands, Inc. notified us that it
was terminating our distribution agreement for glacéau
products.
Litigation
or legal proceedings could expose us to significant liabilities
and damage our reputation.
We are party to various litigation claims and legal proceedings.
We evaluate these claims and proceedings to assess the
likelihood of unfavorable outcomes and estimate, if possible,
the amount of potential losses. We may establish a reserve as
appropriate based upon assessments and estimates in accordance
with our accounting policies. We base our assessments, estimates
and disclosures on the information available to us at the time
and rely on legal and management judgment. Actual outcomes or
losses may differ materially from assessments and estimates.
Actual settlements, judgments or resolutions of these claims or
proceedings may negatively affect our business and financial
performance. For more information, see
Business Legal Matters.
We may
not comply with applicable government laws and regulations, and
they could change.
We are subject to a variety of federal, state and local laws and
regulations in the United States, Canada, Mexico and other
countries in which we do business. These laws and regulations
apply to many aspects of our business including the manufacture,
safety, labeling, transportation, advertising and sale of our
products. See Business Regulatory
Matters for more information regarding many of these laws
and regulations. Violations of these laws or regulations could
damage our reputation
and/or
result in regulatory actions with substantial penalties. In
addition, any significant change in such laws or regulations or
their interpretation, or the introduction of higher standards or
more stringent laws or regulations could result in increased
compliance costs or capital expenditures. For example, changes
in recycling and bottle deposit laws or special taxes on soft
drinks or ingredients could increase our costs. Regulatory focus
on the health, safety and marketing of food products is
increasing. Certain state warning and labeling laws, such as
Californias Prop 65, which requires warnings
on any product with substances that the state
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lists as potentially causing cancer or birth defects, could
become applicable to our products. Some local and regional
governments and school boards have enacted, or have proposed to
enact, regulations restricting the sale of certain types of soft
drinks in schools. Any violations or changes of regulations
could have a material adverse effect on our profitability, or
disrupt the production or distribution of our products, and
negatively affect our business and financial performance.
We may
not be able to renew collective bargaining agreements on
satisfactory terms, or we could experience
strikes.
As of December 31, 2007, approximately 5,000 of our
employees, many of whom are at our key manufacturing locations,
were covered by collective bargaining agreements. These
agreements typically expire every three to four years at various
dates. We may not be able to renew our collective bargaining
agreements on satisfactory terms or at all. This could result in
strikes or work stoppages, which could impair our ability to
manufacture and distribute our products and result in a
substantial loss of sales. The terms of existing or renewed
agreements could also significantly increase our costs or
negatively affect our ability to increase operational efficiency.
We
could lose key personnel or may be unable to recruit qualified
personnel.
Our performance significantly depends upon the continued
contributions of our executive officers and key employees, both
individually and as a group, and our ability to retain and
motivate them. Our officers and key personnel have many years of
experience with us and in our industry and it may be difficult
to replace them. If we lose key personnel or are unable to
recruit qualified personnel, our operations and ability to
manage our business may be adversely affected. We do not have
key person life insurance for any of our executive
officers or key employees.
Benefits
cost increases could reduce our profitability.
Our profitability is substantially affected by the costs of
pension, postretirement medical and employee medical and other
benefits. In recent years, these costs have increased
significantly due to factors such as increases in health care
costs, declines in investment returns on pension assets and
changes in discount rates used to calculate pension and related
liabilities. Although we actively seek to control increases,
there can be no assurance that we will succeed in limiting
future cost increases, and continued upward pressure in these
costs could have a material adverse affect on our business and
financial performance.
We
depend on key information systems and third-party service
providers.
We depend on key information systems to accurately and
efficiently transact our business, provide information to
management and prepare financial reports. We rely on third-party
providers for a number of key information systems and business
processing services, including hosting our primary data center
and processing various accounting, order entry and other
transactional services. These systems and services are
vulnerable to interruptions or other failures resulting from,
among other things, natural disasters, terrorist attacks,
software, equipment or telecommunications failures, processing
errors, computer viruses, hackers, other security issues or
supplier defaults. Security, backup and disaster recovery
measures may not be adequate or implemented properly to avoid
such disruptions or failures. Any disruption or failure of these
systems or services could cause substantial errors, processing
inefficiencies, security breaches, inability to use the systems
or process transactions, loss of customers or other business
disruptions, all of which could negatively affect our business
and financial performance.
We may
not realize benefits of acquisitions.
We have recently acquired various bottling and distribution
businesses and are integrating their operations into our
business. We may pursue further acquisitions of independent
bottlers, distributors and distribution rights to complement our
existing capabilities and further expand the distribution of our
brands. We may also pursue acquisition of brands and products to
expand our brand portfolio. The failure to successfully
identify, make and integrate acquisitions may impede the growth
of our business. The timing or success of any acquisition and
integration is uncertain, requires significant expenses, and
diverts financial and managerial resources away from our
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existing businesses. We also may not be able to raise the
substantial capital required for acquisitions and integrations
on satisfactory terms, if at all. In addition, even after an
acquisition, we may not be able to successfully integrate an
acquired business or brand or realize the anticipated benefits
of an acquisition, all of which could have a negative effect on
our business and financial performance.
Determinations
in the future that a significant impairment of the value of our
goodwill and other indefinite lived intangible assets has
occurred could have a material adverse effect on our financial
performance.
As of December 31, 2007, we had approximately
$10.5 billion of total assets, of which approximately
$6.8 billion were intangible assets. Intangible assets
include goodwill, and other intangible assets in connection with
brands, bottler agreements, distribution rights and customer
relationships. We conduct impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. If
the carrying amount of an intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to
that excess. Our annual impairment analysis, performed as of
December 31, 2007, resulted in impairment charges of
$6 million, of which $4 million was related to the
Accelerade brand. For additional information about these
intangible assets, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies
Goodwill and Other Indefinite Lived Intangible Assets and
our audited combined financial statements included elsewhere in
this prospectus.
The impairment tests require us to make an estimate of the fair
value of intangible assets. Since a number of factors may
influence determinations of fair value of intangible assets,
including those set forth in this discussion of Risk
Factors and in Special Note Regarding
Forward-Looking Statements, we are unable to predict
whether impairments of goodwill or other indefinite lived
intangibles will occur in the future. Any such impairment would
result in us recognizing a charge to our operating results,
which may adversely affect our financial performance.
We
have a significant amount of outstanding debt, which could
adversely affect our business and our ability to meet our
obligations.
As of September 30, 2008 our total indebtedness was
$3,624 million. This significant amount of debt could have
important consequences to us and our investors, including:
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requiring a substantial portion of our cash flow from operations
to make interest payments on this debt;
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making it more difficult to satisfy debt service and other
obligations;
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increasing the risk of a future credit ratings downgrade of our
debt, which could increase future debt costs;
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increasing our vulnerability to general adverse economic and
industry conditions;
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reducing the cash flow available to fund capital expenditures
and other corporate purposes and to grow our business;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry;
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placing us at a competitive disadvantage to our competitors that
may not be as highly leveraged with debt as we are; and
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limiting our ability to borrow additional funds as needed or
take advantage of business opportunities as they arise, pay cash
dividends or repurchase common stock.
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To the extent we become more leveraged, the risks described
above would increase. In addition, our actual cash requirements
in the future may be greater than expected. Our cash flow from
operations may not be sufficient to repay at maturity all of the
outstanding debt as it becomes due, and we may not be able to
borrow money, sell assets or otherwise raise funds on acceptable
terms, or at all, to refinance our debt.
In addition, the credit agreement governing the debt that we
entered into in connection with the separation contains
covenants that, among other things, limit our ability to incur
debt at subsidiaries that are not guarantors,
14
incur liens, merge or sell, transfer or otherwise dispose of all
or substantially all of our assets, make investments, loans,
advances, guarantees and acquisitions, enter into transactions
with affiliates and enter into agreements restricting our
ability to incur liens or the ability of our subsidiaries to
make distributions. The agreement also requires us to comply
with certain affirmative and financial covenants. For additional
information about our credit agreement, see Description of
Other Indebtedness.
Our
financial results may be negatively impacted by the recent
global financial events.
The recent global financial events have resulted in the
consolidation, failure or near failure of a number of
institutions in the banking, insurance and investment banking
industries and have substantially reduced the ability of
companies to obtain financing. These events have also caused a
substantial reduction in the stock market. These events could
have a number of different effects on our business, including:
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reduction in consumer spending, which would result in a
reduction in our sales volume;
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a negative impact on the ability of our customers to timely pay
their obligations to us or our vendors to timely supply
materials, thus reducing our cash flow;
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an increase in counterparty risk;
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an increased likelihood that one or more of our banking
syndicate may be unable to honor its commitments under our
revolving credit facility;
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restricted access to capital markets that may limit our ability
to take advantage of business opportunities, such as
acquisitions.
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Other events or conditions may arise directly or indirectly from
the global financial events that could negatively impact our
business.
Risks
Related to Our Separation from and Relationship with
Cadbury
We may
not realize the benefits we anticipated from the
separation.
We may not realize the benefits that we anticipated from our
separation from Cadbury. These benefits include the following:
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allowing our management to focus its efforts on our business and
strategic priorities,
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enabling us to allocate our capital more efficiently,
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providing us with direct access to the debt and equity capital
markets,
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improving our ability to pursue acquisitions through the use of
shares of our common stock as consideration,
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enhancing our market recognition with investors, and
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increasing our ability to attract and retain employees by
providing equity compensation tied to our business.
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We may not achieve the anticipated benefits from our separation
for a variety of reasons. For example, the process of operating
as a newly independent public company may distract our
management from focusing on our business and strategic
priorities. Although as an independent public company we are now
able to control how we allocate our capital, we may not succeed
in allocating our capital in ways that benefit our business. In
addition, although we now have direct access to the debt and
equity capital markets following the separation, we may not be
able to issue debt or equity on terms acceptable to us or at
all. The availability of shares of our common stock for use as
consideration for acquisitions also will not ensure that we will
be able to successfully pursue acquisitions or that the
acquisitions will be successful. Moreover, even with equity
compensation tied to our business we may not be able to attract
and retain employees as desired. We also may not realize the
anticipated benefits from our separation if any of the matters
identified as risks in this Risk Factors section were to occur.
If we do not realize the anticipated benefits from our
separation for any reason, our business may be adversely
affected.
15
Our
historical financial performance may not be representative of
our financial performance as a separate, stand-alone
company.
The historical financial information for periods prior to
May 7, 2008, the date we completed our separation from
Cadbury, included in this prospectus has been derived from
Cadburys consolidated financial statements and does not
reflect what our financial condition, results of operations or
cash flows would have been had we operated as a separate,
stand-alone company during those periods. Cadbury historically
provided certain corporate functions to us and costs associated
with these functions have been allocated to us. These functions
included corporate communications, regulatory, human resources
and benefits management, treasury, investor relations, corporate
controller, internal audit, Sarbanes-Oxley compliance,
information technology, corporate legal and compliance, and
community affairs. The total amount of these allocations from
Cadbury was approximately $161 million in 2007. All of
these allocations were based on what we and Cadbury considered
to be reasonable reflections of the historical levels of the
services and support provided to our business. The historical
information does not necessarily indicate what our results of
operations, financial condition, cash flows or costs and
expenses will be going forward as an independent
publicly-traded, stand-alone company.
We had significant changes in our capital structure in
connection with our separation from Cadbury. We borrowed an
aggregate of $3.9 billion under our debt agreements in
connection with the separation. For additional information see
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
We may
experience increased costs resulting from a decrease in the
purchasing power and other operational efficiencies we
historically had due to our association with
Cadbury.
Prior to the separation, we were able to take advantage of
Cadburys purchasing power in technology and services,
including information technology, media purchasing, insurance,
treasury services, property support and, to a lesser extent, the
procurement of goods. As a smaller separate, stand-alone
company, it may be more difficult for us to obtain goods,
technology and services at prices and on terms as favorable as
those available to us prior to the separation.
Prior to the separation, we entered into agreements with Cadbury
under which Cadbury will provide some of these services to us on
a transitional basis, for which we will pay Cadbury. These
services may not be sufficient to meet our needs and, after
these agreements with Cadbury end, we may not be able to replace
these services at all or obtain these services at acceptable
prices and terms.
Our
ability to operate our business effectively may suffer if we do
not cost effectively establish our own financial, administrative
and other support functions to operate as a stand-alone
company.
Prior to the separation, we relied on certain financial,
administrative and other support functions of Cadbury to operate
our business. With our separation from Cadbury, we are enhancing
our own financial, administrative and other support systems. We
have also established our own accounting and auditing policies.
Any failure in our own financial or administrative policies and
systems could impact our financial performance and could
materially harm our business and financial performance.
The
obligations associated with being a public company will require
significant resources and management attention.
In connection with the separation from Cadbury and the
distribution of our common stock, we became subject to the
reporting requirements of the U.S. Securities Exchange Act
of 1934, as amended (the Exchange Act), and the
Sarbanes-Oxley Act of 2002 and we are required to prepare our
financial statements according to accounting principles
generally accepted in the United States
(U.S. GAAP) which differs from our historical
method of preparing financials, which was generally pursuant to
IFRS. In addition, the Exchange Act requires that we file
annual, quarterly and current reports. Our failure to prepare
and disclose this information in a timely manner could subject
us to penalties under federal securities laws, expose us to
lawsuits and restrict our ability to access financing. The
Sarbanes-Oxley Act requires that we, among other things,
establish and maintain effective internal controls and
procedures for financial reporting and we are presently
evaluating our existing internal controls in light of the
standards adopted by the Public Company Accounting Oversight
Board. During the course of our evaluation, we
16
may identify areas requiring improvement and may be required to
design enhanced processes and controls to address issues
identified through this review. This could result in significant
cost to us and require us to divert substantial resources,
including management time, from other activities.
Section 404 of the Sarbanes-Oxley Act requires annual
management assessments of the effectiveness of our internal
control over financial reporting, starting with our 2009 annual
report that we will file with the SEC in 2010. In preparation
for this, we may identify deficiencies that we may not be able
to remediate in time to meet the deadline for compliance with
the requirements of Section 404. Our failure to satisfy the
requirements of Section 404 on a timely basis could result
in the loss of investor confidence in the reliability of our
financial statements, which in turn could have a material
adverse effect on our business and our common stock.
We and
Cadbury could have significant indemnification obligations to
each other with respect to tax liabilities.
Upon separation, we entered into a tax-sharing and
indemnification agreement with Cadbury that sets forth the
rights and obligations of Cadbury and us (along with our
respective subsidiaries) with respect to taxes and, in general,
provides that we and Cadbury each will be responsible for taxes
imposed on our respective businesses and subsidiaries for all
taxable periods, whether ending on, before or after the date of
the separation and distribution.
Cadbury has, subject to certain conditions, agreed to indemnify
us for income taxes that are attributable to certain
restructuring transactions undertaken in connection with the
separation and distribution and various other transactions
between Cadbury and us that were entered into in prior taxable
periods. Such potential tax liabilities could be for significant
amounts. Notwithstanding these tax indemnification obligations
of Cadbury, if the treatment of these transactions were
successfully challenged by a taxing authority, we generally
would be required under applicable tax law to pay the resulting
tax liabilities in the event that either (1) Cadbury were
to default on their obligations to us, (2) we breached
certain covenants or other obligations or (3) we are
involved in certain
change-in-control
transactions including certain acquisitions of our stock
representing more than 35% of the voting power represented by
our issued and outstanding stock. Thus, since we have primary
liability for income taxes in respect of these transactions, if
Cadbury fails to, is not required to or cannot indemnify or
reimburse us, our resulting tax liability could be significant
and could have a material adverse effect on our results of
operations, cash flows and financial condition.
In addition, we generally will be liable for any liabilities,
taxes or other charges that are imposed on Cadbury, including as
a result of the separation and distribution failing to qualify
for non-recognition treatment for U.S. federal income tax
purposes, if such failure is the result of a breach by us of
certain of our representations or covenants, including, for
example, our failure to continue the active conduct of the
historic business relied upon for purposes of the private letter
ruling issued by the IRS and taking any action inconsistent with
the written statements and representations furnished to the IRS
in connection with the private letter ruling request. The
parties could have significant indemnification obligations to
each other with respect to tax liabilities.
Risks
Related to the Exchange Notes and the Exchange Offer
We are
a holding company and our ability to make payments on our
outstanding indebtedness, including the exchange notes, is
dependent upon the receipt of funds from our subsidiaries by way
of dividends, fees, interests, loans or otherwise.
The exchange notes are obligations of Dr Pepper Snapple Group,
Inc., which is a holding company with no material assets, other
than the stock of its subsidiaries. All of Dr Pepper Snapple
Group, Inc.s revenue and cash flow is generated through
its subsidiaries. Accordingly, Dr Pepper Snapple Group,
Inc.s ability to make payments on its indebtedness,
including the exchange notes offered hereby, and to fund its
other obligations is dependent not only on the ability of its
subsidiaries to generate cash, but also on the ability of its
subsidiaries to distribute cash to it in the form of dividends,
fees, interest, loans or otherwise. Although certain
subsidiaries will guarantee Dr Pepper Snapple Group, Inc.s
payment obligations on the notes, these guarantees may be
released under certain circumstances. See The
exchange notes are effectively subordinated to the indebtedness
of our subsidiaries that are not guaranteeing such notes
and Description of the Exchange Notes
Guarantees.
17
The
exchange notes are effectively subordinated to the indebtedness
of our subsidiaries that are not guaranteeing such
notes.
Only certain of our subsidiaries will guarantee our payment
obligations on the exchange notes. Our and our subsidiary
guarantors right to participate in any distribution of
assets of any non-guarantor subsidiary upon that
subsidiarys dissolution,
winding-up,
liquidation, reorganization or otherwise is subject to the prior
claims of the creditors of that subsidiary, except to the extent
that we or a subsidiary guarantor is a creditor of the
subsidiary and we or such subsidiary guarantors claims are
recognized. Therefore, the exchange notes will be effectively
subordinated to all indebtedness and other obligations of our
non-guarantor subsidiaries. Our non-guarantor subsidiaries are
separate legal entities and have no obligations to pay any
amounts due on the notes. For the nine months ended
September 30, 2008, and the years ended December 31,
2007 and 2006, respectively, our non-guarantor subsidiaries
accounted for $463 million, $575 million and
$534 million of net sales, and $118 million,
$126 million and $125 million of income from
operations. As of September 30, 2008, and December 31,
2007 and 2006, respectively, the total liabilities of our
non-guarantor subsidiaries were approximately $118 million,
$153 million and $670 million, and the total assets of
such subsidiaries were approximately $564 million,
$590 million and $468 million.
In addition, the obligation of the subsidiary guarantors to
guarantee payment of the exchange notes will be released and
discharged automatically and unconditionally upon release of the
subsidiary guarantors guarantees of all other indebtedness
of ours (unless we notify the trustee under the indenture that
no release and discharge shall occur as a result thereof). See
Description of the Exchange Notes
Guarantees. If the exchange notes are not guaranteed by
any of our subsidiaries, then such notes will be effectively
subordinated to all indebtedness and other obligations of all of
our subsidiaries. The indenture governing the exchange notes
does not limit the ability of our subsidiaries to incur
additional indebtedness.
The
exchange notes are not secured by any of our assets and any
secured creditors would have a prior claim on our
assets.
The exchange notes are not secured by any of our assets. The
terms of the indenture permit us to incur a certain amount of
secured indebtedness without equally and ratably securing the
exchange notes. If we become insolvent or are liquidated, or if
payment under any of the agreements governing any secured debt
is accelerated, the lenders under our secured debt agreements
will be entitled to exercise the remedies available to a secured
lender. Accordingly, the lenders will have a prior claim on our
assets to the extent of their liens, and it is possible that
there will be insufficient assets remaining from which claims of
the holders of the exchange notes can be satisfied. As of
September 30, 2008, our total secured indebtedness was
approximately $19 million.
Negative
covenants in the indenture offer only limited protection to
holders of the exchange notes.
The indenture governing the exchange notes will contain negative
covenants that apply to us and our subsidiaries. However, the
indenture does not:
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require us to maintain any financial ratios or specific levels
of net worth, revenues, income, cash flows or liquidity and,
accordingly does not protect holders of the exchange notes in
the event that we experience significant adverse changes in our
financial condition or results of operations;
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limit our ability to incur indebtedness that is equal in right
of payment to the exchange notes;
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restrict our ability to repurchase or prepay our
securities; or
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restrict our ability to make investments or to repurchase or pay
dividends or make other payments in respect of our common stock
or other securities ranking junior to the exchange notes.
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In addition, the limitation on secured indebtedness covenant in
the indenture contains exceptions that will allow us and our
subsidiaries to create, grant or incur liens or security
interests to secure a certain amount of indebtedness and a
variety of other obligations without equally and ratably
securing the exchange notes. See Description of the
Exchange Notes for a description of this covenant and
related definitions. In light of these exceptions, holders of
the exchange notes may be structurally subordinated to new
lenders.
18
Changes
in our credit ratings may adversely affect the value of the
exchange notes.
The exchange notes are rated Baa3 with a stable outlook from
Moodys Investor Service (Moodys) and
BBB- with a negative outlook from Standard &
Poors (Standard & Poors). Such
ratings could be lowered, suspended or withdrawn entirely by the
rating agencies, if, in each rating agencys judgment,
circumstances warrant. Notwithstanding that the terms of the
exchange notes include a
step-up in
interest payable following certain ratings downgrades, actual or
anticipated changes or downgrades in our credit ratings,
including any announcement that our ratings are under further
review for a downgrade, could affect the market value of the
exchange notes. In addition, a
step-up in
interest payable on each series of exchange notes will
permanently cease to apply if the notes of that series become
rated A3 or higher by Moodys (or any substitute rating
agency) or A- or higher by Standard & Poors (or
any substitute rating agency). If our ratings are lowered while
the interest
step-up
provisions are in effect, our interest expense will increase.
Federal
and state laws regarding fraudulent conveyance allow courts,
under specific circumstances, to void debts, including
guarantees, and would require holders of the exchange notes to
return payments received from us or the subsidiary
guarantors.
The exchange notes will be guaranteed by certain of our
subsidiaries. If a bankruptcy proceeding or lawsuit were to be
initiated by unpaid creditors, the exchange notes and the
subsidiary guarantees of such notes could come under review for
federal or state fraudulent transfer violations. Under federal
bankruptcy law and comparable provisions of state fraudulent
transfer laws, obligations under a note or a guaranty could be
voided, or claims in respect of a note or a guaranty could be
subordinated to all other debts of the company or guarantor if,
among other things, the company or guarantor at the time it
incurred the indebtedness evidenced by its note or guaranty:
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received less than reasonably equivalent value or fair
consideration for the incurrence of the debt or
guarantee; and
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one of the following applies:
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it was insolvent or rendered insolvent by reason of such
incurrence;
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it was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
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it intended to incur, or believed that it would incur, debts
beyond its ability to pay debts as they mature.
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In addition, any payment by the company or guarantor under its
note or guarantee could be voided and required to be returned to
the company or guarantor, as the case may be, or to a fund for
the benefit of the creditors of the debtor or guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, the company or a guarantor would
be considered insolvent if:
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the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets;
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the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
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it could not pay its debts as they become due.
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We may
not have the ability to raise the funds necessary to finance the
offer to redeem the exchange notes upon a Change of Control
Triggering Event.
Upon the occurrence of a Change of Control Triggering Event, we
will be required to offer to repurchase all outstanding exchange
notes. We cannot assure you that we will have sufficient funds
available to make any required repurchases of the exchange notes
upon a Change of Control Triggering Event. Any failure to
purchase tendered
19
notes would constitute a default under the indenture governing
the exchange notes, which, in turn, would constitute a default
under our senior credit facilities. A default could result in
the declaration of the principal and interest on all the
exchange notes and our indebtedness outstanding under the senior
credit facilities to be due and payable. The term Change
of Control Triggering Event is defined under
Description of the Exchange Notes.
If you
do not properly tender your unregistered notes, your ability to
transfer such outstanding notes will be adversely
affected.
We will only issue exchange notes in exchange for unregistered
notes that are timely received by the exchange agent, together
with all required documents, including a properly completed and
signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the unregistered
notes and you should carefully follow the instructions on how to
tender your unregistered notes. None of us, the subsidiary
guarantors or the exchange agent are required to tell you of any
defects or irregularities with respect to your tender of the
unregistered notes. If you do not tender your unregistered notes
or if your tender of unregistered notes is not accepted because
you did not tender your unregistered notes properly, then, after
consummation of the exchange offer, you will continue to hold
unregistered notes that are subject to the existing transfer
restrictions. After the exchange offer is consummated, if you
continue to hold any unregistered notes, you may have difficulty
selling them because there will be fewer unregistered notes
remaining and the market for such unregistered notes, if any,
will be much more limited than it is currently. In particular,
the trading market for unexchanged unregistered notes could
become more limited than the existing trading market for the
unregistered notes and could cease to exist altogether due to
the reduction in the amount of the unregistered notes remaining
upon consummation of the exchange offer. A more limited trading
market might adversely affect the liquidity, market price and
price volatility of such untendered unregistered notes.
If you
are a broker-dealer or participating in a distribution of the
exchange notes, you may be required to deliver prospectuses and
comply with other requirements.
If you tender your unregistered notes for the purpose of
participating in a distribution of the exchange notes, you will
be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any resale of the exchange notes. If you are a broker-dealer
that receives exchange notes for your own account in exchange
for unregistered notes that you acquired as a result of
market-making activities or any other trading activities, you
will be required to acknowledge that you will deliver a
prospectus in connection with any resale of such exchange notes.
You
may be unable to sell your exchange notes if a trading market
for the exchange notes does not develop.
There are no existing markets for the exchange notes and we do
not intend to apply for listing of the exchange notes on any
securities exchange or any automated quotation system.
Accordingly, trading markets for the exchange notes may not
develop and any markets that do develop may not provide
sufficient liquidity for the holders to sell their notes at
attractive prices, or at all. Future trading prices of the
exchange notes will depend on many factors, including prevailing
interest rates, our financial condition and results of
operations, the then-current ratings assigned to the exchange
notes and the market for similar securities. Any trading markets
that develop would be affected by many factors independent of
and in addition to the foregoing, including:
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time remaining to the maturity of the exchange notes;
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outstanding amount of such notes;
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terms related to optional redemption of such notes; and
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level, direction and volatility of market interest rates
generally.
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20
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of consolidated
earnings to consolidated fixed charges for the nine months ended
September 30, 2008 and the four fiscal years 2007, 2006,
2005 and 2004.
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For the
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Nine Months
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Ended September 30,
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For the Fiscal Years
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2008
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2007
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2006
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2005
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2004
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Ratio of earnings to fixed charges
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3.3
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4.0
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3.9
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4.6
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4.7
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USE OF
PROCEEDS
The exchange offer is intended to satisfy our obligations under
the registration rights agreement. We will not receive any cash
proceeds from the issuance of the exchange notes pursuant to the
exchange offer. In consideration for issuing the exchange notes
as contemplated in this prospectus, we will receive a like
principal amount of the unregistered notes, the terms of which
are identical in all material respects to the exchange notes,
except as otherwise noted in this prospectus. We will retire and
cancel all of the unregistered notes tendered in the exchange
offer. Accordingly, the issuance of the exchange notes will not
result in any change in our indebtedness or capitalization.
21
CAPITALIZATION
The following table sets forth our cash and cash equivalents,
short-term debt, long-term debt, capital lease obligations (less
the current portion), stockholders equity and total
capitalization as of September 30, 2008. This table should
be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and our audited and unaudited financial
statements and the related notes thereto included elsewhere in
this prospectus.
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September 30,
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2008
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(Unaudited,
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in millions)
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Cash and cash equivalents
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$
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239
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Debt:
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Short-term debt:
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Current portion of senior unsecured debt
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$
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35
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Current capital lease obligations
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2
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Long-term debt (excluding current maturities):
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Senior unsecured term loan A facility
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1,870
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6.12% senior notes due 2013
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250
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6.82% senior notes due 2018
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1,200
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7.45% senior notes due 2038
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250
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Long-term capital lease obligations
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17
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Total debt
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3,624
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Stockholders equity:
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Preferred stock, $.01 par value, 15,000,000 shares
authorized, no shares issued
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Common stock, $.01 par value, 800,000,000 shares
authorized, 253,685,733 shares issued and outstanding for
2008 and no shares issued for 2007
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3
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Additional paid-in capital
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3,163
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Retained earnings
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191
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Accumulated other comprehensive (loss) income
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(27
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)
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Total stockholders equity
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3,330
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Total capitalization
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$
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6,954
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22
SELECTED
HISTORICAL FINANCIAL DATA
The following table presents our selected historical financial
data. Our selected historical data presented below as of and for
the nine months ended September 30, 2008 and 2007 have been
derived from our unaudited condensed consolidated financial
statements, included elsewhere in this prospectus. Our selected
historical financial data presented below as of
December 31, 2007 and 2006 and for the three fiscal years
2007, 2006 and 2005 have been derived from our audited combined
financial statements, included elsewhere in this prospectus. Our
selected historical balance sheet data as of January 1,
2006 (the last day of fiscal 2005) and our selected
historical financial data as of and for the fiscal year ended
January 2, 2005 (the last day of fiscal
2004) presented below have been derived from our accounting
records, which are unaudited.
For periods prior to May 7, 2008, our financial data have
been prepared on a carve-out basis from
Cadburys consolidated financial statements using the
historical results of operations, assets and liabilities
attributable to Cadburys Americas Beverages business and
including allocations of expenses from Cadbury. The historical
Cadburys Americas Beverages information is our predecessor
financial information. The results included below and elsewhere
in this document are not necessarily indicative of our future
performance and do not reflect our financial performance had we
been an independent, publicly-traded company during the periods
prior to May 7, 2008. You should read this information
along with the information included in Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our audited and unaudited financial
statements and the related notes thereto included elsewhere in
this prospectus.
On May 2, 2006, we acquired approximately 55% of the
outstanding shares of DPSUBG, which combined with our
pre-existing 45% ownership, resulted in our full ownership of
DPSUBG. DPSUBGs results have been included in the
individual line items within our combined financial statements
beginning on May 2, 2006. Prior to this date, the existing
investment in DPSUBG was accounted for under the equity method
and reflected in the line item captioned equity in
earnings of unconsolidated subsidiaries, net of tax. In
addition, on June 9, 2006 we acquired the assets of All
American Bottling Company, on August 7, 2006 we acquired
Seven Up Bottling Company of San Francisco and on
July 11, 2007 we acquired SeaBev. Each of these four
acquisitions is included in our combined financial statements
beginning on its date of acquisition. As a result, our financial
data is not necessarily comparable on a period-to-period basis.
Our financial data for 2003 has been omitted from this
prospectus because it is not available without unreasonable
effort and expense. We believe the omission of the financial
data for the year ended December 31, 2003 does not have a
material impact on the understanding of our financial
performance and related trends.
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Nine
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Months Ended
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September 30,
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Fiscal Year
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2008
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2007
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2007
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2006
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2005
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2004
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(Unaudited)
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(In millions, except per share data)
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Statements of Operations Data:
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Net sales
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$
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4,369
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$
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4,347
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$
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5,748
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$
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4,735
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$
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3,205
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$
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3,065
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Cost of sales
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2,003
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1,984
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2,617
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1,994
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1,120
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1,051
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Gross profit
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2,366
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2,363
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3,131
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2,741
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2,085
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2,014
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Selling, general and administrative expenses
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1,586
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1,527
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2,018
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1,659
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1,179
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1,135
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Depreciation and amortization
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84
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69
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98
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69
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26
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10
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Impairment of intangible assets
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6
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Restructuring costs
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31
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|
|
|
36
|
|
|
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76
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|
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27
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|
|
10
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36
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Gain on disposal of property and intangible assets, net
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(3
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)
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(71
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)
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|
(32
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)
|
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|
(36
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)
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|
(1
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)
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|
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Income from operations
|
|
|
668
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|
|
|
731
|
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
|
|
834
|
|
Interest expense
|
|
|
199
|
|
|
|
195
|
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
Interest income
|
|
|
(30
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)
|
|
|
(38
|
)
|
|
|
(64
|
)
|
|
|
(46
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)
|
|
|
(40
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)
|
|
|
(48
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)
|
Other (income) expense
|
|
|
(8
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)
|
|
|
(2
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)
|
|
|
(2
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)
|
|
|
2
|
|
|
|
(51
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)
|
|
|
2
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|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
|
|
|
|
Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
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|
2004
|
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|
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(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
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(In millions, except per share data)
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Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
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|
507
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|
576
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|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
|
|
703
|
|
Provision for income taxes
|
|
|
199
|
|
|
|
218
|
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
308
|
|
|
|
358
|
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
|
|
433
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
309
|
|
|
|
359
|
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
|
|
446
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
359
|
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share(1)
|
|
$
|
1.21
|
|
|
$
|
1.42
|
|
|
$
|
1.96
|
|
|
$
|
2.01
|
|
|
$
|
1.88
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
239
|
|
|
$
|
34
|
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
19
|
|
Total assets
|
|
|
9,822
|
|
|
|
10,896
|
|
|
|
10,528
|
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
7,625
|
|
Current portion of long-term debt
|
|
|
35
|
|
|
|
258
|
|
|
|
126
|
|
|
|
708
|
|
|
|
404
|
|
|
|
435
|
|
Long-term debt
|
|
|
3,587
|
|
|
|
2,969
|
|
|
|
2,912
|
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
3,468
|
|
Other non-current liabilities
|
|
|
2,002
|
|
|
|
1,381
|
|
|
|
1,460
|
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
943
|
|
Total invested equity
|
|
|
3,330
|
|
|
|
4,992
|
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
2,106
|
|
Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities(2)
|
|
$
|
523
|
|
|
$
|
706
|
|
|
$
|
603
|
|
|
$
|
581
|
|
|
$
|
583
|
|
|
$
|
610
|
|
Investing activities
|
|
|
1,175
|
|
|
|
(1,450
|
)
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
184
|
|
Financing activities(2)
|
|
|
(1,523
|
)
|
|
|
742
|
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
(799
|
)
|
Depreciation expense(3)
|
|
|
102
|
|
|
|
89
|
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
Amortization expense(3)
|
|
|
44
|
|
|
|
38
|
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
Capital expenditures
|
|
|
(203
|
)
|
|
|
(123
|
)
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
|
|
|
(1) |
|
Earnings per share (EPS) are computed by dividing
net income by the weighted average number of common shares
outstanding for the period. For all periods prior to May 7,
2008, the number of basic shares used is the number of shares
outstanding on May 7, 2008, as no common stock of DPS was
traded prior to May 7, 2008 and no DPS equity awards were
outstanding for the prior periods. Subsequent to May 7,
2008, the number of basic shares includes the
512,580 shares related to former Cadbury Schweppes benefit
plans converted to DPS shares on a daily volume weighted average. |
|
(2) |
|
The cash provided by operating and financing activities for the
nine months ended September 30, 2007, reflect the effects
of the restatement to cash flows, as more fully described in
Note 19 to our unaudited condensed consolidated financial
statements. |
|
(3) |
|
The depreciation and amortization expenses reflected in this
section of the table represent our total depreciation and
amortization expenses as reflected on our combined statements of
cash flows. Depreciation and amortization expenses in our
combined statements of operations data are reflected in various
line items including depreciation and amortization
and cost of sales. |
24
SELECTED
HISTORICAL QUARTERLY FINANCIAL DATA
The following table sets forth our selected historical quarterly
financial data. We derived this data from our unaudited
consolidated financial statements.
For periods prior to May 7, 2008, our financial data has
been prepared on a carve-out basis from
Cadburys consolidated financial statements using the
historical results of operations, assets and liabilities
attributable to Cadburys Americas Beverages business and
including allocations of expenses from Cadbury. The historical
Cadburys Americas Beverages information is our predecessor
financial information. The results included below and elsewhere
in this document are not necessarily indicative of our future
performance and do not reflect our financial performance had we
been an independent, publicly-traded company during the periods
prior to May 7, 2008. You should read this information
along with the information included in Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our audited and unaudited financial
statements and the related notes thereto included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
For the Year Ended December 31,
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(Unaudited, in millions, except per share data)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
1,269
|
|
|
$
|
1,543
|
|
|
$
|
1,535
|
|
|
$
|
1,401
|
|
Gross profit
|
|
|
697
|
|
|
|
850
|
|
|
|
816
|
|
|
|
768
|
|
Net income
|
|
|
69
|
|
|
|
136
|
|
|
|
154
|
|
|
|
138
|
|
Basic earnings per common share(1)
|
|
$
|
0.27
|
|
|
$
|
0.54
|
|
|
$
|
0.61
|
|
|
$
|
0.54
|
|
Diluted earnings per common share(1)
|
|
$
|
0.27
|
|
|
$
|
0.54
|
|
|
$
|
0.61
|
|
|
$
|
0.54
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
698
|
|
|
$
|
1,282
|
|
|
$
|
1,400
|
|
|
$
|
1,355
|
|
Gross profit
|
|
|
476
|
|
|
|
721
|
|
|
|
784
|
|
|
|
760
|
|
Net income
|
|
|
98
|
|
|
|
141
|
|
|
|
120
|
|
|
|
151
|
|
Basic earnings per common share(1)
|
|
$
|
0.39
|
|
|
$
|
0.55
|
|
|
$
|
0.47
|
|
|
$
|
0.60
|
|
Diluted earnings per common share(1)
|
|
$
|
0.39
|
|
|
$
|
0.55
|
|
|
$
|
0.47
|
|
|
$
|
0.60
|
|
|
|
|
(1) |
|
In connection with the separation from Cadbury on May 7,
2008, DPS distributed to Cadbury shareholders the common stock
of DPS. On the date of the distribution 253.7 million
shares of common stock were issued. As a result, on May 7,
2008, the Company had 253.7 million shares of common stock
outstanding and this share amount is being utilized for the
calculation of basic earnings per common share for all periods
presented prior to the date of the distribution. The same number
of shares is being used for diluted earnings per common share as
for basic earnings per common share as no common stock of DPS
was traded prior to May 7, 2008, and no DPS equity awards
were outstanding for the prior periods. |
25
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with
our audited and unaudited financial statements and the related
notes thereto included elsewhere in this prospectus. This
discussion contains forward-looking statements that are based on
managements current expectations, estimates and
projections about our business and operations. Our actual
results may differ materially from those currently anticipated
and expressed in such forward-looking statements as a result of
various factors including the factors we describe under
Risk Factors, Special Note Regarding
Forward-Looking Statements, and elsewhere in this
prospectus.
The periods presented in this section are the nine months
ended September 30, 2008 and 2007, the 52-week periods
ended December 31, 2007 and 2006, which we refer to as
2007 and 2006, respectively, and the
52-week period ended January 1, 2006, which we refer to as
2005. Effective 2006, our fiscal year ends on
December 31 of each year. In 2005, the year end date represented
the Sunday closest to December 31.
Formation
of the Company and Separation from Cadbury
On May 7, 2008, Cadbury separated its Americas Beverages
business from its global confectionery business by contributing
the subsidiaries that operated its Americas Beverages business
to us. In return for the transfer of the Americas Beverages
business, we distributed our common stock to Cadbury plc
shareholders. As of the date of distribution, a total of
800 million shares of our common stock, par value $0.01 per
share, and 15 million shares of our preferred stock, all of
which are undesignated, were authorized. On the date of
distribution, 253.7 million shares of our common stock were
issued and outstanding and no shares of preferred stock were
issued. On May 7, 2008, we became an independent
publicly-traded company listed on the New York Stock Exchange
under the symbol DPS.
In connection with the separation, we entered into a Separation
and Distribution Agreement, Transition Services Agreement, Tax
Sharing and Indemnification Agreement (Tax Indemnity
Agreement) and Employee Matters Agreement with Cadbury,
each dated as of May 1, 2008.
Accounting
for the Separation from Cadbury
Settlement
of Related Party Balances
Upon our separation from Cadbury, we settled debt and other
balances with Cadbury, eliminated Cadburys net investment
in us and purchased certain assets from Cadbury related to our
business. As of September 30, 2008, we had receivable and
payable balances with Cadbury pursuant to the Separation and
Distribution Agreement, Transition Services Agreement, Tax
Indemnity Agreement and Employee Matters Agreement. See
Note 7 to our unaudited condensed consolidated financial
statements for additional information.
The following debt and other balances were settled with Cadbury
upon separation (in millions):
|
|
|
|
|
Related party receivable
|
|
$
|
11
|
|
Notes receivable from related parties
|
|
|
1,375
|
|
Related party payable
|
|
|
(70
|
)
|
Current portion of the long-term debt payable to related parties
|
|
|
(140
|
)
|
Long-term debt payable to related parties
|
|
|
(2,909
|
)
|
|
|
|
|
|
Net cash settlement of related party balances
|
|
$
|
(1,733
|
)
|
|
|
|
|
|
26
Items Impacting
the Statement of Operations
The following transactions related to our separation from
Cadbury were included in the statement of operations for the
nine months ended September 30, 2008 (in millions):
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008
|
|
|
Transaction costs and other one time separation costs(1)
|
|
$
|
29
|
|
Costs associated with the bridge loan facility(2)
|
|
$
|
24
|
|
Incremental tax expense related to separation, excluding
indemnified taxes
|
|
$
|
11
|
|
|
|
|
(1) |
|
We incurred transaction costs and other one time separation
costs of $29 million for the nine months ended
September 30, 2008. These costs are included in selling,
general and administrative expenses in the statement of
operations. We expect our results of operations for the
remainder of 2008 to include transaction costs and other one
time separation costs of approximately $6 million. |
|
(2) |
|
We incurred $24 million of costs associated with the
$1.7 billion bridge loan facility which was entered into to
reduce financing risks and facilitate Cadburys separation
of us. Financing fees of $21 million were expensed when the
bridge loan facility was terminated on April 30, 2008, and
$5 million of interest expense was included as a component
of interest expense, partially offset by $2 million in
interest income while in escrow. |
Items Impacting
Income Taxes
The unaudited condensed consolidated financial statements
present the taxes of our stand alone business and contain
certain taxes transferred to us at separation in accordance with
the Tax Indemnity Agreement between us and Cadbury. This
agreement provides for the transfer to us of taxes related to an
entity that was part of Cadburys confectionery business
and therefore not part of our historical condensed consolidated
financial statements. The unaudited condensed consolidated
financial statements also reflect that the Tax Indemnity
Agreement requires Cadbury to indemnify us for these taxes.
These taxes and the associated indemnity may change over time as
estimates of the amounts change. Changes in estimates will be
reflected when facts change and those changes in estimate will
be reflected in our statement of operations at the time of the
estimate change. In addition, pursuant to the terms of the Tax
Indemnity Agreement, if we breach certain covenants or other
obligations or we are involved in certain
change-in-control
transactions, Cadbury may not be required to indemnify us for
any of these unrecognized tax benefits that are subsequently
realized.
See Note 8 to our unaudited condensed consolidated
financial statements for additional information regarding the
tax impact of the separation.
Items Impacting
Equity
In connection with our separation from Cadbury, the following
transactions were recorded as a component of Cadburys net
investment in us (in millions):
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
Distributions
|
|
|
Legal restructuring to purchase Canada operations from Cadbury
|
|
$
|
|
|
|
$
|
(894
|
)
|
Legal restructuring relating to Cadbury confectionery
operations, including debt repayment
|
|
|
|
|
|
|
(809
|
)
|
Legal restructuring relating to Mexico operations
|
|
|
|
|
|
|
(520
|
)
|
Contributions from parent
|
|
|
318
|
|
|
|
|
|
Tax reserve provided under FIN 48 as part of separation,
net of indemnity
|
|
|
|
|
|
|
(19
|
)
|
Other
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
284
|
|
|
$
|
(2,242
|
)
|
|
|
|
|
|
|
|
|
|
27
Prior to the May 7, 2008, separation date, our total
invested equity represented Cadburys interest in our
recorded assets. In connection with the distribution of our
stock to Cadbury plc shareholders on May 7, 2008,
Cadburys total invested equity was reclassified to reflect
the post-separation capital structure of $3 million par
value of outstanding common stock and contributed capital of
$3,158 million.
Overview
We are a leading integrated brand owner, bottler and distributor
of non-alcoholic beverages in the United States, Canada and
Mexico with a diverse portfolio of flavored CSDs and NCBs,
including ready-to-drink teas, juices, juice drinks and mixers.
Our brand portfolio includes popular CSD brands such as Dr
Pepper, 7UP, Sunkist, A&W, Canada Dry, Schweppes, Squirt
and Peñafiel, and NCB brands such as Snapple, Motts,
Hawaiian Punch, Clamato, Mr & Mrs T, Margaritaville
and Roses. Our largest brand, Dr Pepper, is the #2
selling flavored CSD in the United States according to
ACNielsen, which generated approximately one-third of our volume
in 2007. We have some of the most recognized beverage brands in
North America, with significant consumer awareness levels and
long histories that evoke strong emotional connections with
consumers.
We operate primarily in the United States, Mexico and Canada,
the first, second and tenth largest beverage markets,
respectively, by CSD volume, according to Beverage Digest and
Canadean. We also distribute our products in the Caribbean. In
2007, 89% of our net sales were generated in the United States,
4% in Canada and 7% in Mexico and the Caribbean.
Our
Business Model
We operate as a brand owner, a bottler and a distributor through
our four segments as follows:
|
|
|
|
|
our Beverage Concentrates segment is a brand ownership business;
|
|
|
|
our Finished Goods segment is a brand ownership and a bottling
business and, to a lesser extent, a distribution business;
|
|
|
|
our Bottling Group segment is a bottling and distribution
business; and
|
|
|
|
our Mexico and the Caribbean segment is a brand ownership and a
bottling and distribution business.
|
Our Brand Ownership Businesses. As a brand
owner, we build our brands by promoting brand awareness through
marketing, advertising and promotion, and by developing new and
innovative products and product line extensions that address
consumer preferences and needs. As the owner of the formulas and
proprietary know-how required for the preparation of beverages,
we manufacture, sell and distribute beverage concentrates and
syrups used primarily to produce CSDs and we manufacture,
bottle, sell and distribute primarily finished NCBs. Most of our
sales of beverage concentrates are to bottlers who manufacture,
bottle, sell and distribute our branded products into retail
channels. Approximately one-third of our U.S. beverage
concentrates by volume are sold to our Bottling Group, with the
balance being sold to third-party bottlers affiliated with
Coca-Cola or
PepsiCo, as well as independent bottlers. We also manufacture,
sell and distribute syrups for use in beverage fountain
dispensers to restaurants and retailers, as well as to fountain
wholesalers, who resell it to restaurants and retailers. In
addition, we distribute finished NCBs through ourselves and
through third-party distributors.
Our beverage concentrates and syrup brand ownership businesses
are characterized by relatively low capital investment, raw
materials and employee costs. Although the cost of building or
acquiring an established brand can be significant, established
brands typically do not require significant ongoing
expenditures, other than marketing, and therefore generate
relatively high margins. Our finished beverages brand ownership
business has characteristics of both of our beverage
concentrates and syrup brand ownership businesses as well as our
bottling and distribution businesses discussed below.
Our Bottling and Distribution Businesses. We
manufacture, bottle, sell and distribute finished CSDs from
concentrates and finished NCBs and products mostly from
ingredients other than concentrates. We sell and distribute
finished beverages and other products primarily into retail
channels either directly to retail shelves or to warehouses
through our large fleet of delivery trucks or through
third-party logistics providers.
28
Our bottling and distribution businesses are characterized by
relatively high capital investment, raw material, selling and
distribution costs, in each case compared to our beverage
concentrates and syrup brand ownership businesses. Our capital
costs include investing in, and maintaining, our manufacturing
and warehouse equipment and facilities. Our raw material costs
include purchasing concentrates, ingredients and packaging
materials (including cans and bottles) from a variety of
suppliers. Our selling and distribution costs include
significant costs related to operating our large fleet of
delivery trucks (including fuel) and employing a significant
number of employees to sell and deliver finished beverages and
other products to retailers. As a result of the high fixed costs
associated with these types of businesses, we are focused on
maintaining an adequate level of volumes as well as controlling
capital expenditures, raw material, selling and distribution
costs. In addition, geographic proximity to our customers is a
critical component of managing the high cost of transporting
finished beverages relative to their retail price. The
profitability of the bottling and distribution businesses is
also dependent upon our ability to sell our products into higher
margin channels. As a result of the foregoing, the margins of
our bottling and distribution businesses are significantly lower
than those of our brand ownership businesses. In light of the
largely fixed cost nature of the bottling and distribution
businesses, increases in costs, for example raw materials tied
to commodity prices, could have a significant negative impact on
the margins of our businesses.
Approximately three-fourths of our 2007 Bottling Group net sales
of branded products come from our own brands, with the remaining
from the distribution of third-party brands such as FIJI mineral
water and Big Red soda. In addition, a small portion of our
Bottling Group sales come from bottling beverages and other
products for private label owners or others for a fee (which we
refer to as co-packing).
Integrated Business Model. We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and
that this differentiation provides us with a competitive
advantage. We believe our integrated business model:
|
|
|
|
|
Strengthens our route-to-market by creating a third consolidated
bottling system, our Bottling Group, in addition to the
Coca-Cola
affiliated and PepsiCo affiliated systems. In addition, by
owning a significant portion of our bottling and distribution
network we are able to improve focus on our brands, especially
certain of our brands such as 7UP, Sunkist, A&W and
Snapple, which do not have a large presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems. Our
strengthened route-to-market following our bottling acquisitions
has enabled us to increase the market share of our brands (as
measured by volume) in many of the markets served by the
bottlers we acquired.
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Provides opportunities for net sales and profit growth through
the alignment of the economic interests of our brand ownership
and our bottling and distribution businesses. For example, we
can focus on maximizing profitability for our company as a whole
rather than focusing on profitability generated from either the
sale of concentrates or the bottling and distribution of our
products.
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Enables us to be more flexible and responsive to the changing
needs of our large retail customers, including by coordinating
sales, service, distribution, promotions and product launches.
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Allows us to more fully leverage our scale and reduce costs by
creating greater geographic manufacturing and distribution
coverage.
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Trends
Affecting our Business
According to data from Beverage Digest, in 2007, the
U.S. CSD market segment grew by 2.7% in retail sales,
despite a 2.3% decline in total CSD volume. The U.S. NCB
volume and retail sales increased by 13.2% and 14.8%,
respectively, in 2006. In addition, NCBs experienced strong
growth over the last five years with their volume share of the
overall U.S. liquid refreshment beverage market increasing
from 12.7% in 2001 to 16.3% in 2006.
We believe the key trends influencing the North American liquid
refreshment beverage market include:
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Increased health consciousness. We believe the
main beneficiaries of this trend include diet drinks,
ready-to-drink
teas, enhanced waters and bottled waters.
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Changes in lifestyle. We believe changes in
lifestyle will continue to drive increased sales of single-serve
beverages, which typically have higher margins.
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29
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Growing demographic segments in the United
States. We believe marketing and product
innovations that target fast growing population segments, such
as the Hispanic community in the United States, will drive
further market growth.
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Product and packaging innovation. We believe
brand owners and bottling companies will continue to create new
products and packages such as beverages with new ingredients and
new premium flavors, as well as innovative convenient packaging
that address changes in consumer tastes and preferences.
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Changing retailer landscape. As retailers
continue to consolidate, we believe retailers will support
consumer product companies that can provide an attractive
portfolio of products, a strong value proposition and efficient
delivery.
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Recent increases in raw material costs. The
costs of a substantial proportion of the raw materials used in
the beverage industry are dependent on commodity prices for
aluminum, natural gas, resins, corn, pulp and other commodities.
Commodity prices have risen from their historical levels and
this has exerted pressure on industry margins.
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Seasonality
The beverage market is subject to some seasonal variations. Our
beverage sales are generally higher during the warmer months and
also can be influenced by the timing of holidays and religious
festivals as well as weather fluctuations.
Significant
Acquisitions
Our Bottling Group was created through the acquisition of
several bottling businesses. On May 2, 2006, we acquired
approximately 55% of the outstanding shares of DPSUBG, which
combined with our pre-existing 45% ownership, resulted in our
full ownership of DPSUBG. The purchase price consisted of
$370 million in cash and we assumed debt of
$651 million in connection with this acquisition.
DPSUBGs results have been included in the individual line
items within our combined financial statements beginning on
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for under the equity method and reflected
in the line item captioned equity in earnings of
unconsolidated subsidiaries, net of tax in our combined
statements of operations.
On June 9, 2006, we acquired the assets of All American
Bottling Company for $58 million, and on August 7,
2006, we acquired Seven Up Bottling Company of
San Francisco for $51 million. On July 11, 2007,
we acquired SeaBev for approximately $53 million. Each of
these acquisitions is included in our combined statements of
operations beginning on its date of acquisition.
We refer to the foregoing four acquisitions as our
bottling acquisitions, and they are reported in our
combined financial statements collectively as our Bottling Group
segment. We previously have referred to our Bottling Group
segment as the Cadbury Schweppes Bottling Group. These bottling
acquisitions have had an impact on our results of operations and
therefore impact the comparability of our pre- and
post-acquisition period results.
Our
Separation from Cadbury
On May 7, 2008, we completed our separation from Cadbury.
Upon the separation, we became the owner of the Americas
Beverages business previously owned by Cadbury and its
subsidiaries, and shares of our common stock were distributed to
holders of Cadbury ordinary shares and ADRs.
Upon the separation, effective May 7, 2008, we became an
independent company and established a new consolidated reporting
structure. For periods prior to May 7, 2008 our historical
financial information was prepared on a carve-out
basis from Cadburys consolidated financial statements
using the historical results of operations, assets and
liabilities, attributable to Cadburys Americas Beverages
business and including allocations of expenses from Cadbury. Our
combined financial statements are presented in
U.S. dollars, and have been prepared in accordance with
U.S. GAAP. As a subsidiary of Cadbury (a U.K. company),
historically we maintained our books and records, managed our
business and reported our results based on International
Financials Reporting Standards
30
(IFRS). The preparation of our U.S. GAAP
information uses IFRS as our base financial system and includes
a process for capturing accounting and disclosure differences
relevant to U.S. GAAP. This adds a level of complexity and
time to the process. We intend to migrate to a
U.S. GAAP-based system over time following separation. Our
segment information has been prepared and presented on the basis
which management uses to assess the performance of our segments,
which is principally in accordance with IFRS. Our consolidated
and segment results are not necessarily indicative of our future
performance and do not reflect what our financial performance
would have been had we been an independent publicly-traded
company during the periods presented.
Historically, Cadbury allocated certain costs to us, including
costs in respect of certain corporate functions provided for us
by Cadbury. These functions included corporate communications,
regulatory, human resources and benefits management, treasury,
investor relations, corporate controller, internal audit,
Sarbanes-Oxley compliance, information technology, corporate
legal and compliance and community affairs. The total amount of
these allocations from Cadbury was $6 million for the nine
months ended September 30, 2008, $161 million in 2007
and $142 million in 2006. As an independent publicly-traded
company, effective as of our separation from Cadbury Schweppes,
we assumed responsibility for these costs.
Segments
We report our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
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Our Beverages Concentrate segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
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Our Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
NCB brands.
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Our Bottling Group segment reflects sales from the manufacture,
bottling
and/or
distribution of finished beverages, including sales of our own
brands and third-party owned brands.
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Our Mexico and the Caribbean segment reflects sales from the
manufacture, bottling
and/or
distribution of both concentrates and finished beverages in
those geographies.
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Our current segment reporting structure is largely the result of
acquiring and combining various portions of our businesses over
the past several years. Although we continue to report our
segments separately, due to the integrated nature of our
business model, we manage our business to maximize profitability
for our company as a whole. As a result, profitability trends in
individual segments may not be consistent with the profitability
of our company or comparable to our competitors. For example,
following our bottling acquisitions in 2006, we changed certain
funding and manufacturing arrangements between our Beverage
Concentrates and Finished Goods segments and our newly acquired
bottling companies, which reduced the profitability of our
Bottling Group segment while benefiting our other segments.
We have significant intersegment transactions. For example, our
Bottling Group purchases concentrates at an arms length
price from our Beverage Concentrates segment. We expect these
purchases to account for approximately one-third of our Beverage
Concentrates segment annual net sales and therefore drive a
similar proportion of our Beverage Concentrates segment
profitability. In addition, our Bottling Group segment purchases
finished beverages from our Finished Goods segment. All
intersegment transactions are eliminated in preparing our
combined results of operations.
We incur selling, general and administrative expenses in each of
our segments. In our segment reporting, the selling, general and
administrative expenses of our Bottling Group and Mexico and the
Caribbean segments relate primarily to those segments. However,
as a result of our historical segment reporting policies,
certain combined selling activities that support our Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between those two segments. We also
incur certain centralized finance and corporate costs that
support our entire business, which have not been directly
allocated to our respective segments but rather have been
allocated primarily to our Beverage Concentrates segment.
31
The key financial measures management uses to assess the
performance of our segments are net sales and underlying
operating profit (loss) (UOP).
UOP represents a non-GAAP measure of income from operations. To
reconcile total UOP of our segments to our total company income
from operations on a U.S. GAAP basis, adjustments are
primarily required for: (1) restructuring costs,
(2) non-cash compensation charges on stock option and
restricted stock awards, (3) amortization and impairment of
intangibles and (4) incremental pension costs. In addition,
adjustments are required for total company corporate costs and
other items, which relate primarily to general and
administrative expenses not allocated to the segments and equity
in earnings of unconsolidated subsidiaries. To reconcile total
company income from operations to the line item income
before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy as reported on a U.S. GAAP basis,
additional adjustments are required for interest expense,
interest income and other expense (income).
Components
of Net Sales and Costs and Expenses
Net
Sales
We generate net sales primarily from:
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the sale and distribution of beverage concentrates and syrups;
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the sale and distribution of finished beverages; and
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the distribution of products of third parties.
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We offer a variety of incentives and discounts to bottlers,
customers and consumers through various programs to support in
the distribution and promotion of our products. These incentives
and discounts include cash discounts, price allowances, volume
based rebates, product placement fees and other financial
support for items such as trade promotions, displays, new
products, consumer incentives and advertising assistance. These
incentives and discounts, collectively referred to as trade
spend, are reflected as a reduction of gross sales to arrive at
net sales.
Cost of
Sales
Our cost of sales include costs associated with the operation of
our manufacturing and other related facilities, including
depreciation, as well as the following:
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Beverage concentrates cost of sales. The major
components in our beverage concentrates cost of sales are
flavors and sweeteners for diet beverage concentrates.
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Bottler cost of sales. The major components in
our bottler cost of sales are beverage concentrates, packaging
and ingredients. Packaging costs and ingredients costs
represented approximately 39% and 19%, respectively, of our cost
of sales in 2007. Packaging costs include aluminum, glass, PET
and paper packaging. Ingredients include HFCS and other
sweeteners, agricultural commodities (such as apples, citrus
fruits and tomatoes), teas and flavorings.
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Distributor cost of sales. The major component
in our distributor cost of sales is purchased finished beverages.
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Our selling, general and administrative expenses include:
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selling and marketing expenses;
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transportation and warehousing expenses related to customer
shipments, including fuel;
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general and administrative expenses such as management payroll,
benefits, travel and entertainment, accounting and legal
expenses and rent on leased office facilities; and
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corporate function expenses allocated from Cadbury (as described
under Our Separation from Cadbury).
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32
Depreciation
and Amortization
Our depreciation expense includes depreciation of buildings,
machinery and equipment relating to our manufacturing,
distribution and office facilities as well as coolers and other
cold drink equipment and computer software. Our amortization
expense includes amortization of definite-lived intangible
assets including our brands, bottler agreements, distribution
rights, customer relationships and vending contracts.
Depreciation directly attributable to our manufacturing and
distribution operations is included in our cost of sales.
Amortization related to our long-term vending contracts is
recorded in selling, general and administrative expenses. All
other depreciation and amortization is included as a separate
line item.
Restructuring
Costs
We implement restructuring programs from time to time and incur
costs that are designed to improve operating effectiveness and
lower costs. These programs have included closure of
manufacturing plants, reductions in workforce, integrating back
office operations and outsourcing certain transactional
activities. When we implement these programs, we incur various
charges, including severance and other employment-related costs.
In 2007, we incurred $76 million of restructuring costs
primarily related to the organizational restructuring we
announced on October 10, 2007 and the ongoing integration
of our bottling acquisitions.
Interest
Expense
Historically, we have borrowed funds from subsidiaries of
Cadbury. We have also borrowed funds from third-party banks and
other lenders. The interest incurred with respect to this debt
is recorded as interest expense. Our interest expense has
increased as the result of borrowings under our
$2.2 billion term loan A facility and the $1.7 billion
notes.
Interest
Income
Interest income is the return we earn on our cash and cash
equivalents held at third-party banks. Historically, we have
also generated interest income from our note receivable balances
with subsidiaries of Cadbury, which were a result of
Cadburys cash management practices. Our interest income
has decreased as a result of the repayment of intercompany
receivables by Cadbury as part of the separation.
Other
Expense (Income)
Other expense (income) includes miscellaneous items not
reflected in our income from operations. This line item in
future periods will be impacted by the income we may record as a
result of Cadburys agreement to indemnify us for certain
tax liabilities.
Income
Taxes
Our effective income tax rate fluctuates from period-to-period
and can be impacted by various items, including shifts in the
mix of our earnings from various jurisdictions, changes in
requirements for tax uncertainties, timing and results of any
reviews or audits of our income tax filing positions or returns,
and changes in tax legislation. Our effective tax rate in future
periods will be impacted by the accrual of interest we will
record as a result of the unrecognized tax benefits transferred
to us in connection with the separation. We expect any amount
recorded in respect of the indemnified unrecognized tax benefits
reflected in income taxes will have an offsetting amount
recorded in other expense (income), unless Cadbury
fails to, is not required to or cannot indemnify or reimburse us.
Volume
In evaluating our performance, we consider different volume
measures depending on whether we sell beverage concentrates and
syrups or finished beverages.
33
Beverage
Concentrates Sales Volume
In our beverage concentrates and syrup businesses, we measure
our sales volume in two ways: (1) concentrates case
sales and (2) bottler case sales. The
unit of measurement for both concentrates case sales and bottler
case sales equals 288 fluid ounces of finished beverage, or 24
twelve ounce servings.
Concentrates case sales represent units of measurement for
concentrates and syrups sold by us to our bottlers and
distributors. A concentrates case is the amount of concentrates
needed to make one case of 288 fluid ounces of finished
beverage. It does not include any other component of the
finished beverage other than concentrates. Our net sales in our
concentrates businesses are based on concentrates cases sold.
Bottler case sales represent the number of cases of our finished
beverages sold by us and our bottling partners. Bottler case
sales are calculated based upon volumes from both our Bottling
Group and volumes reported to us by our third party bottlers.
Bottler case sales and concentrates case sales are not equal
during any given period due to changes in bottler concentrates
inventory levels, which can be affected by seasonality, bottler
inventory and manufacturing practices, and the timing of price
increases and new product introductions.
Although our net sales in our concentrates businesses are based
on concentrates case sales, we believe that bottler case sales
are also a significant measure of our performance because they
measure sales of our finished beverages into retail channels.
Finished
Beverages Sales Volume
In our finished beverages businesses, we measure volume as case
sales to customers. A case sale represents a unit of measurement
equal to 288 fluid ounces of finished beverage sold by us. Case
sales include both our owned-brands and certain brands licensed
to and/or
distributed by us.
Volume in
Bottler Case Sales
In addition to sales volume, we also measure volume in bottler
case sales (volume (BCS)) as sales of finished
beverages, in equivalent 288 ounce cases, sold by us and our
bottlers to retailers and independent distributors.
Results
of Operations
For the periods prior to May 7, 2008, our condensed
consolidated financial statements have been prepared on a
carve-out basis from Cadburys consolidated
financial statements using historical results of operations,
assets and liabilities attributable to Cadburys Americas
Beverages business and including allocations of expenses from
Cadbury. The historical Cadburys Americas Beverages
information is our predecessor financial information. We
eliminate from our financial results all intercompany
transactions between entities included in the combination and
the intercompany transactions with our equity method investees.
Subsequent to May 7, 2008, we are an independent company.
References in the financial tables to percentage changes that
are not meaningful are denoted by NM.
34
Nine
Months Ended September 30, 2008 Compared to Nine Months
Ended September 30, 2007
Consolidated
Operations
The following table sets forth our unaudited consolidated
results of operation for the nine months ended
September 30, 2008 and 2007 (dollars in millions).
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For the Nine Months Ended September 30,
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2008
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2007
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Percentage
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Dollars
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Percent
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Dollars
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Percent
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Change
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Net sales
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$
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4,369
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100.0
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%
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$
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4,347
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100.0
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%
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0.5
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%
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Cost of sales
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2,003
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45.9
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1,984
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45.6
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|
1.0
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Gross profit
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2,366
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54.1
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2,363
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54.4
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0.1
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|
Selling, general and administrative expenses
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1,586
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36.3
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1,527
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35.1
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3.9
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Depreciation and amortization
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84
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1.9
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69
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1.6
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21.7
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Restructuring costs
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|
31
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0.7
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36
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0.8
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(13.9
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)
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Gain on disposal of property and intangible assets, net
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(3
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)
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(0.1
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)
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NM
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Income from operations
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|
668
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15.3
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|
731
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16.9
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|
(8.6
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)
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Interest expense
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199
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|
4.6
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|
195
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4.5
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2.1
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Interest income
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(30
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)
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|
(0.7
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)
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(38
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)
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|
(0.9
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)
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(21.1
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)
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Other (income) expense
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(8
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)
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(0.2
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)
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(2
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)
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NM
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Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
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507
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11.6
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576
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|
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|
13.3
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|
|
|
(12.0
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)
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Provision for income taxes
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|
199
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|
|
|
4.6
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|
|
|
218
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|
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|
5.0
|
|
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|
(8.7
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)
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Income before equity in earnings of unconsolidated subsidiaries
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308
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|
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|
7.0
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358
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|
8.3
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|
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|
(14.0
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)
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Equity in earnings of unconsolidated subsidiaries, net of tax
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1
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|
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1
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NM
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Net income
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|
$
|
309
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|
7.0
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%
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|
$
|
359
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|
8.3
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%
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(13.9
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)%
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Earnings per common share:
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Basic
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|
$
|
1.21
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|
|
NM
|
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|
$
|
1.42
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|
|
|
NM
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|
|
|
(14.8
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)%
|
Diluted
|
|
$
|
1.21
|
|
|
|
NM
|
|
|
$
|
1.42
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|
|
|
NM
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|
|
|
(14.8
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)%
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Volume (BCS) declined 3%. CSDs declined 2% and NCBs declined 7%.
The absence of glaceau sales following the termination of the
distribution agreement in 2007 negatively impacted total volumes
and NCB volumes by 1 percentage point and 7 percentage
points, respectively. In CSDs, Dr Pepper declined 1%. Our
Core 4 brands, which include 7UP, Sunkist,
A&W and Canada Dry, declined 3%, primarily related to an 8%
decline in 7UP, as the brand cycled the final stages of launch
support for 7UP with 100% Natural Flavors and the re-launch of
Diet 7UP. In NCBs, 6% growth in Hawaiian Punch, 5% growth in
Motts and a 7% growth in Clamato were more than offset by
declines of 17% in Aguafiel, 4% in Snapple and the loss of
glaceau distribution rights. Aguafiel declined 17% reflecting
price increases and a more competitive environment. Our Snapple
volumes were down 4% as the brand overlapped 5% growth in the
year ago period driven by aggressive pricing and promotional
activity that we chose not to repeat in 2008 and the impact of a
slow down in consumer spending. We are extending and
repositioning our Snapple offerings to support the long term
health of the brand. In North America volume declined 3% and in
Mexico and the Caribbean volume declined 4%.
Net Sales. Net sales increased
$22 million, or 1%, for the nine months ended
September 30, 2008, compared with the nine months ended
September 30, 2007. Price increases were partially offset
by a decline in sales volumes and an increase in discounts paid
to customers. The termination of the glaceau brand distribution
agreements reduced net sales by $197 million. Net sales
resulting from the acquisition of SeaBev added an incremental
$61 million to consolidated net sales.
35
Gross Profit. Gross profit remained flat for
the nine months ended September 30, 2008, compared with the
year ago period. Increased pricing largely offset increased
commodity costs prices across our segments. Gross profit for the
nine months ended September 30, 2008, includes LIFO expense
of $17 million, compared to $7 million in the year ago
period. LIFO is an inventory costing method that assumes the
most recent goods manufactured are sold first, which in periods
of rising prices results in an expense that eliminates
inflationary profits from net income. Gross margin was 54% for
the nine months ended September 30, 2008 and 2007.
Selling, General and Administrative
Expenses. SG&A expenses increased to
$1,586 million for the nine months ended September 30,
2008, primarily due to separation related costs, higher
transportation costs and increased payroll and payroll related
costs. In connection with our separation from Cadbury, we
incurred transaction costs and other one time costs of
$29 million for the nine months ended September 30,
2008, which are included as a component of SG&A expenses.
We expect to incur additional separation related costs of
$6 million for the remainder of the year. We incurred
higher transportation costs principally due to an increase of
$24 million related to higher fuel prices. Additionally,
our payroll and payroll related costs increased. These increases
were partially offset by benefits from restructuring initiatives
announced in 2007, lower marketing costs and lower stock-based
compensation expense. Stock-based compensation expense was
$7 million lower in 2008 due to a reduction in the number
of unvested shares outstanding and as all Cadbury stock-based
compensation plans became fully vested upon our separation from
Cadbury.
Depreciation and Amortization. An increase of
$15 million in depreciation and amortization was
principally due to increases in capital spending.
Restructuring Costs. The $31 million cost
for the nine months ended September 30, 2008, was primarily
due to an organizational restructuring intended to create a more
efficient organization and resulted in the reduction of
employees in the Companys corporate, sales and supply
chain functions and the continued integration of the Bottling
Group. As of September 30, 2008, we expect to incur
approximately $12 million of additional costs through the
end of 2008 in connection with our restructuring activities. The
$36 million of restructuring cost for the nine months ended
September 30, 2007, was primarily related to the
integration of our Bottling Group into existing businesses, the
integration of technology facilities, and the closure of a
facility.
Gain on Disposal of Property and Intangible Assets,
net. We recognized a $3 million gain for the
nine months ended September 30, 2008, related to the
disposal of assets and the termination of the glaceau brand
distribution agreement partially offset by the write-off of
assets.
Income from Operations. Income from operations
for the nine months ended September 30, 2008, was
$668 million, a decrease from $731 million for the
nine months ended September 30, 2007. The loss of the
glaceau distribution agreement reduced income from operations by
$36 million. Additionally, the increase in SG&A
expenses, including $29 million of transaction costs and
other one time costs incurred in connection with our separation
from Cadbury, reduced income from operations.
Interest Expense. Interest expense increased
$4 million reflecting the companys capital structure
as a stand-alone company. Decreases of $105 million related
to interest expense on debt owed to Cadbury and $18 million
related to third party debt settlement were partially offset by
interest expense principally related to our term loan A and
unsecured notes. Interest expense for the nine months ended
September 30, 2008, also contained $26 million related
to our bridge loan facility, including $21 million of
financing fees when the bridge loan facility was terminated.
Interest Income. The $8 million decrease
in interest income was primarily due to the loss of interest
income earned on note receivable balances with subsidiaries of
Cadbury, partially offset as we earned interest income on the
funds from the bridge loan facility and other cash balances.
Provision for Income Taxes. The effective tax
rates for the nine months ended September 30, 2008 and 2007
were 39.2% and 37.8%, respectively. The increase in the
effective rate for 2008 was primarily due to tax expense of
$7 million related to items that Cadbury is obligated to
indemnify under the Tax Indemnity Agreement as well as
additional tax expense of $11 million driven by separation
transactions partially offset by a greater impact from foreign
operations and increased tax credits.
36
Results
of Operations by Segment
The following tables set forth net sales and UOP for our
segments for the nine months ended September 30, 2008 and
2007, as well as the adjustments necessary to reconcile our
total segment results to our consolidated results presented in
accordance with U.S. GAAP and the elimination of
intersegment transactions (dollars in millions).
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007(2)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,001
|
|
|
$
|
1,004
|
|
Finished Goods
|
|
|
1,254
|
|
|
|
1,174
|
|
Bottling Group
|
|
|
2,360
|
|
|
|
2,388
|
|
Mexico and the Caribbean
|
|
|
324
|
|
|
|
313
|
|
Intersegment eliminations and impact of foreign currency(1)
|
|
|
(570
|
)
|
|
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,369
|
|
|
$
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment and Bottling
Group segment sales to Beverage Concentrates and Finished Goods.
These sales are detailed below. Intersegment sales are
eliminated in the unaudited Consolidated Statement of
Operations. The impact of foreign currency totaled
$18 million and $2 million for the nine months ended
September 30, 2008 and 2007, respectively. |
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007(2)
|
|
|
Beverage Concentrates
|
|
$
|
(294
|
)
|
|
$
|
(281
|
)
|
Finished Goods
|
|
|
(236
|
)
|
|
|
(217
|
)
|
Bottling Group
|
|
|
(58
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Total intersegment sales
|
|
$
|
(588
|
)
|
|
$
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Intersegment revenue eliminations from the Bottling Group and
Finished Goods segments have been reclassified from revenues to
intersegment eliminations and impact of foreign currency. |
37
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Segment Results UOP, Adjustments and
Interest Expense
|
|
|
|
|
|
|
|
|
Beverage Concentrates UOP
|
|
$
|
552
|
|
|
$
|
541
|
|
Finished Goods UOP(1)
|
|
|
197
|
|
|
|
159
|
|
Bottling Group UOP(1)
|
|
|
(23
|
)
|
|
|
60
|
|
Mexico and the Caribbean UOP
|
|
|
77
|
|
|
|
75
|
|
LIFO inventory adjustment
|
|
|
(17
|
)
|
|
|
(7
|
)
|
Intersegment eliminations and impact of foreign currency
|
|
|
(10
|
)
|
|
|
(2
|
)
|
Adjustments(2)
|
|
|
(108
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
668
|
|
|
|
731
|
|
Interest expense, net
|
|
|
(169
|
)
|
|
|
(157
|
)
|
Other expense
|
|
|
8
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in
earnings of unconsolidated subsidiaries as reported
|
|
$
|
507
|
|
|
$
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
UOP for the nine months ended September 30, 2007, for the
Bottling Group and Finished Goods segment has been recast to
reallocate $43 million of intersegment profit to conform to
the change in 2008 management reporting of segment UOP. The
allocations for the full year 2007 totaled $54 million. |
|
(2) |
|
Adjustments consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Restructuring costs
|
|
$
|
(31
|
)
|
|
$
|
(36
|
)
|
Transaction costs and other one time separation costs
|
|
|
(29
|
)
|
|
|
|
|
Unallocated general and administrative expenses
|
|
|
(24
|
)
|
|
|
(30
|
)
|
Stock-based compensation expense
|
|
|
(7
|
)
|
|
|
(14
|
)
|
Amortization expense related to intangible assets
|
|
|
(21
|
)
|
|
|
(20
|
)
|
Incremental pension costs
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Gain on disposal of property and intangible assets, net
|
|
|
3
|
|
|
|
|
|
Other
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(108
|
)
|
|
$
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Beverage
Concentrates
The following table details our Beverage Concentrates
segments net sales and UOP for the nine months ended
September 30, 2008 and 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
1,001
|
|
|
$
|
1,004
|
|
|
$
|
(3
|
)
|
|
|
(0.3
|
)%
|
UOP
|
|
|
552
|
|
|
|
541
|
|
|
|
11
|
|
|
|
2.0
|
%
|
Net sales for the nine months ended September 30, 2008,
decreased $3 million versus the year ago period due to
increased discounts primarily paid to customers in the fountain
food service channel combined with a 1% decline
38
in volumes. The decline in volumes is primarily the result of
lower sales to third party bottlers as foot traffic in
convenience stores decreased. Intersegment and fountain food
service sales volumes were both flat year over year.
UOP increased $11 million for the nine months ended
September 30, 2008, as compared to the nine months ended
September 30, 2007, driven by savings generated from
restructuring initiatives, partially offset by the impact of
declining net sales.
Bottler case sales declined 2% for the nine months ended
September 30, 2008. The Core 4
brands 7UP, Sunkist, A&W and Canada
Dry decreased by 3%, driven primarily by 7UP, as the
brand cycled the final stages of launch support for 7UP with
100% Natural Flavors and the re-launch of Diet 7UP. Dr Pepper
declined 1% driven primarily by continued declines in the
Soda Fountain Classics line.
Finished
Goods
The following table details our Finished Goods segments
net sales and UOP for the nine months ended September 30,
2008 and 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
1,254
|
|
|
$
|
1,174
|
|
|
$
|
80
|
|
|
|
6.8
|
%
|
UOP
|
|
|
197
|
|
|
|
159
|
|
|
|
38
|
|
|
|
23.9
|
%
|
Net sales increased $80 million for the nine months ended
September 30, 2008, as compared to the nine months ended
September 30, 2007, due to a 3% increase in sales volumes
and price increases Hawaiian Punch, Motts and Clamato
sales volumes increased 13%, 4% and 3%, respectively. Snapple
sales volumes decreased 6% as it cycled aggressive promotional
and pricing activity we chose not to repeat in 2008 and the
impact of a slow down in consumer spending. The increase in
prices was primarily driven by our Motts brand.
UOP increased $38 million for the nine months ended
September 30, 2008, compared with the year ago period
primarily due to the growth in net sales combined with lower
marketing costs, as we cycled the introduction of Accelerade,
and savings generated from restructuring initiatives. These
increases were partially offset by higher fuel costs and higher
commodity costs.
Bottling
Group
The following table details our Bottling Groups
segments net sales and UOP for the nine months ended
September 30, 2008 and 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
2,360
|
|
|
$
|
2,388
|
|
|
$
|
(28
|
)
|
|
|
(1.2
|
)%
|
UOP
|
|
|
(23
|
)
|
|
|
60
|
|
|
|
(83
|
)
|
|
|
NM
|
|
Net sales decreased $28 million for the nine months ended
September 30, 2008, compared with the nine months ended
September 30, 2007, reflecting price increases offset by
volume declines and the termination of the glaceau brand
distribution agreement. The termination of the glaceau brand
distribution agreement reduced net sales by $197 million.
The sales volume decline reflects a 4% decline in external sales
volumes partially offset by an increase in intersegment sales as
we increased Bottling Groups manufacturing of Company
owned brands. SeaBev, which was acquired in July 2007, added an
incremental $82 million to our net sales during the first
six months of 2008.
UOP decreased by $83 million primarily due to net sales
declines and higher commodity and fuel costs and wage and
benefit inflation. The termination of the glaceau brand
distribution agreement reduced UOP by $36 million.
39
In a letter dated October 10, 2008, we received formal
notification from Hansen Natural Corporation, terminating our
agreements to distribute Monster Energy as well as other
Hansens beverage brands in certain markets in the United
States effective November 10, 2008. For the nine months
ended September 30, 2008, our Bottling Group generated
approximately $170 million and approximately
$30 million in revenue and operating profits, respectively,
from sales of Hansen brands to third parties in the United
States.
Mexico
and the Caribbean
The following table details our Mexico and the Caribbean
segments net sales and UOP for the nine months ended
September 30, 2008 and 2007 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
324
|
|
|
$
|
313
|
|
|
$
|
11
|
|
|
|
3.5
|
%
|
UOP
|
|
|
77
|
|
|
|
75
|
|
|
|
2
|
|
|
|
2.7
|
%
|
Net sales increased $11 million for the nine months ended
September 30, 2008, compared with the nine months ended
September 30, 2007, primarily due to price increases and a
favorable product mix, partially offset by a decline in volumes.
Sales volumes decreased 4%, principally driven by Aguafiel as
the brand faces aggressive price competition.
UOP increased $2 million for the first nine months of 2008
reflecting improvements in net sales combined with lower
marketing costs, partially offset by higher costs of packaging
materials, an increase in distribution costs and increased wages
resulting from geographical expansion projects.
Results
of Operations for 2007 Compared to 2006
Combined
Operations
The following table sets forth our combined results of operation
for 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Percentage
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Change
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
|
100.0
|
%
|
|
$
|
4,735
|
|
|
|
100.0
|
%
|
|
|
21.4
|
%
|
Cost of sales
|
|
|
2,617
|
|
|
|
45.5
|
|
|
|
1,994
|
|
|
|
42.1
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
54.5
|
|
|
|
2,741
|
|
|
|
57.9
|
|
|
|
14.2
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
35.1
|
|
|
|
1,659
|
|
|
|
35.0
|
|
|
|
21.6
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
1.7
|
|
|
|
69
|
|
|
|
1.5
|
|
|
|
42.0
|
|
Restructuring costs
|
|
|
76
|
|
|
|
1.3
|
|
|
|
27
|
|
|
|
0.6
|
|
|
|
NM
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
NM
|
|
Loss/(gain) on disposal of property and intangible assets, net
|
|
|
(71
|
)
|
|
|
(1.2
|
)
|
|
|
(32
|
)
|
|
|
(0.6
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
17.5
|
|
|
|
1,018
|
|
|
|
21.4
|
|
|
|
(1.4
|
)
|
Interest expense
|
|
|
253
|
|
|
|
4.4
|
|
|
|
257
|
|
|
|
5.4
|
|
|
|
(1.6
|
)
|
Interest income
|
|
|
(64
|
)
|
|
|
(1.1
|
)
|
|
|
(46
|
)
|
|
|
(1.0
|
)
|
|
|
39.1
|
|
Other expense/(income)
|
|
|
(2
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
817
|
|
|
|
14.2
|
|
|
|
805
|
|
|
|
17.0
|
|
|
|
1.5
|
|
Provision for income taxes
|
|
|
322
|
|
|
|
5.6
|
|
|
|
298
|
|
|
|
6.3
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
495
|
|
|
|
8.6
|
|
|
|
507
|
|
|
|
10.7
|
|
|
|
(2.4
|
)
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
|
|
0.1
|
|
|
|
(33.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
|
8.6
|
%
|
|
$
|
510
|
|
|
|
10.8
|
%
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Net Sales. The $1,013 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $931 million mainly due to
the inclusion of our bottling acquisitions. Higher pricing and
improved sales mix in all remaining segments increased net sales
by 3% despite lower volumes. Excluding the impact of our
bottling acquisitions, volumes were down 1%, with declines in Dr
Pepper and Hawaiian Punch being partially offset by increases in
Snapple, Motts and Sunkist. The disposal of the
Grandmas Molasses brand in January 2006 and the Slush
Puppie business in May 2006 reduced net sales by less than 1%.
Gross Profit. The $390 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $359 million mainly due to
the inclusion of our bottling acquisitions. The remaining
increase was primarily due to net sales growth, partially offset
by increases in commodity costs, including HFCS and apple juice
concentrate, as well as inventory write-offs related to
Accelerade.
Gross margin was 54% in 2007 and 58% in 2006. The decrease in
gross margin was due primarily to the inclusion of our bottling
acquisitions (which generally have lower margins than our other
businesses) for the full year 2007 as compared to partial
periods in 2006.
Selling, General and Administrative
Expenses. The $359 million increase was
primarily due to increases in our Bottling Group segment, which
resulted in an additional $324 million of expenses mainly
due to the inclusion of our bottling acquisitions. The remaining
increase for all other segments was primarily due to the impact
of inflation (particularly in wages and benefits), higher
transportation costs as well as higher allocations from Cadbury
Schweppes, partially offset by a reduction in annual management
incentive plan accruals. Marketing was up slightly as increases
in the Finished Goods segment to support new product launches,
including Accelerade, Motts line extensions, and
Peñafiel in the United States, were mostly offset by a
reduction in the Beverage Concentrates segment.
Depreciation and Amortization. The
$29 million increase was principally due to higher
depreciation on property, plant and equipment and amortization
of definite-lived intangible assets in connection with our
bottling acquisitions.
Impairment of Intangible Assets. In 2007, we
recorded impairment charges of $6 million, of which
$4 million was related to the Accelerade brand.
Restructuring Costs. The $76 million cost
in 2007 was primarily due to $32 million of costs
associated with the organizational restructuring announced on
October 10, 2007 and $21 million of costs associated
with the Bottling Group integration. The organizational
restructuring announced in October 2007 included employee
reductions and the closure of manufacturing facilities.
The $27 million cost in 2006 was primarily related to the
Bottling Group integration as well as various other cost
reduction and efficiency initiatives. The Bottling Group
integration and other cost reduction and efficiency initiatives
primarily related to the alignment of management information
systems, the consolidation of the back office operations from
the acquired businesses, the elimination of duplicate functions,
and employee relocations.
Gain on Disposal of Property and Intangible
Assets. In 2007, we recognized a $71 million
gain due to a payment we received from Energy Brands, Inc. as a
result of its termination of our contractual rights to
distribute glacéau products. In 2006, we recognized a
$32 million gain on disposals of assets, attributable to
the Grandmas Molasses brand and the Slush Puppie business.
Income from Operations. The $14 million
decrease was due to the $55 million operating loss from the
launch of Accelerade, increased selling, general and
administrative expenses and $49 million of higher
restructuring costs in 2007, partially offset by higher net
sales in 2007 and $39 million of higher gain on disposal of
property and intangible assets in 2007.
Interest Expense. The $4 million decrease
in 2007 was primarily due to a reduction in the interest
component paid on a lawsuit settled in June 2007 and a decrease
in interest due to the settlement of third-party debt. These
decreases were partially offset by an increase in interest on
our related-party debt.
Interest Income. The $18 million increase
was primarily due to higher related-party note receivable
balances with subsidiaries of Cadbury Schweppes.
Provision for Income Taxes. The effective tax
rates for 2007 and 2006 were 39.3% and 36.9%, respectively. The
increase in the effective rate for 2007 was primarily due to a
lower benefit from foreign operations.
41
Results
of Operations by Segment for 2007 Compared to 2006
We report our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group, and Mexico and the Caribbean.
The key financial measures management uses to assess the
performance of our segments are net sales and UOP.
The following tables set forth net sales and UOP for our
segments for 2007 and 2006, as well as the adjustments necessary
to reconcile our total segment results to our combined results
presented in accordance with U.S. GAAP and the elimination
of intersegment transactions (dollars in millions).
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
Finished Goods
|
|
|
1,562
|
|
|
|
1,516
|
|
Bottling Group
|
|
|
3,143
|
|
|
|
2,001
|
|
Mexico and the Caribbean
|
|
|
418
|
|
|
|
408
|
|
Intersegment eliminations and impact of foreign currency(1)
|
|
|
(717
|
)
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment and Bottling
Group sales to the Beverage Concentrates and Finished Goods
segments. These sales are detailed below. Intersegment sales are
eliminated in our audited combined statements of operations. The
increase in these eliminations was due principally to the
inclusion of our 2006 bottling acquisitions for the full year
2007 as compared to the inclusion of our 2006 bottling
acquisitions for partial periods in 2006. |
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Beverage Concentrates
|
|
$
|
386
|
|
|
$
|
255
|
|
Finished Goods
|
|
|
289
|
|
|
|
235
|
|
Bottling Group
|
|
|
51
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total intersegment sales
|
|
$
|
726
|
|
|
$
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Underlying operating profit
|
|
|
|
|
|
|
|
|
Beverage Concentrates UOP
|
|
$
|
731
|
|
|
$
|
710
|
|
Finished Goods UOP(1)
|
|
|
221
|
|
|
|
228
|
|
Bottling Group UOP(1)
|
|
|
76
|
|
|
|
74
|
|
Mexico and the Caribbean UOP
|
|
|
100
|
|
|
|
102
|
|
Corporate and other(2)
|
|
|
(36
|
)
|
|
|
(10
|
)
|
Adjustments and eliminations(3)
|
|
|
(275
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
$
|
817
|
|
|
$
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
UOP for the Bottling Group and Finished Goods segments have been
recast to reallocate intersegment profit allocations to conform
to the change in 2008 management reporting of segment UOP. The
allocations totaled $54 million and $56 million for
2007 and 2006, respectively. |
|
(2) |
|
Consists of equity in earnings of unconsolidated subsidiaries
and general and administrative expenses not allocated to the
segments. The change was primarily due to a decrease in our
equity in earnings of unconsolidated subsidiaries compared to
2006 as a result of our purchase of the remaining 55% of DPSUBG
in May 2006 and an increase in general and administrative
expenses related to our IT operations. |
42
|
|
|
(3) |
|
Adjustments and eliminations are detailed below. Note that in
2007, a portion ($58 million) of the $71 million gain
on termination of the glaceau distribution agreements is
included as an adjustment. The balance of the gain
($13 million) is reflected in the Bottling Group UOP. |
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Interest expense, net
|
|
$
|
(189
|
)
|
|
$
|
(211
|
)
|
Other income (expense)
|
|
|
2
|
|
|
|
(2
|
)
|
Restructuring costs
|
|
|
(76
|
)
|
|
|
(27
|
)
|
Stock-based compensation expense
|
|
|
(21
|
)
|
|
|
(17
|
)
|
Amortization expense related to intangible assets
|
|
|
(30
|
)
|
|
|
(19
|
)
|
Incremental pension costs
|
|
|
(11
|
)
|
|
|
(15
|
)
|
Impairment of intangible assets
|
|
|
(6
|
)
|
|
|
|
|
LIFO inventory adjustment
|
|
|
(6
|
)
|
|
|
(3
|
)
|
Intersegment eliminations and impact of foreign currency
|
|
|
2
|
|
|
|
(12
|
)
|
Gain on disposal of intangible assets
|
|
|
58
|
|
|
|
32
|
|
Elimination of equity earnings in DPSUBG
|
|
|
|
|
|
|
(5
|
)
|
Other
|
|
|
2
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(275
|
)
|
|
$
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
Beverage
Concentrates
The following table details our Beverage Concentrates
segments net sales and UOP for the years ended
December 31, 2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
12
|
|
|
|
0.9
|
%
|
UOP
|
|
|
731
|
|
|
|
710
|
|
|
|
21
|
|
|
|
3.0
|
%
|
The $12 million net sales increase was due primarily to
price increases, which more than offset the impact of a 1.4%
volume decline. The volume decline was due primarily to a 3.3%
decline in Dr Pepper partially offset by single digit percentage
increases in Sunkist, Schweppes and A&W. The Dr Pepper
decline is primarily a result of comparisons to prior period
volumes that included the launch of Soda Fountain
Classics line extensions. Line extensions are usually
offered for a limited time period and their volumes typically
decline in the years subsequent to the year of launch, as was
the case with these line extensions in 2007. The total of all
other regular and Diet Dr Pepper volumes (base Dr Pepper
volumes) declined 0.4%. For 2006, net sales included
$8 million for the Slush Puppie business, which was
disposed in May 2006.
The $21 million UOP increase was due primarily to higher
net sales and lower marketing investments (particularly
advertising costs) partially offset by higher cost of sales from
increased sweetener and flavor costs and increased selling,
general and administrative expenses. The lower marketing
investments were primarily a result of a reduction in Beverage
Concentrates marketing investments to support new product
initiatives in our Finished Goods segment, including
$25 million for the launch of Accelerade. Selling, general
and administrative expenses were higher due primarily to
increased corporate costs following our bottler acquisitions, a
transfer of sales personnel from the Finished Goods segment to
this segment reflecting a sales reorganization, and general
inflationary increases, which were partially offset by lower
management annual incentive plan accruals.
Bottler case sales declined 1.5% in 2007 due primarily to a 2.5%
decline in Dr Pepper, and a single and double digit percentage
decline in 7UP and Diet Rite, respectively. The Dr Pepper
decline results from comparisons to strong volumes in 2006
driven by the Soda Fountain Classics line extensions
which were nationally introduced in 2005, while the total of
base Dr Pepper volumes increased 0.4% compared with the prior
year. The 7UP decline primarily reflects the discontinuance of
7UP Plus, as well as the comparison to strong volumes in 2006
driven by the third quarter launch of 7UP with natural
flavors and heavy promotional support for 7UP and other
brands. The Diet Rite decline was due to the shift of marketing
investment from Diet Rite to other diet brands, such as Diet
43
Sunkist, Diet A&W and Diet Canada Dry. These declines were
partially offset by single digit percentage increases in Sunkist
and Canada Dry, which are consistent with the consumer shift
from colas to flavored CSDs.
Finished
Goods
The following table details our Finished Goods segments
net sales and UOP for the years ended December 31, 2007 and
2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
1,562
|
|
|
$
|
1,516
|
|
|
$
|
46
|
|
|
|
3.0
|
%
|
UOP
|
|
|
221
|
|
|
|
228
|
|
|
|
(7
|
)
|
|
|
(3.1
|
)%
|
The $46 million net sales increase was due to price
increases and a favorable shift towards higher priced products
such as Snapple and Motts. These increases were partially
offset by lower volumes and higher product placement costs
associated with new product launches. The volume decrease of
2.0% was primarily due to a price increase on Hawaiian Punch in
April 2007, which more than offset growth from Snapple and
Motts. Snapple volumes increased primarily due to the
launch of Antioxidant Waters and the continued growth from super
premium teas. Motts volumes increased due primarily to the
new product launches of Motts for Tots juice and
Motts Scooby Doo apple sauce and increased consumer demand
for apple juice.
The $7 million UOP decrease was due primarily to a
$55 million operating loss from Accelerade, partially
offset by the strong performance of Motts and Snapple
products. The $55 million operating loss attributable to
Accelerade was primarily due to new product launch expenses to
support our entry into the sports drink category. The launch had
been supported by significant product placement and marketing
investments. In 2007, we had no net sales for this product as
gross sales were more than offset by product placement fees. UOP
was also negatively impacted by higher costs for glass, HFCS,
apple juice concentrate, as well as $8 million of costs for
the launch of Motts line extensions and the launch of
Peñafiel in the United States, partially offset by the
elimination of co-packing fees previously charged by the
Bottling Group segment and lower selling, general and
administrative costs due to the transfer of sales personnel from
the Finished Goods segment to the Beverages Concentrates segment
in connection with a sales reorganization.
Bottling
Group
The following table details our Bottling Group segments
net sales and UOP for the years ended December 31, 2007 and
2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
3,143
|
|
|
$
|
2,001
|
|
|
$
|
1,142
|
|
|
|
57.1
|
%
|
UOP
|
|
|
76
|
|
|
|
74
|
|
|
|
2
|
|
|
|
2.7
|
%
|
The results of operations for 2006 only include eight months of
results from DPSUBG (acquired in May 2006), approximately seven
months of results from All American Bottling Corp. (acquired in
June 2006), and approximately five months of results from Seven
Up Bottling Company of San Francisco (acquired in August
2006), as compared to 2007 which includes a full year of results
of operations for these businesses and approximately six months
of results from SeaBev (acquired in July 2007).
The $1,142 million net sales increase was primarily due to
the bottling acquisitions described above, price increases and a
favorable sales mix of higher priced NCBs. After elimination of
intersegment sales, the impact on our consolidated net sales was
an increase of $931 million.
UOP increased $2 million in 2007 compared to 2006. The
associated profit from the increased net sales were more than
offset by an increase in post-acquisition employee benefit
costs, wage inflation costs, higher HFCS costs, the elimination
of co-packing fees in 2007 which were previously earned on
manufacturing for the Finished Goods segment, and an increase in
investments in new markets. Additionally, in 2007, UOP included
a portion ($13 million) of the $71 million gain due to
the payment we received from Energy Brands, Inc. as a result of
their termination of our contractual rights to distribute
glacéau products.
44
Mexico
and the Caribbean
The following table details our Mexico and Caribbean
segments net sales and UOP for the years ended
December 31, 2007 and 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
418
|
|
|
$
|
408
|
|
|
$
|
10
|
|
|
|
2.5
|
%
|
UOP
|
|
|
100
|
|
|
|
102
|
|
|
|
(2
|
)
|
|
|
(2.0
|
)%
|
The $10 million net sales increase was due to volume growth
of 1.5% and increased pricing despite challenging market
conditions and adverse weather, partially offset by unfavorable
currency translation. The volume growth was due to the strong
performance of Aguafiel and Clamato brands, both of which had
double digit percentage increases. Foreign currency translation
negatively impacted net sales by $6 million.
The $2 million UOP decrease in 2007 despite the increase in
net sales was due primarily to an increase in raw material
costs, particularly HFCS, higher distribution costs and
unfavorable foreign currency translation. Foreign currency
translation of expenses negatively impacted UOP by
$2 million.
Results
of Operations for 2006 Compared to 2005
Combined
Operations
The following table sets forth our combined results of
operations for 2006 and 2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Percentage
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Change
|
|
|
Net sales
|
|
$
|
4,735
|
|
|
|
100.0
|
%
|
|
$
|
3,205
|
|
|
|
100.0
|
%
|
|
|
47.7
|
%
|
Cost of sales
|
|
|
1,994
|
|
|
|
42.1
|
|
|
|
1,120
|
|
|
|
34.9
|
|
|
|
78.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,741
|
|
|
|
57.9
|
|
|
|
2,085
|
|
|
|
65.1
|
|
|
|
31.5
|
|
Selling, general and administrative expenses
|
|
|
1,659
|
|
|
|
35.0
|
|
|
|
1,179
|
|
|
|
36.8
|
|
|
|
40.7
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
1.5
|
|
|
|
26
|
|
|
|
0.8
|
|
|
|
165.4
|
|
Restructuring costs
|
|
|
27
|
|
|
|
0.6
|
|
|
|
10
|
|
|
|
0.3
|
|
|
|
NM
|
|
Loss/(gain) on disposal of property and intangible assets, net
|
|
|
(32
|
)
|
|
|
(0.6
|
)
|
|
|
(36
|
)
|
|
|
(1.1
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,018
|
|
|
|
21.4
|
|
|
|
906
|
|
|
|
28.3
|
|
|
|
12.4
|
|
Interest expense
|
|
|
257
|
|
|
|
5.4
|
|
|
|
210
|
|
|
|
6.6
|
|
|
|
22.4
|
|
Interest income
|
|
|
(46
|
)
|
|
|
(1.0
|
)
|
|
|
(40
|
)
|
|
|
(1.2
|
)
|
|
|
(15.0
|
)
|
Other expense/(income)
|
|
|
2
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(1.6
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
805
|
|
|
|
17.0
|
|
|
|
787
|
|
|
|
24.5
|
|
|
|
2.3
|
|
Provision for income taxes
|
|
|
298
|
|
|
|
6.3
|
|
|
|
321
|
|
|
|
10.0
|
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
507
|
|
|
|
10.7
|
|
|
|
466
|
|
|
|
14.5
|
|
|
|
8.8
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
3
|
|
|
|
0.1
|
|
|
|
21
|
|
|
|
0.7
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
510
|
|
|
|
10.8
|
|
|
|
487
|
|
|
|
15.2
|
|
|
|
4.7
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
0.3
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
|
10.8
|
%
|
|
$
|
477
|
|
|
|
14.9
|
%
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Net Sales. The $1,530 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $1,462 million mainly due
to the inclusion of our bottling group acquisitions. The
remaining $68 million increase was due primarily to higher
pricing, improved sales mix and favorable foreign currency
translation. Volumes declined 1.4% primarily reflecting the
impact of higher pricing in the Finished Goods segment and lower
Beverage Concentrates volumes primarily due to 7UP and Diet
Rite, which were partially offset by growth in our Mexico and
the Caribbean segment. The disposal of a brand and a business
reduced net sales by less than 1%.
Gross Profit. The $656 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $570 million mainly due to
the inclusion of our bottling group acquisitions. The remaining
$86 million increase was primarily due to net sales growth,
partially offset by higher raw material costs, including PET,
glass and sweeteners. As a result of the bottling acquisitions,
we were also able to reduce the use of external co-packing,
which lowered overall production costs.
Gross margin was 58% in 2006 and 65% in 2005. The decrease in
gross margin was due to the inclusion of our bottling
acquisitions, which generally have lower margins than our other
businesses.
Selling, General and Administrative
Expenses. The $480 million increase was
primarily due to increases in our Bottling Group segment, which
contributed an additional $484 million of expenses mainly
due to the inclusion of our bottling group acquisitions. The
remaining $4 million decrease was primarily due to lower
marketing investments as well as reduced stock option and
pension expenses, partially offset by higher transportation
costs driven by fuel and general inflation for wages and
benefits.
Depreciation and Amortization. The
$43 million increase was primarily due to higher
depreciation on property, plant and equipment and amortization
of definite lived intangible assets following our bottling
acquisitions.
Restructuring Costs. In 2006, the
$27 million in expenses was primarily related to
integration costs associated with our bottling acquisitions, as
well as the outsourcing of certain back office functions, such
as accounts payable and travel and entertainment management, to
a third-party provider, and a reorganization of our information
technology functions. The integration costs associated with our
bottling acquisitions primarily related to the alignment of
management information systems, the consolidation of back office
operations from the acquired businesses, the elimination of
duplicate functions, and employee relocations. In 2005, the
$10 million in expenses was primarily related to costs from
the restructuring of our four North American businesses
(Motts, Snapple, Dr Pepper/Seven Up and Mexico) into a
combined management reporting unit, that occurred in 2004 and
the further consolidation of our back office operations that
began in 2004.
Gain on Disposal of Property and Intangible
Assets. In 2006, we recognized a $32 million
gain on the disposals of assets attributable to the disposals of
the Grandmas Molasses brand and Slush Puppie business. In
2005, we recognized a $36 million gain on the disposal of
the Holland House brand.
Income from Operations. The $112 million
increase was primarily due to the net impact of our bottling
acquisitions and strong performance from our Beverage
Concentrates segment, partially offset by higher restructuring
costs.
Interest Expense. The $47 million
increase was primarily due to the increase in related party debt
as a result of the bottling acquisitions, which resulted in
higher interest expense of $67 million. There was a further
increase of $18 million due to higher interest rates on our
variable rate related party debt. These increases were partially
offset by a reduction of $43 million related to the
repayment of certain related party debt.
Interest Income. The $6 million increase
is primarily due to fluctuations in related party note
receivable balances with subsidiaries of Cadbury.
Other expense (income). The $53 million
decrease was primarily due to the non-recurring foreign currency
translation gain generated in 2005 from the redenomination of a
related party debt payable by our Mexico and the Caribbean
segment.
46
Provision for Income Taxes. The effective tax
rates for 2006 and 2005 were 36.9% and 39.7% respectively. The
lower effective rate in 2006 was due to an income tax benefit
related to the American Jobs Creation Act for domestic
manufacturing, a greater benefit from foreign operations,
changes in state, local and foreign income tax rates and shifts
in the relative jurisdictional mix of taxable profits.
Equity in Earnings of Unconsolidated
Subsidiaries. The $18 million decrease was
due to the impact of our increased ownership of DPSUBG. Prior to
May 2, 2006, we owned approximately 45% of DPSUBG and
recorded our share of its earnings on an equity basis. On
May 2, 2006, we increased our ownership from 45% to 100%.
As a result, DPSUBGs results were reflected on a
consolidated basis after May 2, 2006.
Cumulative Effect of Change in Accounting Policy, Net of
Tax. In 2005, we adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment and selected the prospective method
of transition. Accordingly, prior period results were not
restated and the cumulative impact for additional expense of
$10 million was reflected in 2005.
Results
of Operations by Segment for 2006 Compared to 2005
The following tables set forth net sales, and UOP for our
segments for 2006 and 2005, as well as adjustments necessary to
reconcile our total segment results to our combined results
presented in accordance with U.S. GAAP and the elimination
of intersegment transactions (dollars in millions).
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
Finished Goods
|
|
|
1,516
|
|
|
|
1,516
|
|
Bottling Group
|
|
|
2,001
|
|
|
|
241
|
|
Mexico and the Caribbean
|
|
|
408
|
|
|
|
354
|
|
Intersegment eliminations and impact of foreign currency(1)
|
|
|
(520
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment and Bottling
Group sales to the Beverage Concentrates and Finished Goods
segments. These sales are detailed below. Intersegment sales are
eliminated in our audited combined statements of operations. The
increase in these eliminations was due principally to the
inclusion of our 2006 bottling acquisitions. |
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Beverage Concentrates
|
|
$
|
255
|
|
|
$
|
41
|
|
Finished Goods
|
|
|
235
|
|
|
|
174
|
|
Bottling Group
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment sales
|
|
$
|
518
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Underlying operating profit
|
|
|
|
|
|
|
|
|
Beverage Concentrates UOP
|
|
$
|
710
|
|
|
$
|
657
|
|
Finished Goods UOP(1)
|
|
|
228
|
|
|
|
220
|
|
Bottling Group UOP(1)
|
|
|
74
|
|
|
|
(11
|
)
|
Mexico and the Caribbean UOP
|
|
|
102
|
|
|
|
96
|
|
Corporate and other(2)
|
|
|
(10
|
)
|
|
|
14
|
|
Adjustments and eliminations(3)
|
|
|
(299
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
$
|
805
|
|
|
$
|
787
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
(1) |
|
UOP for the Bottling Group and Finished Goods segments have been
recast to reallocate intersegment profit allocations to conform
to the change in 2008 management reporting of segment UOP. The
allocations totaled $56 million and $55 million for
2006 and 2005, respectively. |
|
(2) |
|
Consists of equity in earnings of unconsolidated subsidiaries
and general and administrative expenses not allocated to the
segments. The change was primarily due to a decrease in our
equity in earnings of unconsolidated subsidiaries compared to
2006 as a result of our purchase of the remaining 55% of DPSUBG
in May 2006 and an increase in general and administrative
expenses related to our IT operations. |
|
(3) |
|
Adjustments and eliminations consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Interest expense, net
|
|
$
|
(211
|
)
|
|
$
|
(170
|
)
|
Other (expense) income
|
|
|
(2
|
)
|
|
|
51
|
|
Restructuring costs
|
|
|
(27
|
)
|
|
|
(10
|
)
|
Stock-based compensation expense
|
|
|
(17
|
)
|
|
|
(22
|
)
|
Amortization expense related to intangible assets
|
|
|
(19
|
)
|
|
|
(3
|
)
|
Incremental pension costs
|
|
|
(15
|
)
|
|
|
(25
|
)
|
LIFO inventory adjustment
|
|
|
(3
|
)
|
|
|
(8
|
)
|
Intersegment eliminations and impact of foreign currency
|
|
|
(12
|
)
|
|
|
(10
|
)
|
Gain on disposal of intangible assets
|
|
|
32
|
|
|
|
36
|
|
Elimination of equity earnings in DPSUBG
|
|
|
(5
|
)
|
|
|
(23
|
)
|
Other
|
|
|
(20
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(299
|
)
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
Beverage
Concentrates
The following table details our Beverage Concentrates
segments net sales and UOP for the years ended
December 31, 2006 and 2005 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
$
|
26
|
|
|
|
2.0
|
%
|
UOP
|
|
|
710
|
|
|
|
657
|
|
|
|
53
|
|
|
|
8.1
|
%
|
The $26 million net sales increase was due primarily to
price increases, offset by volume declines of 1.8%. Dr Pepper
volumes increased 0.6% as the result of Soda Fountain
Classics line extensions and Sunkist, A&W and Canada
Dry volumes increased by single digit percentages, but were more
than offset by 7UP and Diet Rite volume declines.
The $53 million UOP increase was due primarily to higher
net sales and lower cost of sales and marketing expenses
(primarily advertising costs), which were partially offset by
higher selling, general and administrative expenses. The lower
cost of sales was driven by a favorable sales mix shift away
from higher cost beverage concentrates products, such as 7UP
Plus and Diet Rite, to non-diet products. The higher selling,
general and administrative expenses related mainly to an
increase in corporate costs following our bottling acquisitions.
Bottler case sales increased 0.9% primarily due to growth in Dr
Pepper following the launch of Dr Pepper Berries &
Cream, the second offering of the Soda Fountain
Classics line extensions, and single digit percentage
increases on Diet Dr Pepper as a result of the Diet Try
It promotion. Sunkist had a double digit volume percentage
increase due to a line extension, and A&W had a single
digit volume percentage increase due to new packaging. These
increases were partially offset by a decline in 7UP and Diet
Rite. The 7UP decline was primarily due to the discontinuation
of 7UP Plus which was partially offset by the volume gains in
the relaunch of 7UP with natural
48
flavors in the third quarter of 2006. The Diet Rite
decline was due to a reallocation of marketing investments from
Diet Rite to Diet 7UP, Diet Sunkist, Diet A&W and Diet
Canada Dry.
Finished
Goods
The following table details our Finished Goods segments
net sales and UOP for the years ended December 31, 2006 and
2005 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
1,516
|
|
|
$
|
1,516
|
|
|
$
|
|
|
|
|
|
%
|
UOP
|
|
|
228
|
|
|
|
220
|
|
|
|
8
|
|
|
|
3.6
|
%
|
Net sales were equal to the prior year as volume declines of
3.0% and an unfavorable sales mix were offset by price
increases. Volume declines in Snapple and Yoo-Hoo more than
offset an increase in Hawaiian Punch.
The $8 million UOP increase was due to lower cost of sales,
partially offset by higher marketing expenses mainly associated
with the launch of Snapple super premium teas. The lower cost of
sales was due to supply chain initiatives, including lower
ingredient costs from product reformulation and lower production
costs as certain products, which were previously co-packed
externally, were manufactured in-house. These cost of sales
reductions were partially offset by an increase in our cost of
HFCS, PET and glass.
Bottling
Group
The following table details our Bottling Group segments
net sales and UOP for the years ended December 31, 2006 and
2005 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
2,001
|
|
|
$
|
241
|
|
|
$
|
1,760
|
|
|
|
NM
|
|
UOP
|
|
|
74
|
|
|
|
(11
|
)
|
|
|
(85
|
)
|
|
|
NM
|
|
Bottling Group results in 2005 included only the results from
the former Snapple Distributors segment. Bottling Groups
2006 results include a full year of sales of $271 million
from the former Snapple Distributors segment, and partial year
results from our 2006 bottling acquisitions. After elimination
of intersegment sales, the impact on our consolidated net sales
was an increase of $1,462 million. UOP was $74 million
on $2,001 million of net sales in 2006 compared to UOP of
($11) million in 2005.
Mexico
and the Caribbean
The following table details our Bottling Group segments
net sales and UOP for the years ended December 31, 2006 and
2005 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
Net sales
|
|
$
|
408
|
|
|
$
|
354
|
|
|
$
|
54
|
|
|
|
15.3
|
%
|
UOP
|
|
|
102
|
|
|
|
96
|
|
|
|
6
|
|
|
|
6.3
|
%
|
The $54 million net sales increase was due to 3.4% volume
growth, increased pricing, improved sales mix and favorable
foreign currency translation. Volumes increased due to growth in
Aguafiel, Clamato and Squirt following our improved penetration
of large retail stores and growth in the third-party distributor
channel. Foreign currency translation favorably impacted net
sales by $15 million.
The $6 million UOP increase was due to the increased net
sales, partially offset by increases in HFCS and PET costs,
higher transportation and distribution costs, increased selling,
general and administrative expenses, and unfavorable foreign
currency translation. Foreign currency translation negatively
impacted cost of sales by $6 million.
49
Critical
Accounting Policies
The process of preparing our financial statements in conformity
with U.S. GAAP requires the use of estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses. These estimates and judgments are based on
historical experience, future expectations and other factors and
assumptions we believe to be reasonable under the circumstances.
The most significant estimates and judgments are reviewed on an
ongoing basis and are revised when necessary. Actual amounts may
differ from these estimates and judgments. A summary of our
significant accounting policies is contained in Note 2 to
our audited combined financial statements included elsewhere in
this prospectus.
The most significant estimates and judgments relate to:
|
|
|
|
|
revenue recognition;
|
|
|
|
valuations of goodwill and other indefinite lived intangibles;
|
|
|
|
stock-based compensation;
|
|
|
|
pension and postretirement benefits; and
|
|
|
|
income taxes.
|
Revenue
Recognition
We recognize sales revenue when all of the following have
occurred: (1) delivery, (2) persuasive evidence of an
agreement exists, (3) pricing is fixed or determinable, and
(4) collection is reasonably assured. Delivery is not
considered to have occurred until the title and the risk of loss
passes to the customer according to the terms of the contract
between us and the customer. The timing of revenue recognition
is largely dependent on contract terms. For sales to other
customers that are designated in the contract as
free-on-board
destination, revenue is recognized when the product is delivered
to and accepted at the customers delivery site.
In addition, we offer a variety of incentives and discounts to
bottlers, customers and consumers through various programs to
support the distribution and promotion of our products. These
incentives and discounts include cash discounts, price
allowances, volume based rebates, product placement fees and
other financial support for items such as trade promotions,
displays, new products, consumer incentives and advertising
assistance. These incentives and discounts, which we
collectively refer to as trade spend, are reflected as a
reduction of gross sales to arrive at net sales. Trade spend for
2007 and 2006 includes the effect of our bottling acquisitions
where the amounts of such spend are larger than those related to
other parts of our business. The aggregate deductions from gross
sales recorded by us in relation to these programs were
approximately $3,159 million, $2,440 million and
$928 million in 2007, 2006 and 2005, respectively. Net
sales are also reported net of sales taxes and other similar
taxes.
Goodwill
and Other Indefinite Lived Intangible Assets
The majority of our intangible asset balances are made up of
goodwill and brands which we have determined to have indefinite
useful lives. In arriving at the conclusion that a brand has an
indefinite useful life, we review factors such as size,
diversification and market share of each brand. We expect to
acquire, hold and support brands for an indefinite period
through consumer marketing and promotional support. We also
consider factors such as our ability to continue to protect the
legal rights that arise from these brand names indefinitely or
the absence of any regulatory, economic or competitive factors
that could truncate the life of the brand name. If the criteria
are not met to assign an indefinite life, the brand is amortized
over its expected useful life.
We conduct impairment tests on goodwill and all indefinite lived
intangible assets annually, as of December 31, or more
frequently if circumstances indicate that the carrying amount of
an asset may not be recoverable. We use present value and other
valuation techniques to make this assessment. If the carrying
amount of an intangible asset exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess.
Impairment tests for goodwill include comparing the fair value
of the respective reporting units, which are our segments, with
their carrying amount, including goodwill. Goodwill is evaluated
using a two-step impairment test at the reporting unit level.
The first step compares the carrying amount of a reporting unit,
including goodwill, with its
50
fair value. If the carrying amount of a reporting unit exceeds
its fair value, a second step is completed to determine the
amount of goodwill impairment loss to record. In the second
step, an implied fair value of the reporting units
goodwill is determined by allocating the fair value of the
reporting unit to all of the assets and liabilities other than
goodwill. The amount of impairment loss is equal to the excess
of the carrying amount of the goodwill over the implied fair
value of that goodwill. See Note 8 to our audited combined
financial statements for the years ended December 31, 2007,
December 31, 2006 and January 1, 2006, included
elsewhere in this prospectus.
The tests for impairment include significant judgment in
estimating fair value primarily by analyzing future revenues and
profit performance. Assumptions used on our impairment
calculations, such as our cost of capital and the appropriate
discount rates are based on the best available market
information and are consistent with our internal operating
forecasts. These assumptions could be negatively impacted by
various of the risks discussed in Risk Factors in
this prospectus.
Stock-Based
Compensation
On January 3, 2005, we adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment
(SFAS 123(R)). SFAS 123(R) requires
the recognition of compensation expense in our Combined
Statements of Operations related to the fair value of employee
share-based awards. Prior to the adoption of SFAS 123(R),
we applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB25) and related interpretations when
accounting for our stock-based compensation plans. We have
selected the modified prospective method of transition;
accordingly, prior periods have not been restated. Upon adoption
of SFAS 123(R), for awards which are classified as
liabilities we were required to reclassify the APB 25 historical
compensation cost from equity to liability and to recognize the
difference between this and the fair value liability through the
statement of operations.
We selected the Black-Scholes option pricing model as the most
appropriate method for determining the estimated fair value for
stock-based awards. The Black-Scholes option pricing model
requires the use of highly subjective and complex assumptions
which determine the fair value of stock-based awards, including
the options expected term, expected volatility of the
underlying stock, risk-free rate, and expected dividends. These
assumptions significantly affect the stock compensation charges
associated with each grant and in the case of liability plans,
the cost associated with remeasuring the liability at each
balance sheet date. Moreover, changes in forfeiture rates affect
the timing and amount of stock compensation expense recognized
over the requisite service period.
Under SFAS 123(R), we recognize the cost of all unvested
employee stock options on a straight-line attribution basis over
their respective vesting periods, net of estimated forfeitures.
In addition, prior to the separation, we had certain employee
share plans that contained inflation indexed earnings growth
performance conditions. SFAS 123(R) requires plans with
such performance criteria to be accounted for under the
liability method. The liability method, as set out in
SFAS 123(R), requires a liability be recorded on the
balance sheet until awards have vested. Upon the separation, all
awards under these plans vested. Also, in calculating the income
statement charge for share awards under the liability method as
set out in SFAS 123(R), the fair value of each award must
be remeasured at each reporting date until vesting.
The compensation expense related to our stock-based compensation
plans is included within selling, general and
administrative expenses in our Combined Statements of
Operations. We recognized approximately $21 million
($13 million net of tax), $17 million
($10 million net of tax) and $22 million
($13 million net of tax) of expense in 2007, 2006 and 2005,
respectively. See Note 14 to our audited combined financial
statements for a further description of the stock-based
compensation plans.
Pension
and Postretirement Benefits
We have several pension and postretirement plans covering our
employees who satisfy age and length of service requirements.
There are seven defined benefit pension plans and three
postretirement plans. Depending on the plan, pension and
postretirement benefits are based on a combination of factors,
which may include salary, age and years of service. One of the
seven defined benefit plans is an unfunded pension plan that
provides supplemental pension benefits to certain former senior
executives, and is accounted for as a defined contribution plan.
51
Pension expense has been determined in accordance with the
principles of SFAS No. 87, Employers
Accounting for Pensions which requires use of the
projected unit credit method for financial
reporting. We adopted the provisions of SFAS No. 158
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An amendment of Financial
Accounting Standards Board Statements No. 87, 88, 106, and
132(R) (SFAS 158) related to recognizing
the funded status of a benefit plan and the disclosure
requirements on December 31, 2006. We have elected to defer
the change of measurement date as permitted by SFAS 158
until December 31, 2008. Our policy is to fund pension
plans in accordance with the requirements of the Employee
Retirement Income Security Act. Employee benefit plan
obligations and expenses included in the combined financial
statements are determined from actuarial analyses based on plan
assumptions, employee demographic data, years of service,
compensation, benefits and claims paid and employer
contributions.
The expense related to the postretirement plans has been
determined in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions (SFAS 106). As provided in
SFAS 106, we accrue the cost of these benefits during the
years that employees render service to us.
The calculation of pension and postretirement plan obligations
and related expenses is dependent on several assumptions used to
estimate the present value of the benefits earned while the
employee is eligible to participate in the plans. The key
assumptions we use in determining the plan obligations and
related expenses include: (1) the interest rate used to
calculate the present value of the plan liabilities,
(2) employee turnover, retirement age and mortality and
(3) the expected return on plan assets. Our assumptions
reflect our historical experience and our best judgment
regarding future performance. Due to the significant judgment
required, our assumptions could have a material impact on the
measurement of our pension and postretirement obligations and
expenses.
See Note 13 to our audited combined financial statements
for more information about the specific assumptions used in
determining the plan obligations and expenses.
Income
Taxes
Prior to our separation from Cadbury on May 7, 2008, we
were included in the consolidated tax return of Cadburys
Americas operations. Our financial statements reflected a tax
provision as if we filed our own separate return. Subsequent to
the separation, we determine our tax rate based on our annual
net income before tax, statutory tax rates, tax planning
benefits available to us in the jurisdictions in which we
operate and the Tax Indemnity Agreement. Significant judgment is
required in determining our annual tax rate and in evaluating
our tax positions. We establish reserves when we believe certain
positions may be subject to challenge. We adjust these reserves
as the facts and circumstances of each position changes.
Deferred taxes are recognized for future tax effects of
temporary differences between financial and income tax reporting
using rates in effect for the years in which the differences are
expected to reverse. We establish valuation allowances for our
deferred tax assets when we believe expected future taxable
income is not likely to support the use of a deduction or credit
in that tax jurisdiction.
We have adopted the provisions of FIN 48, Accounting for
Uncertainty in Income Taxes (FIN 48)
effective January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
The establishment of a liability for unrecognized tax benefits
requires us to identify whether a tax position is more likely
than not to be sustained upon examination by tax authorities and
also required us to estimate the largest amount of tax benefit
that is greater than 50% likely to be realized upon settlement.
Whether a tax position is more likely than not to be
sustainable, and determining the largest amount that is more
likely than not to be realizable upon settlement, are subject to
judgment. Changes in judgment can occur between initial
recognition through settlement or ultimate derecognition based
upon changes in facts, circumstances and information available
at each reporting date. See Note 9 to our audited combined
financial statements for additional information related to
FIN 48.
52
Our effective tax rate for 2007 was 39.3%. See Note 9 to
our audited combined financial statements.
Liquidity
and Capital Resources
The financial information within the following discussion of
liquidity and capital resources reflects the effects of the
restatement to cash flows for the nine months ended
September 30, 2007, as more fully described in Note 19
to our unaudited condensed consolidated financial statements.
Trends
and Uncertainties Affecting Liquidity
We believe that the following recent transactions and trends and
uncertainties may impact liquidity:
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We incurred significant third-party debt in connection with the
separation. Our debt ratings are Baa3 with a stable outlook from
Moodys Investor Service and BBB- with a negative outlook
from Standard & Poors;
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We will continue to make capital expenditures to build new
manufacturing capacity, upgrade our existing plants and
distribution fleet of trucks, replace and expand our cold drink
equipment, make IT investments for IT systems, and from
time-to-time invest in restructuring programs in order to
improve operating efficiencies and lower costs;
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We assumed significant pension obligations in connection with
the separation; and
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We may make further acquisitions.
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New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing consisting of a term loan A
facility, a revolving credit facility and a bridge loan facility.
On April 11, 2008, these arrangements were amended and
restated. The amended and restated arrangements consist of a
$2.7 billion senior unsecured credit agreement that
provides a $2.2 billion term loan A facility and a
$500 million revolving credit facility (collectively, the
senior unsecured credit facility) and a
364-day
bridge credit agreement that provides a $1.7 billion bridge
loan facility.
During 2008, we borrowed $2.2 billion under the term loan A
facility. We made combined mandatory and optional repayments
toward the principal totaling $295 million for the nine
months ended September 30, 2008.
We are required to pay annual amortization in equal quarterly
installments on the aggregate principal amount of the term loan
A equal to: (i) 10% , or $220 million, per year for
installments due in the first and second years following the
initial date of funding, (ii) 15%, or $330 million,
per year for installments due in the third and fourth years
following the initial date of funding, and (iii) 50%, or
$1.1 billion, for installments due in the fifth year
following the initial date of funding.
The revolving credit facility has an aggregate principal amount
of $500 million with a term of five years. Up to
$75 million of the revolving credit facility is available
for the issuance of letters of credit, of which $39 million
was utilized as of September 30, 2008. Principal amounts
outstanding under the revolving credit facility are due and
payable in full at maturity. We may use borrowings under the
revolving credit facility for working capital and general
corporate purposes.
The senior unsecured credit facility requires us to comply with
a maximum total leverage ratio covenant and a minimum interest
coverage ratio covenant, as defined in the credit agreement. The
senior unsecured credit facility also contains certain usual and
customary representations and warranties, affirmative covenants
and events of default. As of September 30, 2008, we were in
compliance with all covenant requirements.
During 2008, we completed the issuance of $1.7 billion
aggregate principal amount of senior unsecured notes (referred
to as the unregistered notes in this prospectus)
consisting of $250 million aggregate principal amount of
6.12% senior notes due 2013, $1.2 billion aggregate
principal amount of 6.82% senior notes due 2018, and
$250 million aggregate principal amount of
7.45% senior notes due 2038. The weighted average interest
cost of the
53
senior unsecured notes is 6.8%. Interest on the senior unsecured
notes is payable semi-annually on May 1 and November 1 and is
subject to adjustment as defined.
The indenture governing the notes, among other things, limits
our ability to incur indebtedness secured by principal
properties, to incur certain sale and lease back transactions
and to enter into certain mergers or transfers of substantially
all of our assets. The notes are guaranteed by substantially all
of our existing and future direct and indirect domestic
subsidiaries.
On May 7, 2008, upon our separation from Cadbury, the
borrowings under the term loan A facility and the net proceeds
of the notes were released from the collateral accounts and
escrow accounts. We used the funds to settle with Cadbury
related party debt and other balances, eliminate Cadburys
net investment in us, purchase certain assets from Cadbury
related to our business and pay fees and expenses related to our
credit facilities.
On April 11, 2008, we borrowed $1.7 billion under the
bridge loan facility to reduce financing risks and facilitate
Cadburys separation of us. All of the proceeds from the
borrowings were placed into interest-bearing collateral
accounts. On April 30, 2008, borrowings under the bridge
loan facility were released from the collateral account
containing such funds and returned to the lenders and the
364-day
bridge loan facility was terminated. Upon the termination of the
bridge loan facility, we expensed $21 million of financing
fees associated with the facility. Additionally, we incurred
$3 million of net interest expense associated with the
bridge loan facility.
Cash
Management
Prior to separation, our cash was available for use and was
regularly swept by Cadbury operations in the United States at
its discretion. Cadbury also funded our operating and investing
activities as needed. We earned interest income on certain
related-party balances. Our interest income has been reduced due
to the settlement of the related party balances upon separation
and, accordingly, we expect interest income for the remainder of
2008 to be minimal.
Post separation, we fund our liquidity needs from cash flow from
operations and amounts available under financing arrangements.
Capital
Expenditures
Capital expenditures were $203 million and
$123 million for the nine months ended September 30,
2008 and 2007, respectively, and $230 million and
$158 million for 2007 and 2006, respectively. Capital
expenditures for the nine months ended September 30, 2008,
included $9 million of IT assets purchased in connection
with our separation from Cadbury. Capital expenditures for all
periods primarily consisted of expansion of our capabilities in
existing facilities, cold drink equipment and IT investments for
new systems. The increase in expenditures for the nine months
ended September 30, 2008, was primarily related to early
stage costs of a new manufacturing and distribution center in
Victorville, California. The increase in 2007 was primarily due
to the inclusion of our bottling acquisitions. We continue to
expect to incur annual capital expenditures in an amount equal
to approximately 5% of our net sales.
Restructuring
We implement restructuring programs from time to time and incur
costs that are designed to improve operating effectiveness and
lower costs. These programs have included closure of
manufacturing plants, reductions in force, integration of back
office operations and outsourcing of certain transactional
activities. We recorded $31 million of restructuring costs
for the nine months ended September 30, 2008, and we expect
to incur approximately $12 million of additional pre-tax,
non-recurring charges in 2008 with respect to our ongoing
restructuring programs. For more information, see Note 9 in
to our unaudited condensed consolidated financial statements. We
recorded $76 million and $27 million for 2007 and
2006, respectively. For more information, see Note 12 to
our audited combined financial statements.
54
Pension
Obligations
Effective January 1, 2008, we separated pension and
postretirement plans in which certain of our employees
participate and which historically contained participants of our
company and other Cadbury global companies. As a result, we
re-measured the projected benefit obligation of the separated
plans and recorded the assumed liabilities and assets based on
the number of our participants. The re-measurement resulted in
an increase of approximately $71 million to our other
non-current liabilities and a decrease of approximately
$66 million to accumulated other comprehensive income, a
component of invested equity.
In the third quarter of 2008, our compensation committee
approved the suspension of one of our principal defined benefit
pension plans. Effective December 31, 2008, participants in
the plan will not earn additional benefits for future services
or salary increases. However, current participants will be
eligible to participate in our defined contribution plan
effective January 1, 2009. Accordingly, we recorded a
pension curtailment charge of $2 million in the three
months ended September 30, 2008.
We contributed $17 million to our pension plans during the
nine months ended September 30, 2008, and we do not expect
to contribute additional amounts to these plans during the
remainder of 2008. We have assessed the impact of recent
financial events on our pension asset returns and we anticipate
there will be no impact on our ability to meet our 2009
contribution requirements.
Acquisitions
We may make further acquisitions. For example, we may make
further acquisitions of regional bottling companies,
distributors and distribution rights to further extend our
geographic coverage. Any acquisitions may require future capital
expenditures and restructuring expenses.
Liquidity
Based on our current and anticipated level of operations, we
believe that our proceeds from operating cash flows, together
with amounts available under our financing arrangements, will be
sufficient to meet our anticipated liquidity needs over at least
the next twelve months. Recent global financial events have
resulted in the consolidation, failure or near failure of a
number of institutions in the banking, insurance and investment
banking industries and have substantially reduced the ability of
companies to obtain financing. We have assessed the implications
of the recent financial events on our current business and
determined that these market disruptions have not had a
significant impact on our financial position, results of
operations or liquidity as of September 30, 2008.
The following table summarizes our cash activity for the nine
months ended September 30, 2008 and 2007 and for the three
fiscal years 2007, 2006 and 2005 (in millions):
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For the Nine Months
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Ended September 30,
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For the Fiscal Year
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|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net cash provided by operating activities
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|
$
|
523
|
|
|
$
|
706
|
|
|
$
|
603
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|
|
$
|
581
|
|
|
$
|
583
|
|
Net cash provided by (used in) investing activities
|
|
|
1,175
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|
|
|
(1,450
|
)
|
|
|
(1,087
|
)
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|
|
(502
|
)
|
|
|
283
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|
Net cash (used in) provided by financing activities
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|
|
(1,523
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)
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|
|
742
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|
|
|
515
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|
|
|
(72
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)
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|
|
(815
|
)
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Net
Cash Provided by Operating Activities
Net cash provided by operating activities was $523 million
and $706 million for the nine months ended
September 30, 2008 and 2007, respectively. The year
over year decrease in cash provided by operating activities of
$183 million was primarily driven by our separation from
Cadbury. Reflected in the net cash provided by operating
activities of $706 million for the nine months ended
September 30, 2007, was net cash provided by an increase in
related party payables of $350 million which was primarily
related to transactions necessary to facilitate our separation
from Cadbury. This compared with cash used to pay related party
payables of $70 million for the nine
55
months ended September 30, 2008, which was associated with
our separation from Cadbury. The $50 million decrease in
net income included the write-off of $21 million of
deferred financing costs related to our bridge loan facility and
an increase of $55 million in deferred income taxes. The
remaining increase in cash provided by operating activities was
due to improvements in working capital. Working capital
improvements included a $51 million favorable decrease in
trade accounts receivable due to reduced collection times, a
$35 million favorable decrease in inventory due to improved
inventory management and lower sales volumes, and a
$78 million favorable increase in accounts payable and
accrued expenses driven by an increase in interest accruals
associated with the $3.9 billion in financing arrangements
in 2008 and a decrease in accruals associated with litigation in
2007, partially offset by a decrease in trade accounts payable
due to payment timing.
Net cash provided by operating activities in 2007 was
$603 million compared to $581 million in 2006. The
$22 million increase was primarily due to changes in
non-cash adjustments and working capital improvements. The
increase in working capital was primarily the result of a
$99 million increase in accounts payable and accrued
expenses and a $74 million decrease in trade accounts
receivable. These changes were partially offset by increases in
related party receivables of $55 million, other accounts
receivable of $84 million and inventories of
$27 million.
Net cash from operating activities in 2006 was $581 million
compared to $583 million in 2005. The $2 million
decrease was primarily due to a decrease in our cash flows from
working capital of $89 million partially offset by an
increase in net earnings of $33 million, an increase in
depreciation of $46 million and an increase in amortization
of $14 million. Changes in working capital were a decreased
source of cash flow from operations in 2006 compared to 2005,
primarily as a result of a $138 million decrease from
accounts payables and accrued expenses, partially offset by a
$20 million decrease from receivables.
Net
Cash Provided by Investing Activities
Net cash provided by investing activities was
$1,175 million for the nine months ended September 30,
2008, compared to net cash used in investing activities of
$1,450 million for the nine months ended September 30,
2007. The increase of $2,625 million in cash provided by
investing activities for the nine months ended
September 30, 2008, compared with the nine months ended
September 30, 2007, was primarily attributable to related
party notes receivable due to the separation from Cadbury. For
the nine months ended September 30, 2007, cash provided by
net issuances of related party notes receivable totaled
$1,304 million compared with cash used by net repayments of
related party notes receivable of $1,375 million for the
nine months ended September 30, 2008. We increased capital
expenditures by $80 million in the current year, primarily
due to early stage costs of a new manufacturing and distribution
center in Victorville, California. Capital asset investments for
both years primarily consisted of expansion of our capabilities
in existing facilities, replacement of existing cold drink
equipment, IT investments for new systems, and upgrades to the
vehicle fleet. Additionally, cash used in investing activities
for the nine months ended September 30, 2007, included
$20 million of net cash used in the acquisition of SeaBev.
Net cash used in investing activities in 2007 was
$1,087 million compared to $502 million in 2006. The
increase of $585 million was primarily attributable to the
issuance of notes receivable for $1,846 million, partially
offset by $842 million due to the repayment of notes
receivable and a decrease of $405 million for acquisitions,
principally the acquisition in 2006 of the remaining 55%
interest in DPSUBG.
Net cash used in investing activities in 2006 was
$502 million compared to $283 million provided by
investing activities in 2005. The $785 million increase in
2006 was primarily due to the acquisition of the remaining 55%
interest in DPSUBG, higher purchases of property, plant, and
equipment, and lower proceeds from asset sales.
Net
Cash Provided by Financing Activities
Net cash used in financing activities was $1,523 million
for the nine months ended September 30, 2008 compared to
net cash provided by financing activities of $742 million
for the nine months ended September 30, 2007. The increase
of $2,265 million in cash used in financing activities was
driven by the change in Cadburys investment as part of our
separation from Cadbury. This increase was partially offset by
the issuances and payments on long-term debt.
56
The following table summarizes the issuances and payments of
third party and related party debt for the nine months ending
September 30, 2008 and 2007 (in millions):
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For the Nine Months Ended
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September 30,
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2008
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2007
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|
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Issuances of Third Party Debt:
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|
|
|
|
|
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Senior unsecured credit facility
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$
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2,200
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|
|
$
|
|
|
Senior unsecured notes
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|
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1,700
|
|
|
|
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|
Bridge loan facility
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|
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1,700
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|
|
|
|
|
|
|
|
|
|
|
|
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Total issuances of debt
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$
|
5,600
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
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Payments on Third Party Debt:
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|
|
|
|
|
|
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Senior unsecured credit facility
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$
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(295
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)
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|
$
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|
|
Bridge loan facility
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|
|
(1,700
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)
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|
|
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|
Other payments
|
|
|
(3
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)
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|
|
|
|
|
|
|
|
|
|
|
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Total payments on debt
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|
$
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(1,998
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)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net change in third party debt
|
|
$
|
3,602
|
|
|
$
|
|
|
|
|
|
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|
|
|
|
|
|
|
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For the Nine Months Ended
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|
September 30,
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2008
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|
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2007
|
|
|
Issuances of Related Party Debt:
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|
|
|
|
|
|
|
|
Issuances of related party debt
|
|
$
|
1,615
|
|
|
$
|
2,803
|
|
|
|
|
|
|
|
|
|
|
Payments on Related Party Debt:
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|
|
|
|
|
|
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Payments on related party debt
|
|
$
|
(4,664
|
)
|
|
$
|
(3,232
|
)
|
|
|
|
|
|
|
|
|
|
Net change in related party debt
|
|
$
|
(3,049
|
)
|
|
$
|
(429
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities in 2007 was
$515 million compared to $72 million used in financing
activities in 2006. The $587 million increase in 2007 was
due to higher levels of debt issuances and net investment
transactions with Cadbury, partially offset by increases in debt
repayment.
Net cash used in financing activities in 2006 was
$72 million compared to $815 million in 2005. The
$743 million decrease in 2006 was primarily due to
increases in net long-term debt and net investment transactions
with, and cash distributions to, Cadbury.
Cash
and Cash Equivalents
Cash and cash equivalents were $239 million as of
September 30, 2008, an increase of $172 million from
$67 million as of December 31, 2007. The increase was
primarily due to our separation from Cadbury. Historically, our
excess cash was regularly swept by Cadbury. As part of the
separation transaction, Cadbury was required to leave at least
$100 million in cash for our use for working capital and
general corporate purposes. In addition, Cadbury funded
$72 million in transaction related costs to be paid post
separation.
As a newly separated company, we will maintain a higher level of
liquidity in the current credit market environment and manage
our peaks by a build and subsequent reduction in cash. Our cash
balances will be used to fund working capital requirements,
scheduled debt payments, interest payments, capital expenditures
and income tax obligations. Cash available in our foreign
operations may not be immediately available for these purposes.
Foreign cash balances constitute approximately 41% of our total
cash position as of September 30, 2008.
57
Contractual
Commitments and Obligations
We enter into various contractual obligations that impact, or
could impact, our liquidity. The following table summarizes our
contractual obligations and contingencies at December 31,
2007, for which there have been no material changes through
September 30, 2008 (in millions). See Notes 10 and 13
to our audited combined financial statements included elsewhere
in this prospectus for additional information regarding the
items described in this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2012
|
|
|
Capital leases(1)
|
|
$
|
21
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
7
|
|
Operating leases(2)
|
|
|
281
|
|
|
|
72
|
|
|
|
53
|
|
|
|
45
|
|
|
|
36
|
|
|
|
29
|
|
|
|
46
|
|
Purchase obligations(3)
|
|
|
122
|
|
|
|
36
|
|
|
|
24
|
|
|
|
20
|
|
|
|
11
|
|
|
|
10
|
|
|
|
21
|
|
Other long-term liabilities(4)
|
|
|
44
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
24
|
|
|
|
|
(1) |
|
Amounts represent capitalized lease obligations, net of
interest. Interest in respect of capital leases is included
under the caption Interest payments on this table. |
|
(2) |
|
Amounts represent minimum rental commitment under non-cancelable
operating leases. |
|
(3) |
|
Amounts represent payments under agreements to purchase goods or
services that are legally binding and that specify all
significant terms, including long-term contractual obligations. |
|
(4) |
|
Amounts represent estimated pension and postretirement benefit
payments for U.S. and
non-U.S.
defined benefit plans. |
In connection with our separation from Cadbury, we incurred
significant third-party debt and amounts payable to Cadbury. The
table below summarizes our contractual obligations and
contingencies to reflect the third-party debt and amounts due to
Cadbury as of September 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2012
|
|
|
Senior unsecured credit facility
|
|
$
|
1,905
|
|
|
$
|
|
|
|
$
|
90
|
|
|
$
|
302.5
|
|
|
$
|
330
|
|
|
$
|
907.5
|
|
|
$
|
275
|
|
Senior unsecured notes
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700
|
|
Interest payments(1)
|
|
|
1,160
|
|
|
|
136
|
|
|
|
220
|
|
|
|
208
|
|
|
|
206
|
|
|
|
177
|
|
|
|
213
|
|
Payable to Cadbury(2)
|
|
|
137
|
|
|
|
1
|
|
|
|
21
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
85
|
|
|
|
|
(1) |
|
Amounts represent our estimated interest payments based on
projected interest rates for floating rate debt and specified
interest rates for fixed rate debt. |
|
(2) |
|
Additional amounts payable to Cadbury of approximately
$11 million are excluded from the table above as due to
uncertainty regarding the timing of payments associated with
these liabilities we are unable to make a reasonable estimate of
the amount and period for which these liabilities might be paid. |
In accordance with the provisions of FIN 48, we had
$521 million of unrecognized tax benefits as of
September 30, 2008. The table above does not reflect any
payments we may be required to make in respect of tax matters
for which we have established reserves in accordance with
FIN 48. Due to uncertainty regarding the timing of payments
associated with these liabilities, we are unable to make a
reasonable estimate of the amount and period for which these
liabilities might be paid and therefore are not included in the
above table.
Through September 30, 2008, there have been no material
changes to the amounts relating to capital and operating leases,
purchase obligations and other liabilities in the contractual
obligation table.
Effect of
Recent Accounting Pronouncements
In October 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active
(FSP 157-3).
58
FSP 157-3
clarifies the application of FASB Statement of Financial
Accounting Standards (SFAS) No. 157, Fair
Value Measurements (SFAS 157), in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
FSP 157-3
was effective for us on September 30, 2008, for all
financial assets and liabilities recognized or disclosed at fair
value in our condensed consolidated financial statements on a
recurring basis. The adoption of this provision did not have a
material impact on our condensed consolidated financial
statements.
In September 2008, the FASB issued FASB Staff Position
No. 133-1
and
FIN 45-4,
Disclosures about Credit Derivatives and Certain Guarantees:
An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective
Date of FASB Statement No. 161
(FSP 133-1).
FSP 133-1
amends and enhances disclosure requirements for sellers of
credit derivatives and financial guarantees.
FSP 133-1
also clarifies the effective date of SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). We are currently
evaluating the effect, if any, that the adoption of
FSP 133-1
will have on our consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements for nongovernmental entities that are presented in
conformity with generally accepted accounting principles in the
United States. SFAS 162 will be effective 60 days
following the SECs approval. We do not expect that this
statement will result in a change in our current practice.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the
useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). This standard is
intended to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141(R)) and other GAAP.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement
provisions of this standard will apply only to intangible assets
acquired after the effective date.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161
changes the disclosure requirements for derivative instruments
and hedging activities, requiring enhanced disclosures about how
and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under
SFAS 133, and how derivative instruments and related hedged
items affect an entitys financial position, financial
performance and cash flows. SFAS 161 is effective for
fiscal years beginning after November 15, 2008. We will
provide the required disclosures for all our filings for periods
subsequent to the effective date.
In December 2007, the FASB issued SFAS 141(R).
SFAS 141(R) will significantly change how business
acquisitions are accounted for and will impact financial
statements both on the acquisition date and in subsequent
periods. Some of the changes, such as the accounting for
contingent consideration, will introduce more volatility into
earnings. SFAS 141(R) is effective for us beginning
January 1, 2009, and we will apply SFAS 141(R)
prospectively to all business combinations subsequent to the
effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51 (SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to the controlling
and noncontrolling interests. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. We will
apply SFAS 160 prospectively to all applicable transactions
subsequent to the effective date.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
Including an amendment to FASB Statement No. 115
(SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain
other items at fair value. Unrealized gains and losses on items
for
59
which the fair value of option has been elected will be
recognized in earnings at each subsequent reporting date.
SFAS No. 159 was effective for us on January 1,
2008. The adoption of SFAS No. 159 did not have a
material impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about
fair value measurements. SFAS 157 is effective for us
January 1, 2008. However, in February 2008, the FASB
released FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP
FAS 157-2),
which delayed the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The
adoption of SFAS 157 for our financial assets and
liabilities did not have a material impact on our consolidated
financial statements. We do not believe the adoption of
SFAS 157 for our non-financial assets and liabilities,
effective January 1, 2009, will have a material impact on
our consolidated financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Inflation
The principal effect of inflation on our operating results is to
increase our costs. Subject to normal competitive market
pressures, we seek to mitigate the impact of inflation by
raising prices.
We are exposed to market risks arising from changes in market
rates and prices, including movements in foreign currency
exchange rates, interest rates, and commodity prices.
Foreign
Exchange Risk
Prior to the separation, Cadbury managed foreign currency risk
on a centralized basis on our behalf. It was Cadburys
practice not to hedge translation exposure. The majority of our
net sales, expenses, and capital purchases are transacted in
United States dollars. However, we do have some exposure with
respect to foreign exchange rate fluctuations. Our primary
exposure to foreign exchange rates is the Canadian dollar and
Mexican peso against the U.S. dollar. Exchange rate gains
or losses related to foreign currency transactions are
recognized as transaction gains or losses in our income
statement as incurred. Foreign exchange forward contracts in
existence prior to the separation relating to our business were
settled with any gain or loss transferred to us. Following the
separation, we may use derivative instruments such as foreign
exchange forward and option contracts to manage our exposure to
changes in foreign exchange rates. For the period ending
September 30, 2008, there were no contracts outstanding.
Interest
Rate Risk
Prior to the separation, Cadbury managed interest rate risk on a
centralized basis on our behalf through the use of interest rate
swap agreements and other risk management instruments. Following
the separation, we centrally manage our debt portfolio and
monitor our mix of fixed-rate and variable rate debt.
We are subject to floating interest rate risk with respect to
our long-term debt under the credit facilities. The principal
interest rate exposure relates to amounts borrowed under our
term loan A facility. We incurred $2.2 billion of debt with
floating interest rates under this facility. A change in the
estimated interest rate on the outstanding $1.9 billion of
borrowings under the term loan A facility up or down by 1% will
increase or decrease our earnings before provision for income
taxes by approximately $19 million, respectively, on an
annual basis. We will also have interest rate exposure for any
amounts we may borrow in the future under the revolving credit
facility.
We utilize interest rate swaps, to manage our exposure to
changes in interest rates. During the third quarter of 2008, we
entered into interest rate swaps to convert variable interest
rates to fixed rates. The swaps were effective as of
September 30, 2008. The notional amount of the swaps is
$500 million and $1,200 million with a duration of six
months and 15 months, respectively, and convert variable
interest rates to fixed rates of 4.8075% and 5.27125%,
respectively.
60
Commodity
Risks
We are subject to market risks with respect to commodities
because our ability to recover increased costs through higher
pricing may be limited by the competitive environment in which
we operate. Our principal commodities risks relate to our
purchases of aluminum, corn (for high fructose corn syrup),
natural gas (for use in processing and packaging), PET and fuel.
Prior to the separation, Cadbury managed hedging of certain
commodity costs on a centralized basis on our behalf through
forward contracts for commodities. The use of commodity forward
contracts has enabled Cadbury to obtain the benefit of
guaranteed contract performance on firm priced contracts offered
by banks, the exchanges and their clearing houses. Commodities
forward contracts in existence prior to the separation relating
to our business were settled with any gain or loss transferred
to us.
Following the separation, we utilize commodities forward
contracts and supplier pricing agreements to hedge the risk of
adverse movements in commodity prices for limited time periods
for certain commodities. The fair market value of these
contracts as of September 30, 2008, was a liability of less
than $1 million.
61
BUSINESS
Our
Company
We are a leading integrated brand owner, bottler and distributor
of non-alcoholic beverages in the United States, Canada and
Mexico with a diverse portfolio of flavored (non-cola) CSDs and
NCBs, including ready-to-drink teas, juices, juice drinks and
mixers. We have some of the most recognized beverage brands in
North America, with significant consumer awareness levels and
long histories that evoke strong emotional connections with
consumers.
The following table provides highlights about our company and
our key brands:
|
|
|
|
|
#1 flavored CSD company in the United States
More than 75% of our volume from brands that are either #1 or #2 in their category
#3 North American liquid refreshment beverage business
$5.7 billion of net sales in 2007 from the United States (89%), Canada (4%) and Mexico and the Caribbean (7%)
$1.0 billion of income from operations in 2007
|
|
|
|
Our Key Brands
|
|
|
|
|
|
|
|
#1 in its flavor category and #2 overall flavored CSD in the United States
Distinguished by its unique blend of 23 flavors and loyal consumer following
Flavors include regular, diet and Soda Fountain Classics line extensions
Oldest major soft drink in the United States, introduced in 1885
|
|
|
|
|
|
|
|
|
A leading ready-to-drink tea in the United States
Teas include premium Snapple teas and super premium white, green, red and black teas
Brand also includes premium juices, juice drinks and recently launched enhanced waters
Founded in Brooklyn, New York in 1972
|
|
|
|
|
|
|
|
|
#2 lemon-lime CSD in the United States
Re-launched in 2006 as the only major lemon-lime CSD with all-natural flavors and no artificial preservatives
Flavors include regular, diet and cherry
The original Un-Cola, created in 1929
|
|
|
|
|
|
|
|
|
#1 apple juice and #1 apple sauce brand in the United States
Juice products include apple and other fruit juices, Motts Plus and Motts for Tots
Apple sauce products include regular, unsweetened, flavored and organic
Brand began as a line of apple cider and vinegar offerings in 1842
|
|
|
|
|
|
|
|
|
#1 orange CSD in the United States
Flavors include orange, diet and other fruits
Licensed to us as a soft drink by the Sunkist Growers Association since 1986
|
|
|
|
62
|
|
|
|
|
|
|
|
#1 fruit punch brand in the United States
Brand includes a variety of fruit flavored and reduced calorie juice drinks
Developed originally as an ice cream topping known as Leos Hawaiian Punch in 1934
|
|
|
|
|
|
|
|
|
#1 root beer in the United States
Flavors include regular and diet root beer and cream soda
A classic all-American soda first sold at a veterans parade in 1919
|
|
|
|
|
|
|
|
|
#1 ginger ale in the United States and Canada
Brand includes club soda, tonic and other mixers
Created in Toronto, Canada in 1904 and introduced in the United States in 1919
|
|
|
|
|
|
|
|
|
#2 ginger ale in the United States and Canada
Brand includes club soda, tonic and other mixers
First carbonated beverage in the world, invented in 1783
|
|
|
|
|
|
|
|
|
#1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
Flavors include regular, diet and ruby red
Founded in 1938
|
|
|
|
|
|
|
|
|
A leading spicy tomato juice brand in the United States, Canada and Mexico
Key ingredient in Canadas popular cocktail, the Bloody Caesar
Created in 1969
|
|
|
|
|
|
|
|
|
#1 carbonated mineral water brand in Mexico
Brand includes Flavors, Twist and Naturel
Mexicos oldest mineral water, founded in 1928
|
|
|
|
|
|
|
|
|
#1 portfolio of mixer brands in the United States
#1 mixer brand (Mr & Mrs T) in the United States
Leading mixers (Margaritaville and Roses) in their flavor categories
|
Note: All information regarding the beverage
market in the United States is from Beverage Digest, and, except
as otherwise indicated, is from 2006. All information regarding
the beverage markets in Canada and Mexico is from Canadean and
is from 2006. All information regarding our brand market
positions in the United States is from ACNielsen and is based on
retail dollar sales in 2007. All information regarding our brand
market positions in Canada is from ACNielsen and is based on
volume in 2007. All information regarding our brand market
positions in Mexico is from Canadean and is based on volume in
2007. For a description of the different methodologies used by
these sources (including sales channels covered), see
Market and Industry Data.
The Sunkist, Roses and Margaritaville logos are registered
trademarks of Sunkist Growers, Inc., Cadbury Ireland Limited and
Margaritaville Enterprises, LLC, respectively, in each case used
by us under license. All other logos in the table above are
registered trademarks of DPS or its subsidiaries.
63
Creation
of Our Business
We have built our business over the last 25 years, through
a series of strategic acquisitions, into an integrated brand
owner, bottler and distributor that is now the third largest
liquid refreshment beverage company in North America, according
to Beverage Digest and Canadean. These acquisitions include:
|
|
|
|
|
1980s-mid-1990s We began building on our
then existing Schweppes business by adding brands such as
Motts, Canada Dry, Sunkist and A&W. We also acquired
the Peñafiel business in Mexico.
|
|
|
|
1995 We acquired Dr Pepper/Seven Up, Inc. (having
previously made minority investments in the company), increasing
our share of the U.S. CSD market segment from under 5% to
approximately 15%, as measured by volume, according to Beverage
Digest.
|
|
|
|
1999 We acquired a 40% (increased to 45% in
2005) interest in DPSUBG, which was then our largest
independent bottler.
|
|
|
|
2000 We acquired Snapple and other brands,
significantly increasing our share of the U.S. NCB market
segment.
|
|
|
|
2003 We created Cadbury Schweppes Americas Beverages
by integrating the way we manage our four North American
businesses (Motts, Snapple, Dr Pepper/Seven Up and Mexico).
|
|
|
|
2006/2007 We acquired the remaining 55% of DPSUBG
and several smaller bottlers and integrated them into our
Bottling Group operations, thereby expanding our geographic
coverage.
|
Formation
of Our Company and Separation from Cadbury
Prior to ownership of Cadburys beverage business in the
United States, Canada, Mexico and the Caribbean (the
Americas Beverages business), our company did not
have any operations. We conduct operations in the United States,
Canada, Mexico and parts of the Caribbean.
On May 7, 2008, Cadbury separated its Americas Beverages
business from its global confectionery business by contributing
the subsidiaries that operated its Americas Beverages business
to us. In return for the transfer of the Americas Beverages
business, we distributed our common stock to Cadbury plc
shareholders. As of the date of distribution, a total of
800 million shares of our common stock, par value $0.01 per
share, and 15 million shares of our preferred stock, all of
which are undesignated, were authorized. On the date of
distribution, 253.7 million shares of our common stock were
issued and outstanding and no shares of preferred stock were
issued. On May 7, 2008, we became an independent
publicly-traded company listed on the New York Stock Exchange
under the symbol DPS.
In connection with separation, we entered into a Separation and
Distribution Agreement, Transition Services Agreement, Tax
Sharing and Indemnification Agreement (Tax Indemnity
Agreement) and Employee Matters Agreement with Cadbury,
each dated as of May 1, 2008.
Our
Business Today
Today, we are a leading integrated brand owner, bottler and
distributor of non-alcoholic beverages in the United States,
Mexico and Canada, the first, second and tenth, largest beverage
markets by CSD volume, respectively, according to Beverage
Digest and Canadean. We also distribute our products in the
Caribbean. In 2007, 89% of our net sales were generated in the
United States, 4% in Canada and 7% in Mexico and the Caribbean.
We sold 1.6 billion equivalent 288 ounce cases in 2007.
In the CSD market segment in the United States and Canada, we
participate primarily in the flavored CSD category. Our key
brands are Dr Pepper, 7UP, Sunkist, A&W and Canada Dry, and
we also sell regional and smaller niche brands. In the CSD
market segment we are primarily a manufacturer of beverage
concentrates and fountain syrups. Beverage concentrates are
highly concentrated proprietary flavors used to make syrup or
finished beverages. We manufacture beverage concentrates that
are used by our own bottling operations as well as sold to
third-party bottling companies. According to ACNielsen, we had
an 18.8% share of the U.S. CSD market segment in 2007
(measured by retail sales), which increased from 18.5% in 2006.
We also manufacture fountain syrup that we sell to the
foodservice industry directly, through bottlers or through third
parties.
64
In the NCB market segment in the United States, we participate
primarily in the ready-to-drink tea, juice, juice drinks and
mixer categories. Our key NCB brands are Snapple, Motts,
Hawaiian Punch and Clamato, and we also sell regional and
smaller niche brands. We manufacture most of our NCBs as
ready-to-drink beverages and distribute them through our own
distribution network and through third parties or direct to our
customers warehouses. In addition to NCB beverages, we
also manufacture Motts apple sauce as a finished product.
In Mexico and the Caribbean, we participate primarily in the
carbonated mineral water, flavored CSD, bottled water and
vegetable juice categories. Our key brands in Mexico include
Peñafiel, Squirt, Clamato and Aguafiel. In Mexico, we
manufacture and sell our brands through both our own bottling
operations and third-party bottlers, as we do in our
U.S. CSD business. In the Caribbean, we distribute our
products solely through third-party distributors and bottlers.
According to Canadean, we are the #3 CSD company in Mexico
(as measured by volume in 2007) and had a 14.8% share of
the Mexican flavored CSD category.
In 2007, we bottled
and/or
distributed approximately 45% of our total products sold in the
United States (as measured by volume). In addition, our bottling
and distribution businesses distribute a variety of brands owned
by third parties in specified licensed geographic territories.
We believe our brand ownership, bottling and distribution are
more integrated than the U.S. operations of our principal
competitors and that this differentiation provides us with a
competitive advantage. We believe our integrated business model:
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Strengthens our route-to-market by creating a third consolidated
bottling system, our Bottling Group, in addition to the
Coca-Cola
affiliated and PepsiCo affiliated systems. In addition, by
owning a significant portion of our bottling and distribution
network we are able to improve focus on our brands, especially
certain of our brands such as 7UP, Sunkist, A&W and
Snapple, which do not have a large presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems.
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Provides opportunities for net sales and profit growth through
the alignment of the economic interests of our brand ownership
and our bottling and distribution businesses. For example, we
can focus on maximizing profitability for our company as a whole
rather than focusing on profitability generated from either the
sale of concentrates or the bottling and distribution of our
products.
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Enables us to be more flexible and responsive to the changing
needs of our large retail customers including by coordinating
sales, service, distribution, promotions and product launches.
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Allows us to more fully leverage our scale and reduce costs by
creating greater geographic manufacturing and distribution
coverage.
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Our
Strengths
The key strengths of our business are:
Strong portfolio of leading, consumer-preferred
brands. We own a diverse portfolio of well-known
CSD and NCB brands. Many of our brands enjoy high levels of
consumer awareness, preference and loyalty rooted in their rich
heritage, which drive their market positions. Our diverse
portfolio provides our bottlers, distributors and retailers with
a wide variety of products and provides us with a platform for
growth and profitability. We are the #1 flavored CSD
company in the United States. In addition, we are the only major
beverage concentrate manufacturer with year-over-year market
share growth in the CSD market segment in each of the last four
years. Our largest brand, Dr Pepper, is the #2 flavored CSD
in the United States, according to ACNielsen, and our Snapple
brand is a leading ready-to-drink tea. Overall, in 2007, more
than 75% of our volume was generated by brands that hold either
the #1 or #2 position in their category. The strength
of our key brands has allowed us to launch innovations and brand
extensions such as Dr Pepper Soda Fountain Classics, Motts
for Tots and Snapple Antioxidant Waters.
Integrated business model. We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and
that this differentiation provides us with a competitive
advantage. Our integrated business model strengthens our
route-to-market and enables us to improve focus on our brands,
especially certain of our brands such as 7UP, Sunkist, A&W
and Snapple, which do not have a large presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems. Our
integrated business model also
65
provides opportunities for net sales and profit growth through
the alignment of the economic interests of our brand ownership
and our bottling and distribution businesses. For example, we
can focus on maximizing profitability for our company as a whole
rather than focusing on profitability generated from either the
sale of concentrates or the bottling and distribution of our
products.
Strong customer relationships. Our brands have
enjoyed long-standing relationships with many of our top
customers. We sell our products to a wide range of customers,
from bottlers and distributors to national retailers, large
foodservice and convenience store customers. We have strong
relationships with some of the largest bottlers and
distributors, including those affiliated with
Coca-Cola
and PepsiCo, some of the largest and most important retailers,
including Wal-Mart, Safeway, Kroger and Target, some of the
largest food service customers, including McDonalds, Yum!
and Burger King, and convenience store customers, including
7-Eleven. Our portfolio of strong brands, operational scale and
experience across beverage segments has enabled us to maintain
strong relationships with our customers.
Attractive positioning within a large, growing and profitable
market. We hold the #3 position in each of
the United States, Canada and Mexico, three of the top ten
beverage markets by CSD volume, according to Beverage Digest and
Canadean. We believe that these markets are well-positioned to
benefit from emerging consumer trends such as the need for
convenience and the demand for products with health and wellness
benefits. In addition, we participate in many of the growing
categories in the liquid refreshment beverage market, such as
ready-to-drink teas. We do not participate significantly in
colas, which have declined in CSD volume share from 70.0% in
1991 to 56.6% in 2007 in the United States, according to
Beverage Digest. We also do not participate significantly in the
bottled water market segment, which we believe is a highly
competitive and generally low margin market segment.
Broad geographic manufacturing and distribution
coverage. As of December 31, 2007, we had 21
manufacturing facilities and approximately 200 distribution
centers in the United States, as well as 4 manufacturing
facilities and approximately 25 distribution centers in Mexico.
These facilities use a variety of manufacturing processes. In
addition, our warehouses are generally located at or near
bottling plants and geographically dispersed across the region
to ensure our product is available to meet consumer demand. We
actively manage transportation of our products using our own
fleet of more than 5,000 delivery trucks, as well as third-party
logistics providers on a selected basis. Following our recent
bottling acquisitions and manufacturing investments, we now have
greater geographic coverage with strategically located
manufacturing and distribution capabilities, enabling us to
better align our operations with our customers, reduce
transportation costs and have greater control over the timing
and coordination of new product launches.
Strong operating margins and significant, stable cash
flows. The breadth and strength of our brand
portfolio have enabled us to generate strong operating margins
which, combined with our relatively modest capital expenditures,
have delivered significant and stable cash flows. These cash
flows create stockholder value by enabling us to consider a
variety of alternatives, such as investing in our business,
reducing debt and returning capital to our stockholders.
Experienced executive management team. Our
executive management team has an average of more than
20 years of experience in the food and beverage industry.
The team has broad experience in brand ownership, bottling and
distribution, and enjoys strong relationships both within the
industry and with major customers. In addition, our management
team has diverse skills that support our operating strategies,
including driving organic growth through targeted and efficient
marketing, reducing operating costs, enhancing distribution
efficiencies, aligning manufacturing and bottling and
distribution interests and executing strategic acquisitions.
Our
Strategy
The key elements of our business strategy are to:
Build and enhance leading brands. We have a
well-defined portfolio strategy to allocate our marketing and
sales resources. We use an on-going process of market and
consumer analysis to identify key brands that we believe have
the greatest potential for profitable sales growth. For example,
in 2006 and 2007, we continued to enhance the Snapple portfolio
by launching brand extensions with functional benefits, such as
super premium teas and juice drinks and Snapple Antioxidant
Waters. Also, in 2006, we relaunched 7UP with 100% natural
flavors and no
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artificial preservatives, thereby differentiating the 7UP brand
from other major lemon-lime CSDs. We intend to continue to
invest most heavily in our key brands to drive profitable and
sustainable growth by strengthening consumer awareness,
developing innovative products and brand extensions to take
advantage of evolving consumer trends, improving distribution
and increasing promotional effectiveness.
Focus on opportunities in high growth and high margin
categories. We are focused on driving growth in
our business in selected profitable and emerging categories.
These categories include ready-to-drink teas, energy drinks and
other functional beverages. For example, we recently launched
Snapple super premium teas and juices and Snapple enhanced
waters. We also intend to capitalize on opportunities in these
categories through brand extensions, new product launches and
selective acquisitions of brands and distribution rights. For
example, we believe we are well-positioned to enter into new
distribution agreements for emerging, high-growth third party
brands in new categories that can use our bottling and
distribution network. We can provide these new brands with
distribution capability and resources to grow, and they provide
us with exposure to growing segments of the market with
relatively low risk and capital investment.
Increase presence in high margin channels and
packages. We are focused on improving our product
presence in high margin channels, such as convenience stores,
vending machines and small independent retail outlets, through
increased selling activity and significant investments in
coolers and other cold drink equipment. We intend to
significantly increase the number of our branded coolers and
other cold drink equipment over the next few years, which we
believe will provide an attractive return on investment. We also
intend to increase demand for high margin products like
single-serve packages for many of our key brands through
increased promotional activity and innovation such as the
successful introduction of our A&W vintage 20
ounce bottle.
Leverage our integrated business model. We
believe our integrated brand ownership, bottling and
distribution business model provides us opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. We intend to leverage our integrated
business model to reduce costs by creating greater geographic
manufacturing and distribution coverage and to be more flexible
and responsive to the changing needs of our large retail
customers by coordinating sales, service, distribution,
promotions and product launches. For example, we intend to
concentrate more of our manufacturing in multi-product, regional
manufacturing facilities, including by opening a new plant in
Southern California and investing in expanded capabilities in
several of our existing facilities within the next several years.
Strengthen our route-to-market through
acquisitions. The acquisition and creation of our
Bottling Group is part of our longer-term initiative to
strengthen the route-to-market for our products. We believe
additional acquisitions of regional bottling companies will
broaden our geographic coverage in regions where we are
currently under-represented, enhance coordination with our large
retail customers, more quickly address changing customer
demands, accelerate the introduction of new products, improve
collaboration around new product innovations and expand our
coverage of high margin channels.
Improve operating efficiency. As of September
30, 2008, we have substantially completed a restructuring of our
organization that we commenced in October 2007. We believe our
restructuring will reduce our selling, general and
administrative expenses and improve our operating efficiency. In
addition, the integration of recent acquisitions into our
Bottling Group has created the opportunity to improve our
manufacturing, warehousing and distribution operations. For
example, we have been able to create multi-product manufacturing
facilities (such as our Irving, Texas facility) which provide a
region with a wide variety of our products at reduced
transportation and co-packing costs.
Our
Business Operations
We operate our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
Beverage
Concentrates
Our Beverage Concentrates segment is a brand ownership business.
In this segment we manufacture beverage concentrates and syrups
in the United States and Canada. Most of the brands in this
segment are CSD brands. In
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2007, our Beverage Concentrates segment had net sales of
$1.3 billion (before elimination of intersegment
transactions).
In 2007, Dr Pepper, our largest CSD brand, represented
approximately one-half of our Beverage Concentrates segment net
sales and volume of over half a billion case sales, with each
case representing 288 fluid ounces of finished beverage. 7UP,
Sunkist, A&W and Canada Dry together represented
approximately 30% of our Beverage Concentrates net sales. Other
brands in our Beverage Concentrates segment include: Schweppes,
RC, Diet Rite, Vernors, Squirt, Sundrop, Welchs and
Country Time and the concentrate forms of Hawaiian Punch and
Snapple.
We are the industry leader in flavored CSDs with a 36.5% market
share in the United States for 2007, as measured by retail sales
according to ACNielsen. We are also the third largest CSD brand
owner as measured by 2007 retail sales in the United States and
Canada and we own a leading brand in most of the CSD categories
in which we compete.
Almost all of our beverage concentrates are manufactured at our
plant in St. Louis, Missouri. The beverage concentrates are
shipped to third-party bottlers, as well as to our own Bottling
Group, who combine the beverage concentrates with carbonation,
water and sweeteners, package it in PET and glass bottles and
aluminum cans, and sell it as a finished CSD to retailers.
Concentrate prices historically have been reviewed and adjusted
on an annual basis.
Syrup is shipped to fountain customers, such as fast food
restaurants, who mix the syrup with water and carbonation to
create a finished beverage at the point of sale to consumers. Dr
Pepper represents most of our fountain channel net sales. In
2007, net sales to the fountain channel constituted
approximately 37% of our Dr Pepper beverage concentrates and
syrup net sales and approximately 18% of our total CSD
concentrates and syrup net sales were to the fountain channel.
Our Beverage Concentrates brands are sold by our bottlers,
including our own Bottling Group, through all major retail
channels including supermarkets, fountains, mass merchandisers,
club stores, vending machines, convenience stores, gas stations,
small groceries, drug chains and dollar stores. Unlike the
majority of our other CSD brands, approximately three-fourths of
Dr Pepper volumes are distributed through the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems.
Coca-Cola
Enterprises and Pepsi Bottling Group each constitute between 10%
to 15% of the volume of our Beverage Concentrates segment.
We expect that our CSD brands will continue to play a central
role in our brand portfolio. We intend to continue to invest in
our CSD brands and focus on expanding distribution, increasing
our offerings of CSDs packaged for immediate consumption,
concentrating on growing demographics such as the Hispanic
population and broadening our brands consumer base to
geographic regions of the United States where we are
under-represented. For example, we plan to capitalize on the
opportunities that we believe exist for the Dr Pepper brand on
the east and west coasts and elsewhere in the Northeast, while
continuing to develop increased consumption in the heartland
markets (including Texas, Oklahoma, Louisiana and Arkansas)
where the brand historically has enjoyed strong consumer appeal.
In addition, we plan to continue to grow Diet Dr Pepper through
increased fountain availability, consumer trial and selective
product innovation.
Finished
Goods
Our Finished Goods segment is a brand ownership and a bottling
business and, to a lesser extent, a distribution business. In
this segment, we primarily manufacture and distribute finished
beverages and other products in the United States and Canada.
Most of the beverages in this segment are NCBs (such as
ready-to-drink teas, juice and juice drinks). Although there are
sales of Snapple in all of our segments, most of our sales of
Snapple are included in the Finished Goods segment. In 2007, our
Finished Goods segment had net sales of $1.6 billion
(before elimination of intersegment transactions).
In 2007, Snapple, our largest brand in our Finished Goods
segment, represented approximately 26% of our Finished Goods
segment net sales. Motts, Hawaiian Punch and Clamato
together represented more than 40% of our
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Finished Goods segment net sales. The other brands in our
Finished Goods segment include: Nantucket Nectars, Yoo-Hoo,
Orangina, Mistic, Mr and Mrs T, Roses, Margaritaville,
Stewarts, Crush and IBC.
We are the third largest manufacturer of NCBs by retail sales in
the U.S. behind
Coca-Cola
and PepsiCo., according to ACNielsen.
Our Finished Goods products are manufactured in several
facilities across the United States and are distributed to
retailers and their warehouses by our own distribution network
or third-party distributors. The raw materials used to
manufacture our finished beverages include aluminum cans and
ends, glass bottles, PET bottles and caps, HFCS and juices.
We sell our Finished Goods brands through all major retail
channels, including supermarkets, fountains, mass merchandisers,
club stores, vending machines, convenience stores, gas stations,
small groceries, drug chains and dollar stores. In 2007,
Wal-Mart Stores, Inc., the largest customer of our Finished
Goods segment, accounted for approximately 16% of our net sales
in this segment.
We plan to continue to invest in our NCB brands and focus on
enhancing our leading NCB brands and capitalizing on
opportunities in high growth products and high margin product
categories. For example, we plan to continue to revitalize the
Snapple brand as a complete line of ready-to-drink teas, juices
and waters by building on the momentum from the recent launches
of super premium teas and investing in a new Snapple functional
water offering while continuing to develop our existing premium
tea and juice businesses.
Bottling
Group
Our Bottling Group segment is a bottling and distribution
business. In this segment, we manufacture and distribute
finished beverages, including our brands, third-party owned
brands and certain private label beverages in the United States.
The Bottling Groups primary business is manufacturing,
bottling, selling and distributing finished beverages using both
beverage concentrates purchased from brand owners (including our
Beverage Concentrates segment) and finished beverages purchased
from brand owners and bottlers (primarily our Finished Goods
segment). In addition, a small portion of our Bottling Group net
sales come from bottling beverages and other products for
private label owners or others for a fee (which we refer to as
co-packing). In 2007, our Bottling Group segment had net sales
of $3.1 billion (before elimination of intersegment
transactions).
We are the fourth largest bottler in the United States by net
sales.
Approximately three-fourths of our 2007 Bottling Group net sales
of branded products come from our own brands, such as Snapple,
Mistic, Stewarts, Nantucket Nectars and Yoo-Hoo, with the
remaining from the distribution of third-party brands such as
FIJI mineral water and Big Red soda. Although the majority of
our Bottling Groups net sales relate to our brands, we
also provide a route-to-market for many third-party brand owners
seeking effective distribution for their new and emerging
brands. These brands give us exposure in certain markets to fast
growing segments of the beverage industry with minimal capital
investment.
The majority of the Bottling Groups sales are through
direct store delivery supported by a fleet of more than 5,000
trucks and approximately 9,000 employees, including sales
representatives, merchandisers, drivers and warehouse workers.
Our Bottling Groups product portfolio is sold within the
United States through approximately 200,000 retailer accounts
across all major retail channels. In 2007, Wal-Mart Stores, Inc.
accounted for approximately 10% of our Bottling Groups net
sales.
Our integrated business model provides opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. Our strengthened route-to-market
following our bottling acquisitions has enabled us to increase
the market share of our brands (as measured by volume) in many
of those markets served by the bottlers we acquired. We plan to
continue to invest in our Bottling Group and focus on
strengthening our route-to-market and by creating greater
geographic manufacturing and distribution coverage.
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Mexico
and the Caribbean
Our Mexico and the Caribbean segment is a brand ownership and a
bottling and distribution business. This segment participates
mainly in the carbonated mineral water, flavored CSD, bottled
water and vegetable juice categories, with particular strength
in carbonated mineral water and grapefruit flavored CSDs. In
2007, our Mexico and the Caribbean segment had net sales of
$418 million. In 2007, our operations in Mexico represented
approximately 90% of the net sales of this segment.
We are the #3 CSD company in Mexico (as measured by volume
in 2007) behind
Coca-Cola
and PepsiCo, with a 4.7% market share according to Canadean.
In 2007, Peñafiel, Squirt, Clamato and Aguafiel together
represented more than 80% of our Mexico and the Caribbean
segments net sales.
In Mexico, we manufacture and distribute our products through
our bottling operations and third-party bottlers and
distributors. In the Caribbean, we distribute our products
through third-party bottlers and distributors. In Mexico, we
also participate in a joint venture to manufacture Aguafiel
brand water with Acqua Minerale San Benedetto. We provide
expertise in the Mexican beverage market and Acqua Minerale
San Benedetto provides expertise in water production and
new packaging technologies.
We sell our finished beverages through all major Mexican retail
channels, including the mom and pop stores,
supermarkets, hypermarkets, and on premise channels.
Marketing
Our marketing strategy is to grow our brands through
continuously providing new solutions to meet consumers
changing preferences and needs. We identify those preferences
and needs and develop innovative solutions to address those
opportunities. These solutions include new and reformulated
products, improved packaging design, pricing and enhanced
availability. We use advertising, media, merchandising, public
relations and promotion to provide maximum impact for our brands
and messages.
Research
and Development
Our research and development team is focused on developing high
quality products which have broad consumer appeal, can be sold
at competitive prices and can be safely and consistently
produced across a diverse manufacturing network. Our research
and development team engages in activities relating to: product
development, microbiology, analytical chemistry, process
engineering, sensory science, nutrition, clinical research,
knowledge management and regulatory compliance. We have
particular expertise in flavors and sweeteners.
Our research and development team is composed of scientists and
engineers in the United States and Mexico. In September 2008, we
completed relocating our research and development center to our
headquarters in Plano, Texas. By having the core research and
development capability at our headquarters, we expect to be able
to move more rapidly and reliably from prototype to full
commercialization.
Customers
We primarily serve two groups of customers: bottlers and
distributors, and retailers.
Bottlers buy beverage concentrates from us and, in turn, they
manufacture, bottle, sell and distribute finished beverages.
Bottlers also manufacture and distribute syrup for the fountain
foodservice channel. In addition, bottlers and distributors
purchase finished beverages from us and sell them to retail and
other customers. We have strong relationships with bottlers
affiliated with
Coca-Cola
and PepsiCo primarily because of the strength and market
position of our key Dr Pepper brand.
Retailers also buy finished beverages directly from us. Our
portfolio of strong brands, operational scale and experience in
the beverage industry has enabled us to maintain strong
relationships with major retailers in the United States, Canada
and Mexico. In 2007, our largest retailer was Wal-Mart Stores,
Inc., representing approximately 10% of our net sales.
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Competition
The liquid refreshment beverage industry is highly competitive
and continues to evolve in response to changing consumer
preferences. Competition is generally based upon brand
recognition, taste, quality, price, availability, selection and
convenience. We compete with multinational corporations with
significant financial resources. Our 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. We also compete against other
large companies, including Nestlé, S.A. and Kraft Foods,
Inc. As a bottler, we compete with bottlers such as
Coca-Cola
Enterprises, Pepsi Bottling Group and PepsiAmericas and a number
of smaller bottlers and distributors. We also compete with a
variety of smaller, regional and private label manufacturers,
such as Cott Corp. We have lower exposure to some of the faster
growing non-carbonated and bottled water segments in the overall
liquid refreshment beverage market. As a result, although we
have increased our market share in the overall U.S. CSD
market, we have lost share in the overall U.S. liquid
refreshment beverage market over the past several years. In
Canada and Mexico, we compete with many of these same
international companies as well as a number of regional
competitors.
Manufacturing
As of December 31, 2007, we operated 25 manufacturing
facilities across the United States and Mexico. Almost all of
our CSD beverage concentrates are manufactured at a single plant
in St. Louis, Missouri. All of our manufacturing facilities
are either regional manufacturing facilities, with the capacity
and capabilities to manufacture many brands and packages,
facilities with particular capabilities that are dedicated to
certain brands or products, or smaller bottling plants with a
more limited range of packaging capabilities. We intend to build
and open a new, multi-product, manufacturing facility in
Southern California within the next two years.
We employ approximately 5,000 full-time manufacturing
employees in our facilities, including seasonal workers. We have
a variety of production capabilities, including hot fill,
cold-fill and aseptic bottling processes, and we manufacture
beverages in a variety of packaging materials, including
aluminum, glass and PET cans and bottles and a variety of
package formats, including single-serve and multi-serve packages
and
bag-in-box
fountain syrup packaging.
In 2007, 88% of our manufactured volumes were related to our
brands and 12% to third-party and private-label products. We
also use third-party manufacturers to co-pack for us on a
limited basis.
We own property, plant and equipment, net of accumulated
depreciation, totaling $796 million and $681 million
in the United States and $72 million and $74 million
in international locations as of December 31, 2007 and
2006, respectively.
Raw
Materials
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, HFCS and other sweeteners, juice, fruit, electricity,
fuel and water. The cost of the raw materials can fluctuate
substantially. For example, aluminum, glass, PET and HFCS prices
increased significantly in 2007 and 2006. In addition, we are
significantly impacted by increases in fuel costs due to the
large truck fleet we operate in our distribution businesses.
Under many of our supply arrangements for these raw materials,
the price we pay fluctuates along with certain changes in
underlying commodities costs, such as aluminum in the case of
cans, natural gas in the case of glass bottles, resin in the
case of PET bottles and caps, corn in the case of HFCS and pulp
in the case of paperboard packaging. Manufacturing costs for our
Finished Goods segment, where we manufacture and bottle finished
beverages, are higher (as a percentage of our net sales) than
our Beverage Concentrates segment, as the Finished Goods segment
requires the purchase of a much larger portion of the packaging
and ingredients.
Warehousing
and Distribution
As of December 31, 2007, our warehouse and distribution
network consisted of 21 manufacturing facilities and
approximately 200 distribution centers in the United States, as
well as 4 manufacturing facilities and approximately
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25 distribution centers in Mexico. Our warehousing is generally
located at or near bottling plants and is geographically
dispersed across the region to ensure product is available to
meet consumer demand. We actively manage transportation of our
products using our own fleet of more than 5,000 delivery trucks,
as well as third-party logistics providers on a selected basis.
Information
Technology and Transaction Processing Services
We use a variety of information technology (IT)
systems and networks configured to meet our business needs.
Historically, IT support was provided as a corporate service by
the Cadburys IT team and external suppliers. We have
formed our own standalone, dedicated IT function to support our
business separate from Cadbury and are in the process of
separating our systems, services and contracts. Our primary IT
data center is hosted in Toronto, Canada by a third-party
provider. We also use two primary vendors for application
support and maintenance, both of which are based in India and
provide resources offshore and onshore.
We also use a business process outsourcing provider located in
India to provide certain back office transactional processing
services, including accounting, order entry and other
transactional services.
Intellectual
Property and Trademarks
Our Intellectual Property. We possess a
variety of intellectual property rights that are important to
our business. We rely on a combination of trademarks,
copyrights, patents and trade secrets to safeguard our
proprietary rights, including our brands and ingredient and
production formulas for our products.
Our Trademarks. Our trademark portfolio
includes more than 2,000 registrations and applications in the
United States, Canada, Mexico and other countries. Brands we own
through various subsidiaries in various jurisdictions include:
Dr Pepper, 7UP, A&W, Canada Dry, RC, Schweppes, Squirt,
Crush, Peñafiel, Aguafiel, Snapple, Motts, Hawaiian
Punch, Clamato, Mistic, Nantucket Nectars, Mr & Mrs T,
ReaLemon, Accelerade and Deja Blue. We own trademark
registrations for all of these brands in the United States, and
we own trademark registrations for some but not all of these
brands in Canada and Mexico. We also own a number of smaller
regional brands. Some of our other trademark registrations are
in countries where we do not currently have any significant
level of business. In addition, in many countries outside the
United States, Canada and Mexico, our rights in many of our
brands, including our Dr Pepper trademark and formula, have been
sold to third parties including, in certain cases, to
competitors such as
Coca-Cola.
Trademarks Licensed from Others. We license
various trademarks from third parties, which licenses generally
allow us to manufacture and distribute on a country-wide basis.
For example, we license from third parties the Sunkist,
Welchs, Country Time, Orangina, Stewarts, Holland
House and Margaritaville trademarks, and we license from Cadbury
the Roses trademark. Although these licenses vary in
length and other terms, they generally are long-term, cover the
entire United States and include a royalty payment to the
licensor.
Licensed Distribution Rights. We have rights
in certain territories to bottle
and/or
distribute various brands we do not own, such as FIJI mineral
water and Big Red soda. Some of these arrangements are
relatively shorter in term, are limited in geographic scope and
the licensor may be able to terminate the agreement upon an
agreed period of notice, in some cases without payment to us.
Intellectual Property We License to Others. We
license some of our intellectual property, including trademarks,
to others. For example, we license the Dr Pepper trademark to
certain companies for use in connection with food, confectionery
and other products. We also license certain brands, such as Dr
Pepper and Snapple, to third parties for use in beverages in
certain countries where we own the brand but do not otherwise
operate our business.
Cadbury Schweppes Name. We have removed
Cadbury from the names of our companies after our
separation from Cadbury. Cadbury can continue to use the
Schweppes name as part of its companies names
outside of the United States, Canada and Mexico (and for a
transitional period, inside of the United States, Canada and
Mexico).
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Bottler
and Distributor Agreements
In the United States and Canada, we generally grant perpetual,
exclusive license agreements for CSD brands and packages to
bottlers for specific geographic areas. These agreements
prohibit bottlers from selling the licensed products outside
their exclusive territory and selling any imitative products in
that territory. Generally, we may terminate bottling agreements
only for cause and the bottler may terminate without cause upon
giving certain specified notice and complying with other
applicable conditions. Fountain agreements for bottlers
generally are not exclusive for a territory, but do restrict
bottlers from carrying imitative product in the territory. Many
of our brands such as Snapple, Mistic, Stewarts, Nantucket
Nectars, Yoo-Hoo and Orangina, are licensed for distribution in
various territories to bottlers and a number of smaller
distributors such as beer wholesalers, wine and spirit
distributors, independent distributors and retail brokers. We
may terminate some of these distribution agreements only for
cause and the distributor may terminate without cause upon
certain notice and other conditions. Either party may terminate
some of the other distribution agreements without cause upon
giving certain specified notice and complying with other
applicable conditions.
Real
Property
United States. Our United States principal
offices are located in Plano, Texas, in a facility that we own.
We also have a leased office in Rye Brook, New York. As of
December 31, 2007, we owned or leased 21 manufacturing
facilities across the United States (we closed our Waterloo, New
York facility in March 2008). Our largest manufacturing
facilities are in St. Louis, Missouri; Northlake, Illinois;
Irving, Texas; Ottumwa, Iowa; Houston, Texas; Williamson, New
York; Carteret, New Jersey; Carlstadt, New Jersey and Aspers,
Pennsylvania. We also operate approximately 200 distribution
centers across the United States.
Canada. Our last plant in Canada, St.
Catharines, was closed in 2007. Beverage concentrates sold to
bottlers and finished beverages sold to retailers and
distributors are supplied principally from our
U.S. locations.
Mexico. Our Mexico and Caribbean
operations principal office is leased in Mexico City. In
Mexico, as of December 31, 2007, we owned three
manufacturing facilities and one joint venture manufacturing
facility and we had 21 additional direct distribution centers, 4
of which were owned and 17 of which were leased.
We believe our facilities in the United States and Mexico are
well-maintained and adequate for our present operations. We
periodically review our space requirements, and we believe we
will be able to acquire new space and facilities as and when
needed on reasonable terms. We also look to consolidate and
dispose or sublet facilities we no longer need, as and when
appropriate.
Employees
At December 31, 2007, we employed approximately
20,000 full-time employees, including seasonal workers.
In the United States, we have approximately
17,000 full-time employees. We have many union collective
bargaining agreements covering approximately
5,000 full-time employees. Several agreements cover
multiple locations. These agreements often address working
conditions as well as wage rates and benefits. In Mexico and the
Caribbean, we employ approximately 3,000 full-time
employees and are also party to collective bargaining
agreements. We do not have a significant number of employees in
Canada.
We believe we have good relations with our employees.
Regulatory
Matters
We are subject to a variety of federal, state and local laws and
regulations in the countries in which we do business.
Regulations apply to many aspects of our business including our
products and their ingredients, manufacturing, safety, labeling,
transportation, recycling, advertising and sale. For example,
our products, and their manufacturing, labeling, marketing and
sale in the United States are subject to various aspects of the
Federal Food, Drug, and Cosmetic Act, the Federal Trade
Commission Act, the Lanham Act, state consumer protection laws
and state warning and labeling laws. In Canada and Mexico, the
manufacture, distribution, marketing and sale of our many
products are also subject to similar statutes and regulations.
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We and our bottlers use various refillable and non-refillable,
recyclable bottles and cans in the United States and other
countries. Various states and other authorities require
deposits, eco-taxes or fees on certain containers. Similar
legislation or regulations may be proposed in the future at
local, state and federal levels, both in the United States and
elsewhere. In Mexico, the government has encouraged the soft
drinks industry to comply voluntarily with collection and
recycling programs of plastic material, and we have taken steps
to comply with these programs.
Environmental,
Health and Safety Matters
We operate many manufacturing, bottling and distribution
facilities. In these and other aspects of our business, we are
subject to a variety of federal, state and local environment,
health and safety laws and regulations. We maintain
environmental, health and safety policies and a quality,
environmental, health and safety program designed to ensure
compliance with applicable laws and regulations.
Legal
Matters
We are occasionally subject to litigation or other legal
proceedings relating to our business. Set forth below is a
description of our significant pending legal matters. Although
the estimated range of loss, if any, for the pending legal
matters described below cannot be estimated at this time, we do
not believe that the outcome of any of these, or any other,
pending legal matters, individually or collectively, will have a
material adverse effect on our business or financial condition
although such matters may have a material adverse effect on our
results of operations in a particular period.
Snapple
Distributor Litigation
In 2004, one of our subsidiaries, Snapple Beverage Corp. and
several affiliated entities of Snapple Beverage Corp., including
Snapple Distributors, Inc., were sued in United States District
Court, Southern District of New York, by 57 area route
distributors for alleged price discrimination, breach of
contract, retaliation, tortious interference and breach of the
implied duty of good faith and fair dealing arising out of their
respective area route distributor agreements. Each plaintiff
sought damages in excess of $225 million. The plaintiffs
initially filed the case as a class action but withdrew their
class certification motion. They proceeded as individual
plaintiffs but the cases were consolidated for discovery and
procedural purposes. On September 14, 2007, the court
granted our motion for summary judgment, dismissing the
plaintiffs federal claims of price discrimination and
dismissing, without prejudice, the plaintiffs remaining
claims under state law. The plaintiffs filed an appeal of the
decision and both parties have filed appellate briefs and are
awaiting the courts decision. Also, the plaintiffs may
decide to re-file the state law claims in state court. We
believe we have meritorious defenses with respect to the appeal
and will defend ourselves vigorously. However, there is no
assurance that the outcome of the appeal, or any trial, if
claims are refiled, will be in our favor.
Holk &
Weiner Snapple Litigation
In 2007, Snapple Beverage Corp. was sued by Stacy Holk, in New
Jersey Superior Court, Monmouth County. The Holk case was filed
as a class action. Subsequent to filing, the Holk case was
removed to the United States District Court, District of New
Jersey. Holk alleges that Snapples labeling of certain of
its drinks is misleading
and/or
deceptive and seeks unspecified damages on behalf of the class,
including enjoining Snapple from various labeling practices,
disgorging profits, reimbursing of monies paid for product and
treble damages. Snapple filed a motion to dismiss the Holk case
on a variety of grounds. On June 12, 2008, the district
court granted Snapples motion to dismiss and the Holk case
was dismissed. The plaintiff has filed an appeal of the order
dismissing the case.
In 2007, the attorneys in the Holk case filed a new action in
New York on behalf of the plaintiff, Evan Weiner, with
substantially the same allegations and seeking the same damages
as the Holk case. We have filed a motion to dismiss the Weiner
case on a variety of grounds. The Weiner case is currently
stayed pending the outcome of the Holk case.
We believe we have meritorious defenses to the claims asserted
in the Holk and Weiner cases and will defend ourselves
vigorously. However, there is no assurance that the outcome of
either case will be favorable to us.
Ivey
In May 2008, a class action lawsuit was filed in the Superior
Court for the State of California, County of Los Angeles, by Ray
Ivey against Snapple Beverage Corp. and other affiliates. The
plaintiff alleged that Snapples labeling of its lemonade
juice drink violates Californias Unfair Competition Law
and Consumer Legal Remedies
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Act and constitutes fraud under California statutes. The case
has been settled. We paid a nominal amount and the plaintiff
dismissed his action with prejudice to refiling.
Nicolas
Steele v. Seven Up/RC Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of Southern
California, Inc.
California Wage Audit
In 2007, one of our subsidiaries, Seven Up/RC Bottling Company
Inc., was sued by Nicolas Steele, and in a separate action, by
Robert Jones, in each case in Superior Court in the State of
California (Orange County), alleging that our subsidiary failed
to provide meal and rest periods and itemized wage statements in
accordance with applicable California wage and hour law. The
cases have been filed as class actions. The classes, which have
not yet been certified, consist of employees who have held a
merchandiser or delivery driver position in California in the
past three years. On behalf of the classes, the plaintiffs claim
lost wages, waiting time penalties and other penalties for each
violation of the statute. We believe we have meritorious
defenses to the claims asserted and will defend ourselves
vigorously. However, there is no assurance that the outcome of
this matter will be in our favor.
We have been requested to conduct an audit of our meal and rest
periods for all non-exempt employees in California at the
direction of the California Department of Labor. At this time,
we have declined to conduct such an audit until there is
judicial clarification of the intent of the statute. We cannot
predict the outcome of such an audit.
Compliance
Matters
We are currently undergoing an unclaimed property audit for the
years 1981 through 2008 and spanning nine states and seven of
our entities within the Bottling Group. The audit is expected to
be completed during 2009 and the audit findings will be
delivered upon completion. We do not currently have sufficient
information from the audit results to estimate liability that
will result from this audit.
Corporate
Information
We were incorporated in Delaware on October 24, 2007. The
address of our principal executive offices is 5301 Legacy Drive,
Plano, Texas 75024. Our telephone number is
(972) 673-7000.
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OUR
RELATIONSHIP WITH CADBURY AFTER THE DISTRIBUTION
Description
of Various Separation and Transition Arrangements
Separation
Agreement
We entered into a separation and distribution agreement (the
separation agreement) with Cadbury before the
distribution of our shares of common stock to Cadbury
shareholders. The separation agreement sets forth our agreements
with Cadbury regarding the principal transactions necessary to
effect the separation and distribution. It also sets forth other
agreements (the ancillary agreements) that govern
certain aspects of our relationship with Cadbury after
completion of the separation.
Transfer of Assets and Assumption of
Liabilities. The separation agreement identifies
assets retained, transferred, liabilities assumed and contracts
assigned to each of us and Cadbury as part of our separation and
describes when and how these transfers, assumptions and
assignments occur. In particular, the separation agreement
provides that, subject to the terms and conditions contained in
the separation agreement:
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all assets to the extent related to our business (including the
stock of subsidiaries, real property and intellectual property)
were retained by or transferred to us, subject to any licenses
between the parties;
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all assets to the extent related to Cadburys global
confectionery business and its other beverages business (located
principally in Australia) (including stock of subsidiaries, real
property and intellectual property) were retained by or
transferred to Cadbury Schweppes, subject to any licenses
between the parties;
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liabilities were allocated to, and assumed by, us to the extent
they were related to our business;
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liabilities were allocated to, and assumed by, Cadbury to the
extent they were related to its global confectionery business
and its other beverages business (located principally in
Australia);
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each party or one of its subsidiaries assumed or retained any
liabilities relating to any of its or its subsidiaries or
controlled affiliates debt, regardless of the issuer of
such debt, to the extent relating to its business or secured
exclusively by its assets;
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except as may be set forth in or contemplated by the separation
agreement or any ancillary agreement, the one-time transaction
costs and expenses incurred on or prior to the separation were
borne by Cadbury and after the separation were by the party
incurring such costs; and
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other liabilities were allocated to either Cadbury or us as set
forth in the separation agreement.
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Except as may expressly be set forth in the separation agreement
or any ancillary agreement, all assets were transferred on an
as is, where is basis and the respective
transferees bear the economic and legal risks associated with
the use of such respective assets both prior to and following
the separation.
Certain of the liabilities and obligations assumed by one party
or for which one party has an indemnification obligation under
the separation agreement and the other agreements relating to
the separation are the legal or contractual liabilities or
obligations of another party. Each such party that continues to
be subject to such legal or contractual liability or obligation
will rely on the applicable party that assumed the liability or
obligation or the applicable party that undertook an
indemnification obligation with respect to the liability or
obligation, as applicable, under the separation agreement, to
satisfy the performance and payment obligations or
indemnification obligations with respect to such legal or
contractual liability or obligation.
The parties have agreed to cooperate to effect as promptly as
practicable any transfers that were not consummated prior to the
distribution date. The parties have agreed to cooperate with
each other and use commercially reasonable efforts to take or to
cause to be taken all actions, and to do, or to cause to be
done, all things reasonably necessary under applicable law or
contractual obligations to consummate and make effective the
transactions contemplated by the separation agreement and the
ancillary agreements.
Related Party Balances. The separation
agreement provided for the settlement and capitalization of our
related party debt and other balances. We borrowed an aggregate
of $3.9 billion under the credit facilities in connection
with the separation. These borrowings were used to settle the
foregoing related party debt and other
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balances, eliminate Cadburys net investment in us,
purchase certain assets from Cadbury related to our business,
pay $94 million of fees and expenses related to the credit
facilities and provide us with at least $100 million of
cash on hand immediately after the separation.
Releases and Indemnification. Except as
otherwise provided in the separation agreement or any ancillary
agreement, each party released and forever discharged each other
party and its affiliates and any person who was at any time
prior to the distribution date a shareholder, director, officer,
agent or employee of a member of the other party or one of its
affiliates from all obligations and liabilities existing or
arising from any acts or events occurring or failing to occur or
alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the
separation. The releases do not extend to, among other things,
obligations or liabilities under any agreements between the
parties that remain in effect following the separation pursuant
to the separation agreement or any ancillary agreement,
liabilities specifically retained or assumed by or transferred
to a party pursuant to the separation agreement or any ancillary
agreement or to ordinary course trade payables and receivables.
In addition, the separation agreement provides for
cross-indemnities principally designed to place financial
responsibility for the obligations and liabilities of our
business with us and financial responsibility for the
obligations and liabilities of the global confectionery business
and its other beverages business (located principally in
Australia) with Cadbury. Specifically, each party will, and will
cause its affiliates to, indemnify, defend and hold harmless the
other party and its affiliates and each of their respective
officers, directors, employees and agents for any losses arising
out of or otherwise in connection with:
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the liabilities each such party assumed or retained pursuant to
the separation agreement;
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any breach by such party of any shared contract between the
companies;
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any liability for a misstatement or omission or alleged
misstatement or omission of a material fact made after the
distribution date contained in a document filed with the SEC or
the U.K. Financial Services Authority by the other party after
the distribution date based upon information that is furnished
in writing by such party for inclusion in a filing by the other
party; and
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any breach by such party of the separation agreement, the
ancillary agreements or any agreements between the parties
specifically contemplated by the separation agreement or any
ancillary agreement to remain in effect following the separation.
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Legal Matters. In general, each party to the
separation agreement assumes liability for all pending and
threatened legal matters related to its own business or assumed
or retained liabilities and will indemnify the other parties for
any liability to the extent arising out of or resulting from
such assumed legal matters. Each party will cooperate in
defending any claims against the other for events that took
place prior to, on or after the date of the separation of us
from Cadbury.
Non-Solicitation of Employees. During the
18-month
period following the distribution date, neither party will
solicit for employment any of the employees of the other party,
provided that this provision shall not prevent either party from
advertising in publications of general circulation or soliciting
or hiring any employees who were terminated by the other party.
Intellectual Property Licenses. We currently
use the Cadbury trademark, including variations and acronyms
thereof (the Cadbury Marks). In addition, Cadbury
and its affiliates currently use various marks that we own or
hold for use or will own or hold for use following the
separation (the DPS Marks). Under the separation
agreement, we and Cadbury and its affiliates will, among other
things, have a royalty-free license of limited scope to continue
to use the Cadbury Marks or the DPS Marks, as applicable, for up
to fifteen (15) months in connection with its ongoing
business. The separation agreement also includes licenses of
certain copyrights and design rights from us to Cadbury and its
affiliates, and from Cadbury to us.
Insurance. The separation agreement provides
for the rights of the parties to report claims under existing
insurance policies for occurrences prior to the separation and
set forth procedures for the administration of insured claims.
In addition, the separation agreement allocates among the
parties the right to insurance policy proceeds based on reported
claims and the obligations to incur deductibles under certain
insurance policies.
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Other Matters. Other matters governed by the
separation agreement include, among others, access to financial
and other records and information, intellectual property, legal
privilege, confidentiality and resolution of disputes between
the parties relating to the separation agreement and the
ancillary agreements and the agreements and transactions
contemplated thereby.
Transition
Services Agreement
We entered into a transition services agreement with Cadbury
pursuant to which each party provides certain specified services
to the other on an interim basis for terms ranging generally
from one month to one year following the separation. The
specified services include services in the following: human
resources, finance and accounting, intellectual property,
information technology and certain other services consistent
with past practices. The services are paid for by the receiving
party at a charge equal to the cost of the providing party as
calculated in the transition services agreement.
Tax-Sharing
and Indemnification Agreement
We entered into a tax-sharing and indemnification agreement with
Cadbury that sets forth the rights and obligations of Cadbury
and us (along with our respective subsidiaries) with respect to
taxes, including the computation and apportionment of tax
liabilities relating to taxable periods before and after the
separation and distribution and the responsibility for payment
of those tax liabilities (including any subsequent adjustments
to such tax liabilities). In general, under the terms of the
tax-sharing and indemnification agreement, we and Cadbury will
each be responsible for taxes imposed on our respective
businesses and subsidiaries for all taxable periods, whether
ending on, before or after the date of separation and
distribution. However, we are responsible for taxes attributable
to certain assets of the Cadbury global confectionery business
while owned by us and Cadbury is responsible for taxes
attributable to certain assets of the Americas Beverages
business while owned by Cadbury.
In addition, we and Cadbury undertook certain restructuring
transactions in anticipation of the separation and distribution
(including transfers of confectionery business assets by us to
Cadbury) and we participated in various other transactions with
Cadbury in taxable periods prior to the separation and
distribution. Cadbury will, subject to certain conditions, and
absent a
change-in-control
of us as described below, pay or indemnify us for taxes imposed
on us in respect of these transactions including taxes resulting
from either (i) a change in applicable tax law after the
separation and distribution and prior to the filing of the
relevant tax return, or (ii) a subsequent adjustment by a
taxing authority. These potential tax indemnification
obligations of Cadbury could be for significant amounts.
Notwithstanding these tax indemnification obligations of
Cadbury, if the treatment of these transactions as reported were
successfully challenged by a taxing authority, we generally
would be required under applicable tax law to pay the resulting
tax liabilities in the event that either (i) Cadbury were
to default on their obligations to us, or (ii) we breached
a covenant or we failed to file tax returns, cooperate or
contest tax matters as required by the tax-sharing and
indemnification agreement, which breach or failure caused such
tax liabilities. In addition, if we are involved in certain
change-in-control
transactions including certain acquisitions of our stock
representing more than 35% of the voting power represented by
our issued and outstanding stock and certain changes to the
membership of our board of directors, the obligations of Cadbury
to indemnify us for additional taxes in respect of the
restructuring and other transactions will terminate and Cadbury
will have no further obligations to indemnify us on account of
such transactions. Thus, since we have primary liability for
income taxes in respect of these transactions, if a taxing
authority successfully challenges the treatment of one or more
of these transactions, and Cadbury Schweppes fails to, is not
required to or cannot indemnify or reimburse us, our resulting
tax liability could be for significant amounts and could have a
material adverse effect on our results of operations, cash flows
and financial condition.
We generally are required to indemnify Cadbury for any
liabilities, taxes and other charges that are imposed on
Cadbury, including as a result of the separation and
distribution failing to qualify for non-recognition treatment
for U.S. federal income tax purposes, if such liabilities,
taxes or other charges are attributable to a breach by us of our
representations or covenants. The covenants contained in the
tax-sharing and indemnification agreement, for example,
generally contain restrictions on our ability to
(a) discontinue the active conduct of the historic business
relied upon for purposes of the private letter ruling issued by
the IRS, or liquidate, merge or consolidate the
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company conducting such active business, (b) undertake
certain transactions pursuant to which our stockholders would
dispose of a substantial amount of our common stock, or
(c) take any action inconsistent with the written
statements and representations furnished to the IRS in
connection with the private letter ruling request.
Notwithstanding the foregoing, we will be permitted to take
actions restricted by such covenants if Cadbury provides us with
prior written consent, or we provide Cadbury with a private
letter ruling or rulings from the IRS, or an unqualified opinion
of counsel that is satisfactory to Cadbury, to the effect that
such action will not affect the tax-free nature of the
separation and distribution or certain restructuring
transactions, but we will remain liable for any liabilities,
taxes and other charges imposed on Cadbury as a result of the
separation and distribution or such restructuring transactions
failing to qualify as tax-free transactions as a result of such
action. Our potential tax indemnification obligations could be
for significant amounts.
Furthermore, the tax-sharing and indemnification agreement sets
forth the rights of the parties in respect of the preparation
and filing of tax returns, the control of audits or other tax
proceedings and assistance and cooperation in respect of tax
matters, in each case, for taxable periods ending on or before
or that otherwise include the date of separation and
distribution. In addition, with respect to taxable periods
before or that include the separation and distribution, Cadbury
will have significant control over the reporting of various
restructuring transactions on our tax returns and over
proceedings where Cadbury is indemnifying us for taxes that are
involved in such proceedings. Moreover, in certain instances,
where we realize tax savings in respect of separation
transaction costs paid, or various taxes previously indemnified
against or otherwise paid, by Cadbury we may be required to
return a portion of that tax savings to Cadbury.
Employee
Matters Agreement
We entered into an employee matters agreement with Cadbury
providing for our respective obligations to our employees and
former employees and for other employment and employee benefits
matters. Under the terms of the employee matters agreement, we
generally assumed all liabilities and assets relating to
employee benefits for our current and former employees, and
Cadbury generally retained all liabilities and assets relating
to employee benefits for current and former Cadbury employees
other than current or former beverages employees.
In connection with the separation, sponsorship of the Cadbury
benefit plans that solely cover our current and former employees
was transferred to us, and the Cadbury benefit plans that cover
our current and former employees and also cover current and
former Cadbury employees was split into two separate plans, one
covering Cadbury employees and one covering our employees.
Sponsorship of the plans covering our employees was transferred
to us.
For transferred plans that are funded, assets allocable to the
liabilities of such plans also were transferred to related
trusts established by us. As of the date of separation, current
and former employees of us and Cadbury received credit for
service for all periods of employment prior to the date of
separation for purposes of vesting, eligibility and benefit
levels under any pension or welfare plan in which they
participate following the separation. The employee matters
agreement also provides for sharing of certain employee and
former employee information to enable us and Cadbury to comply
with our respective obligations.
In addition, the employee matters agreement provided for the
treatment of holders of awards granted under the Cadbury
employee share schemes who were current and former employees of
our company at the time of separation.
Share Options. Outstanding share options held
by our employees under the Cadbury share option schemes at the
time of separation were converted into options over Cadbury
ordinary shares pursuant to the exchange ratio described below
that is intended to preserve the intrinsic value of
pre-separation options. Replacement options are subject to the
same terms and conditions as the existing options under the
applicable Cadbury share option scheme. Depending on the
applicable Cadbury share option scheme, the options over Cadbury
ordinary shares must be exercised within 12 months of the
separation (or, if later, the third anniversary of the original
grant of the options) or the replacement option will be
cancelled without payment.
Restricted Stock. Restricted stock granted to
our employees under the Cadbury international share award plan
was converted into Cadbury plc ordinary shares and shares of our
common stock (in the same manner as other Cadbury shareholders).
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Restricted Stock Units. Performance awards
granted to our employees under the Cadbury long term incentive
plan, the Cadbury Schweppes bonus share retention plan and the
Cadbury Schweppes international share award plan had their
performance measures tested at the time of separation, time
pro-rated (based on service through the date of separation) and
converted into an award over shares of our common stock pursuant
to the exchange ratio described below that was intended to
preserve the intrinsic value of the pre-separation
performance awards (after testing of performance measures and
time pro-rating). The converted performance awards are subject
to the same terms and conditions as the existing awards and will
be paid out at the end of the applicable normal performance
period or at the normal vesting date.
Awards to our employees under the Cadbury Schweppes bonus share
retention plan that were not subject to performance vesting but
were subject to time vesting were pro-rated (based on service
through the date of separation) and converted into an award over
shares of our common stock pursuant to the exchange ratio
described below that was intended to preserve the
intrinsic value of the pre-separation awards (after
time pro-rating). The converted awards are subject to the same
terms and conditions as the existing awards and will be paid out
at the normal vesting date. Awards under the Cadbury Schweppes
international share award plan that were neither performance
related nor subject to time vesting were converted into awards
over shares of our common stock pursuant to the exchange ratio
described below that was intended to preserve the
intrinsic value of the pre-separation awards. The
converted awards are subject to the same terms and conditions as
the existing awards and will be paid out at the normal vesting
date.
Awards granted to our employees under the Cadbury Schweppes long
term incentive plan which were not performance related were
converted into awards over Cadbury plc ordinary shares pursuant
to the exchange ratio described below that was intended to
preserve the intrinsic value of the pre-separation
awards. The converted awards are subject to the same terms and
conditions as the existing awards.
Intellectual
Property Agreements
Various agreements are in effect between us and Cadbury relating
to the use of certain trademarks, patents and other intellectual
property. These include agreements relating to the use and
protection of intellectual property where the intellectual
property is separately owned by us, Cadbury and certain third
parties in different countries, as is the case with Dr Pepper
and certain other brands. These also include licenses from
Cadbury to us for the use of the Roses trademark and
certain technology in our business, and licenses from us to
Cadbury for the use of the Canada Dry trademark with
Cadburys Halls product in the U.S. and the Snapple,
Motts, Clamato and Holland House trademarks in
Cadburys beverage business located principally in
Australia.
Debt
and Payables
Upon our separation from Cadbury, we settled outstanding debt
and payable balances with Cadbury except for amounts due under
the Separation and Distribution Agreement, Transition Services
Agreement, Tax Indemnity Agreement, and Employee Matters
Agreement. See Note 2 to our unaudited condensed
consolidated financial statements for additional information on
the accounting for the separation from Cadbury.
Prior to separation, we had a variety of debt agreements with
other wholly-owned subsidiaries of Cadbury that were unrelated
to our business. As of December 31, 2007, outstanding debt
totaled $3,019 million with $126 million recorded in
current portion of long-term debt payable to related parties.
The related party payable balance of $175 million as of
December 31, 2007, represented non-interest bearing payable
balances with companies owned by Cadbury, related party accrued
interest payable associated with interest bearing notes and
related party payables for sales of goods and services with
companies owned by Cadbury.
Notes
Receivable
Upon our separation from Cadbury, we settled outstanding
receivable balances with Cadbury except for amounts due under
the Separation and Distribution Agreement, Transition Services
Agreement, Tax Indemnity Agreement, and Employee Matters
Agreement. See Note 2 to our unaudited condensed
consolidated financial statements for additional information on
the accounting for the separation from Cadbury.
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We held a note receivable balance with wholly-owned subsidiaries
of Cadbury with outstanding principal balances of
$1,527 million as of December 31, 2007.
We had other related party receivables of $66 million as of
December 31, 2007, which primarily related to taxes,
accrued interest receivable from the notes with wholly-owned
subsidiaries of Cadbury and other operating activities.
Allocated
Expenses
Post separation from Cadbury, there were no expenses allocated
to us from Cadbury. See Note 2 to our unaudited condensed
consolidated financial statements for additional information on
the accounting for the separation from Cadbury.
Prior to the separation, Cadbury allocated certain costs to us,
including costs for certain corporate functions provided for us
by Cadbury. These allocations have been based on the most
relevant allocation method for the service provided. To the
extent expenses were paid by Cadbury on our behalf, they were
allocated based upon the direct costs incurred. Where specific
identification of expenses was not practicable, the costs of
such services were allocated based upon the most relevant
allocation method to the services provided, primarily either as
a percentage of net sales or headcount. We were allocated
$6 million for the nine months ended September 30,
2008, and $161 million, $142 million and
$115 million in 2007, 2006 and 2005, respectively.
Beginning January 1, 2008, we directly incurred and
recognized a significant portion of these costs, thereby
reducing the amounts subject to allocation through the methods
described above.
Cash
Management
Prior to the separation, our cash was available for use and was
regularly swept by Cadbury operations in the United States at
its discretion. Cadbury also funded our operating and investing
activities as needed. We earned interest income on certain
related-party balances. Our interest income has been reduced due
to the settlement of the related-party balances upon separation
and, accordingly, we expect interest income for the remainder of
2008 to be minimal.
Post separation, we plan to fund our liquidity needs from cash
flow from operations and amounts available under our financing
arrangements.
Royalties
Prior to the separation, we earned royalties from other
Cadbury-owned companies for the use of certain brands owned by
us. The total royalties we recorded were $1 million,
$1 million and $9 million for 2007, 2006 and 2005,
respectively.
81
MANAGEMENT
Executive
Officers and Directors
Set forth below is information concerning our executive officers
and directors.
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Name
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Age*
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Position
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Wayne R. Sanders
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61
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Chairman
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Larry D. Young
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54
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President, Chief Executive Officer and Director
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John O. Stewart
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50
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Executive Vice President, Chief Financial Officer and Director
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James L. Baldwin, Jr.
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47
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Executive Vice President and General Counsel
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Rodger L. Collins
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50
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President Bottling Group Sales and Finished
Goods
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Pedro Herrán Gacha
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47
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President Mexico and the Caribbean
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Derry L. Hobson
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58
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Executive Vice President Supply Chain
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James J. Johnston, Jr.
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51
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President Concentrate Sales
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Lawrence N. Solomon
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53
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Executive Vice President Human Resources
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James R. Trebilcock
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50
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Executive Vice President Marketing
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John L. Adams
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64
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Director
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Terence D. Martin
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65
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Director
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Pamela H. Patsley
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51
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Director
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Ronald G. Rogers
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60
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Director
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Jack L. Stahl
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55
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Director
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M. Anne Szostak
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58
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Director
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* |
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As of November 24, 2008 |
Wayne R. Sanders, Chairman. Mr. Sanders
has served as our Chairman of the Board of Directors and
chairman of the nominating and corporate governance committee
since May 2008. Mr. Sanders served as the Chairman and the
Chief Executive Officer of Kimberly-Clark Corporation from 1992
until his retirement in 2003. Mr. Sanders currently serves
on the boards of directors of Texas Instruments Incorporated and
Belo Corp. He previously served on the board of directors of
Adolph Coors Company. Mr. Sanders is also a National
Trustee and Governor of the Boys & Girls Club of
America and was a member of the Marquette University Board of
Trustees from 1992 to 2007, serving as Chairman from 2001 to
2003.
Larry D. Young, President, Chief Executive Officer and
Director. Mr. Young has served as our
President and Chief Executive Officer since October 2007.
Mr. Young joined Cadbury Schweppes Americas Beverages as
President and Chief Operating Officer of the Bottling Group
segment and Head of Supply Chain in 2006 after our acquisition
of DPSUBG, where he had been President and Chief Executive
Officer since May 2005. From 1997 to 2005, Mr. Young served
as President and Chief Operating Officer of Pepsi-Cola General
Bottlers, Inc. and Executive Vice President of Corporate Affairs
at PepsiAmericas, Inc. Mr. Young became a director in
October 2007.
John O. Stewart, Executive Vice President, Chief Financial
Officer and Director. Mr. Stewart has served
as our Executive Vice President and Chief Financial Officer
since November 2006. From 1990 to 2004, Mr. Stewart worked
for Diageo PLC and its subsidiaries, serving as Senior Vice
President and Chief Financial Officer of Diageo North America
from 2001 to 2004. From 2004 to 2005, Mr. Stewart was an
independent consultant, providing mergers and acquisitions
advice to Diageo PLC. Mr. Stewart became a director in
October 2007.
James L. Baldwin, Jr., Executive Vice President and
General Counsel. Mr. Baldwin has served as
our Executive Vice President and General Counsel since July
2003. From June 2002 to July 2003, he served as Senior Vice
President and General Counsel of Dr Pepper/Seven Up, Inc., and
from August 1998 to June 2002 as General Counsel of Motts
LLP.
82
Rodger L. Collins, President Bottling Group Sales
and Finished Goods. Mr. Collins has served as our
President of Bottling Group Sales and Finished Goods since
September 2008. Prior to that, Mr. Collins was our
President of Sales for the Bottling Group, a position he had
held since October 2007. He had previously served as Midwest
Division President for the Bottling Group since January
2005. He also was Regional Vice President (North/East) at DPSUBG
from October 2001 to December 2004.
Pedro Herrán Gacha, President Mexico and the
Caribbean. Mr. Herrán has served as our
President of the Mexico and the Caribbean segment since March
2004. Prior to that, he was President of Cadbury Schweppes
Beverages Mexico, a position he had held since January 2000.
Derry L. Hobson, Executive Vice President Supply
Chain. Mr. Hobson has served as our
Executive Vice President of Supply Chain since October 2007.
Mr. Hobson joined the business as Senior Vice President of
Manufacturing in 2006 through our acquisition of DPSUBG where he
had been Executive Vice President since 1999. Prior to joining
our Bottling Group, Mr. Hobson was President and Chief
Executive Officer of Sequoia Pacific Systems from 1993 to 1999.
From 1988 to 1993, Mr Hobson was Senior Vice President of
Operations at Perrier Group.
James J. Johnston, Jr., President
Concentrate Sales. Mr. Johnston has served
as our President of Concentrate Sales since September 2008.
Prior to that, Mr. Johnston was our President of Finished
Goods and Concentrate Sales, a position he had held since
October 2007. From January 2005 to October 2007, he was
Executive Vice President of Sales. From December 2003 to January
2005, he was first Senior Vice President, then Executive Vice
President of Strategy. From October 1997 to December 2003,
Mr. Johnston served as Senior Vice President of Licensing.
From November 1993 to October 1997, Mr. Johnston served as
Senior Vice President of System Marketing.
Lawrence N. Solomon, Executive Vice President
Human Resources. Mr. Solomon has served as
our Executive Vice President of Human Resources since March
2004. From May 1999 to March 2004, he served as Senior Vice
President of Human Resources for Dr Pepper/Seven Up, prior to
which he served on Cadburys global human resources team.
James R. Trebilcock, Executive Vice President
Marketing. Mr. Trebilcock has served as our
Executive Vice President Marketing since September
2008. From February 2003 to September 2008, Mr. Trebilcock
served as our Senior Vice President Consumer
Marketing. Prior to that time, Mr. Trebilcock held various
positions since joining the Dr
Pepper/Seven-Up
companies, Inc. in July 1987.
John L. Adams, Director. Mr. Adams has
served as our director since May 2008. Mr. Adams served as
Executive Vice President of Trinity Industries, Inc. from
January 1999 to June 2005 and held the position of Vice Chairman
from July 2005 to March 2007. Prior to joining Trinity
Industries, Mr. Adams spent 25 years in various
positions with Texas Commerce Bank, N.A. and its successor,
Chase Bank of Texas, National Association. From 1997 to 1998, he
served as Chairman and Chief Executive Officer of Chase Bank of
Texas. Mr. Adams currently serves on the boards of
directors of Trinity Industries, Inc. and Group 1 Automotive,
Inc., where he has served as chairman since April 2005. He
previously served on the boards of directors of American Express
Bank Ltd. and Phillips Gas Company.
Terence D. Martin, Director. Mr. Martin
has served as our director and chairman of the audit committee
since May 2008. Mr. Martin served as Senior Vice President
and Chief Financial Officer of Quaker Oats Company from 1998
until his retirement in 2001. From 1995 to 1998, he was
Executive Vice President and Chief Financial Officer of General
Signal Corporation. Mr. Martin was Chief Financial Officer
and Member of the Executive Committee of American Cyanamid
Company from 1991 to 1995 and served as Treasurer from 1988 to
1991. Since 2002, Mr. Martin has served on the board of
directors of Del Monte Foods Company and currently serves as the
chairman of its audit committee.
Pamela H. Patsley, Director. Ms. Patsley
has served as our director since May 2008. Ms. Patsley
served as Senior Executive Vice President of First Data
Corporation from March 2000 to October 2007 and President of
First Data International from May 2002 to October 2007. She
retired from those positions in October 2007. From 1991 to 2000,
she served as President and Chief Executive Officer of
Paymentech, Inc., prior to its acquisition by First Data.
Ms. Patsley also previously served as Chief Financial
Officer of First USA, Inc. Ms. Patsley currently serves on
the
83
boards of directors of Molson Coors Brewing Company and Texas
Instruments Incorporated, and she is the chair of the audit
committee of Texas Instruments Incorporated.
Ronald G. Rogers, Director. Mr. Rogers
has served as our director since May 2008. Mr. Rogers has
served in various positions with Bank of Montreal between 1972
and 2007. From 2002 until his retirement in 2005, he served as
Deputy Chair, Enterprise Risk & Portfolio Management,
BMO Financial Group and from 1994 to 2002, he served as Vice
Chairman, Personal & Commercial Client Group. Prior to
1994, Mr. Rogers held various executive vice president
positions at Bank of Montreal.
Jack L. Stahl, Director. Mr. Stahl has
served as our director and chairman of the compensation
committee since May 2008. Mr. Stahl served as Chief
Executive Officer and President of Revlon, Inc. from February
2002 until his retirement in September 2006. From February 2000
to March 2001, he served as President and Chief Operating
Officer of The
Coca-Cola
Company and previously served as Chief Financial Officer and
President of The
Coca-Cola
Companys Americas Group. Mr. Stahl currently serves
on the board of directors of Schering-Plough Corporation and
Delhaize Group.
M. Anne Szostak,
Director. Ms. Szostak has served as our
director since May 2008. Since June 2004, Ms. Szostak has
served as President and Chief Executive Officer of Szostak
Partners LLC, a consulting firm that advises executive officers
on strategic and human resource issues. From 1998 until her
retirement in 2004, she served as Executive Vice President and
Corporate Director Human Resources and Diversity of
FleetBoston Financial Corporation. She also served as Chairman
and Chief Executive Officer of Fleet Bank Rhode
Island from 2001 to 2003. Ms. Szostak currently is a
director of Belo Corp., Tupperware Brands Corporation and
Spherion Corporation, where she serves as chair of the
compensation committee.
Board of
Directors
Our board of directors consists of nine directors. The New York
Stock Exchange requires that a majority of our board of
directors qualify as independent according to the
rules and regulations of the SEC and the New York Stock Exchange
by no later than the first anniversary of the separation. We are
in compliance with these requirements.
Our amended and restated certificate of incorporation and
by-laws provide that the directors will be classified with
respect to the time for which they hold office, into three
classes. Class I directors will have an initial term
expiring in 2009, Class II directors will have an initial
term expiring in 2010 and Class III directors will have an
initial term expiring in 2011. Our Class I consists of
Ms. Patsley, Mr. Stewart and Ms. Szostak,
Class II consists of Mr. Adams, Mr. Martin and
Mr. Rogers and Class III consists of Mr. Sanders,
Mr. Stahl and Mr. Young.
Committees
of Our Board of Directors
The committees of our board of directors consist of an audit
committee, nominating and corporate governance committee and a
compensation committee. Each of these committees is required to
comply with the requirements of the SEC and the New York Stock
Exchange applicable to us, including for the audit committee the
independence requirements and the designation of an audit
committee financial expert. Our board of directors has
adopted a written charter for each of these committees, each of
which is posted on our website.
In addition, we may establish special committees under the
direction of the board of directors when necessary to address
specific issues.
Audit
Committee
Our audit committee is responsible for, among other things,
making recommendations concerning the engagement of our
independent registered public accounting firm, reviewing with
the independent registered public accounting firm the plans and
results of the audit engagement, approving professional services
provided by the independent registered public accounting firm,
reviewing the independence of the independent registered public
accounting firm, considering the range of audit and non-audit
fees and oversight of managements review of the adequacy
of our internal accounting controls. Our audit committee
consists of Mr. Adams, Mr. Martin and
84
Ms. Patsley, with Mr. Martin serving as chair. Each of
Mr. Adams, Mr. Martin and Ms. Patsley qualifies
as an audit committee financial expert.
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee is responsible
for recommending persons to be selected by the board as nominees
for election as directors, recommending persons to be elected to
fill any vacancies on the board, considering and recommending to
the board qualifications for the office of director and policies
concerning the term of office of directors and the composition
of the board and considering and recommending to the board other
actions relating to corporate governance. Our nominating and
corporate governance committee consists of Mr. Martin,
Mr. Sanders and Mr. Stahl, with Mr. Sanders
serving as chair.
Compensation
Committee
Our compensation committee is charged with the responsibilities,
subject to full board approval, of establishing, periodically
re-evaluating and, where appropriate, adjusting and
administering policies concerning compensation structure and
benefit plans for our employees, including the Chief Executive
Officer and all of our other executive officers. Our
compensation committee consists of Mr. Rogers,
Mr. Stahl and Ms. Szostak, with Mr. Stahl serving
as chair.
Code
of Ethics
Our board of directors has adopted a written code of ethics that
is designed to deter wrongdoing and to promote:
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honest and ethical conduct;
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full, fair, accurate, timely and understandable disclosure in
reports and documents that we file with the SEC and in our other
public communications;
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compliance with applicable laws, rules and regulations,
including insider trading compliance; and
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accountability for adherence to the code and prompt internal
reporting of violations of the code, including illegal or
unethical behavior regarding accounting or auditing practices.
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A copy of our code of ethics is posted on our website.
Procedures
for Approval of Related Persons Transactions
Our board of directors has adopted a written policy to be
followed in connection with certain related persons transactions
involving our company. Under this policy, our board of directors
has delegated to our audit committee the responsibility for
reviewing and approving transactions with related persons (as
defined in the policy) in which we were or are to be a
participant, including, but not limited to, any financial
transaction, arrangement or indebtedness, guarantee of
indebtedness, or any series of similar transactions in which the
amount involved exceeds $120,000. In addition, our board has
empowered our General Counsel to initially review all such
transactions and refer to the audit committee for approval of
transactions which our General Counsel determines that the
related person may have a direct or indirect material interest.
In approving related persons transactions, our audit committee
determines, among other things, whether each related persons
transaction referred to the audit committee is the product of
fair dealing and whether it is fair to our company.
Under this policy, we intend to remind our directors and
executive officers of their obligation to inform us of any
related persons transaction and any proposed related persons
transaction. In addition, from time to time, we intend to review
our records and inquire of our directors and executive officers
to identify any person who may be considered a related person.
Using this information, we intend to search our books and
records for any related persons transactions in which our
company was or is to be a participant.
85
Director
Compensation
Non-executive directors receive compensation from us for their
services on the board of directors or committees. Executive
directors do not receive compensation for their services as a
director. We compensate our non-executive directors as follows:
an annual fee of $100,000, which the director may elect to
receive in cash or defer and receive shares of our common stock
pursuant to a deferred compensation plan to be adopted by us,
and an annual equity grant of restricted stock units of
$100,000. In addition, the chairperson of the audit committee
and the compensation committee receives an annual equity grant
of restricted stock units of $30,000 and $25,000, respectively.
We have adopted expense reimbursement and related policies to
reimburse all directors for necessary and reasonable expenses.
No director compensation was paid in 2007.
Mr. Sanders, as Chairman, is entitled to an annual retainer
of $100,000, which he may elect to receive in cash or to defer
and receive shares of our common stock pursuant to a deferred
compensation plan. Mr. Sanders also receives an annual
equity grant of our common stock equal to $200,000. Shares
acquired through the deferral of his annual retainer and through
the annual equity grant will vest on the third anniversary of
the date of grant. In addition, in recognition of
Mr. Sanders services to us in connection with the
separation, he received a one-time founders equity grant
upon the separation of our common stock equal to $900,000 that
will vest in equal amounts on each of the first, second and
third anniversary of the date of grant.
Compensation
Discussion and Analysis
Introduction
In 2007, our named executive officers (the NEOs)
were Larry Young, John Stewart, Randall Gier, James Johnston,
Pedro Herrán, Gilbert Cassagne and John Belsito.
Historically, each NEO has been covered by the Cadbury Schweppes
executive compensation program. This Compensation Discussion and
Analysis describes the historical compensation arrangements for
our NEOs.
During the last half of 2007, there were a number of changes
with regard to our NEOs. On October 12, 2007,
Mr. Cassagne, our former President and Chief Executive
Officer, left the company and Mr. Young, our Chief
Operating Officer and President, Bottling Group, was appointed
President and Chief Executive Officer. In addition, on
December 19, 2007, Mr. Belsito, the former President,
Snapple Distributors, left the company. As a result of the
changes in certain of our NEOs duties and
responsibilities, certain elements of their compensation were
adjusted, as further described below.
On September 26, 2008, Randall E. Gier, who had served as
our Executive Vice President Marketing and R&D
since February 2004, left the company.
Objectives
of the Executive Compensation Program
Historically, as administered by the remuneration committee of
the board of directors of Cadbury Schweppes, the Cadbury
Schweppes executive compensation program was designed to achieve
the following core objectives:
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Total compensation was designed to be competitive in the
relevant market, thereby enabling Cadbury Schweppes to attract,
retain, motivate and reward high caliber executives;
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Total compensation awarded to executives was designed to reflect
and reinforce Cadbury Schweppes focus on financial
management and bottom-line performance;
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The achievement of short and long-term business objectives was
recognized through a combination of incentives and rewards with
a significant weighting on performance-based compensation versus
fixed pay; and
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Equity incentive awards were designed to align the interests of
management with those of shareholders of Cadbury Schweppes.
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Material
Elements of the Executive Compensation Program
Historically, Cadbury Schweppes executive compensation
program for the NEOs in 2007 consisted of the following three
major elements:
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Base Salary base salary provided NEOs with a
fixed level of cash compensation intended to aid in the
attraction and retention of talent in a competitive market. Base
salary is reflected in the Salary column in the
Summary Compensation Table.
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Annual Cash Incentive Compensation annual
cash incentive compensation encouraged NEOs to focus on our
annual financial plan and motivated the performance of the NEOs
in alignment with the short-term interests of shareholders of
Cadbury Schweppes. Annual cash incentive compensation is
reflected in the Non-Equity Incentive Plan
Compensation column in the Summary Compensation Table.
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Long-Term Share-Based Incentive Compensation
long-term share-based incentive compensation
rewarded NEOs for achieving quantitative goals that are key
drivers of long-term performance. Long-term share-based
incentives aligned the interests of executives with those of
shareholders of Cadbury Schweppes and provided strong retention
and motivational incentives. Long-term share-based incentive
compensation is reflected in the Stock Awards and
Option Awards columns in the Summary Compensation
Table.
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Other forms of compensation were also provided to NEOs in 2007
under the Cadbury Schweppes executive compensation program, and
included grants under an additional share plan, participation in
health plans, retirement plans, perquisites and severance
arrangements.
Setting
Executive Compensation
Historically, the compensation of Mr. Cassagne was based on
recommendations by Todd Stitzer, the Chief Executive Officer of
Cadbury Schweppes, related to Mr. Cassagnes
performance during the year, and approved by the remuneration
committee of the board of directors of Cadbury Schweppes. The
compensation of the other NEOs was based on recommendations by
Mr. Cassagne and approved by Mr. Stitzer. Among the
factors considered in setting compensation were individual
performance, skill and experience, the NEOs success in
achieving targets set by Cadbury Schweppes, compensation
previously granted to the NEO, planned changes in
responsibilities and competitive practices.
Benchmarking
of Compensation
In 2007, the remuneration committee of the board of directors of
Cadbury Schweppes reviewed compensation awarded to
Mr. Cassagne against compensation awarded to executives in
similar positions in the Towers Perrin 2007 U.S. CDB
General Industry Executive Database Survey (the Towers
Perrin Survey), a proprietary survey of approximately 45
multinational companies and global consumer goods companies with
whom Cadbury Schweppes believes it competes for executive
talent. In making assessments, the potential value of the total
compensation package, which included base salary, annual cash
incentives and long-term share-based incentives, was considered.
A similar process was followed by Mr. Stitzer and
Mr. Cassagne for purposes of benchmarking the compensation
of other NEOs. In addition to the Towers Perrin Survey,
Mr. Stitzer and Mr. Cassagne also considered the Hay
Group 2007 Executive Compensation Report: Fast-Moving Consumer
Goods Industry, a proprietary survey of approximately 50
multinational consumer goods companies.
In October 2007, Cadbury Schweppes also reviewed the base
salaries awarded to Mr. Young, in connection with his
promotion to President and Chief Executive Officer of our
company, and to Mr. Stewart, whose role was expanded to
include information technology and shared business services
along with additional duties that he will undertake as the Chief
Financial Officer of a public company, against similar executive
officers in 16 multinational
87
consumer goods companies of similar market capitalization to our
business (the DPS Comparator Group). The DPS
Comparator Group consisted of the following companies:
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Anheuser-Busch
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ConAgra
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Hershey
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PepsiAmericas
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Brown-Forman
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Constellation Brands
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Smucker
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Pepsi Bottling Group
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Campbell Soup
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General Mills
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Kellogg
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Sara Lee
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Coca-Cola
Enterprises
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Heinz
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Molson Coors
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Wrigley
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The
Executive Compensation Program
Overview
Historically, Cadbury Schweppes generally targeted a competitive
level of total compensation, including base salary, annual cash
incentive compensation, and long-term share-based incentive
compensation, based on the attainment of certain pre-established
performance measures.
Base
Salary
Cadbury Schweppes provided a base salary to each NEO, which was
reviewed on an annual basis. NEOs were eligible for merit-based
increases based on their prior year performance, market
competitiveness of their salary and peer group data.
In setting the base salary of Mr. Cassagne in 2007, the
remuneration committee of the board of directors of Cadbury
Schweppes considered Mr. Cassagnes performance and
benchmark information from the Towers Perrin Survey. In setting
the base salary of the other NEOs in 2007, Mr. Stitzer and
Mr. Cassagne considered each individuals performance
and the market competitiveness of their salary as described
above.
In October 2007, Mr. Youngs base salary was increased
from $647,000 to $800,000 and Mr. Stewarts base
salary was increased from $420,000 to $500,000.
Mr. Youngs increase was attributable to his promotion
to President and Chief Executive Officer of our company and
Mr. Stewarts increase was attributable to his
expanded role to include information technology and shared
business services along with additional duties he will undertake
as the Chief Financial Officer of a public company. The
increases for Mr. Young and Mr. Stewart were
established taking into account median base salaries of similar
executive officers in the DPS Comparator Group.
Annual
Cash Incentive Compensation
NEOs participated in the Cadbury Schweppes annual incentive
plan, a short-term cash incentive plan based on the attainment
of overall short-term business results. Each NEO was assigned an
annual incentive target between 65% and 100% of each NEOs
annual base salary (the Target Award). In the event
performance targets were met for each fiscal year, the NEOs were
eligible to receive a cash payment equal to their Target Award.
Performance measures were determined by the remuneration
committee of the board of directors of Cadbury Schweppes to take
account of current business plans and conditions and to provide
incentives to NEOs to achieve key short-term performance targets.
In 2007, Target Awards were based on the achievement of
financial performance targets for underlying economic profit
(defined as underlying operating profit from operations less a
charge for the weighted average cost of capital) and growth in
revenue. The remuneration committee of the board of directors of
Cadbury Schweppes believed that these performance targets were
key drivers of our business in the short-term.
In 2007, Mr. Herrán, who has primary responsibility
for our Mexico and the Caribbean segment, was eligible for a
Target Award based 50% on the performance targets achieved by
our Mexico and the Caribbean segment and 50% on the performance
targets achieved by our business. Each of the other NEOs,
including Mr. Young, was eligible for Target Awards based
only upon the performance targets achieved by our business. In
each case, the weighting of the performance targets was based
60% on underlying economic profit and 40% on growth in revenue.
In 2007, each NEO was provided the opportunity to voluntarily
defer all or part of his 2006 annual incentive plan award (which
otherwise would have been paid in cash in March 2007) and
invest such award in Cadbury
88
ordinary shares pursuant to the Cadbury Schweppes bonus share
retention plan, which is further described below under the
section Long-Term Share-Based
Incentives Bonus Share Retention Plan.
Annual incentive amounts for 2007 were determined in February
2008 and are set forth in the Non Equity Incentive Plan
Compensation column of the Summary Compensation Table.
Based on a review of the financial performance targets achieved
for 2007, cash payments were below each NEOs Target Award.
Long-Term
Share-Based Incentives
Bonus Share Retention Plan. The Cadbury
Schweppes bonus share retention plan enabled participants to
elect to defer all or part of their annual incentive plan awards
in the form of an investment in Cadbury Schweppes ordinary
shares. Senior executives, including the NEOs, were eligible to
participate in the bonus share retention plan. To the extent
that participants elected to invest in shares, the plan enabled
them to earn an additional matching grant of Cadbury Schweppes
ordinary shares (up to 100% of their investment), provided that
Cadbury Schweppes attained certain performance targets over a
three-year performance period and the participant was
continuously employed by Cadbury Schweppes through the date that
the award is settled. All of our current NEOs participated in
the bonus share retention plan, with a deferral ranging from 25%
to 100% of their annual incentive plan award.
The determination of matching shares awarded for 2007 was
determined in February 2008 and is set forth in the Stock
Awards column of the Option Exercises and Stock Vested
Table. Based on a review of the financial performance targets
achieved for the
2005-2007
performance period, the number of shares vested was below the
median of the number of matching shares that each NEO was
eligible to receive for the performance period.
Long Term Incentive Plan. Under Cadbury
Schweppes long term incentive plan, NEOs and other senior
executives were eligible, at the discretion of the remuneration
committee of the board of directors of Cadbury Schweppes, to
receive a designated number of Cadbury Schweppes ordinary shares
conditional on the achievement of certain performance targets.
The vesting of the shares awarded under Cadbury Schweppes
long term incentive plan in 2007 was based 50% on underlying
earnings per share growth and 50% on total shareholder return
growth relative to an international group of peer companies
equally weighted over a performance period beginning on
January 1, 2007 and ending on December 31, 2009. Total
shareholder return is defined as share price growth assuming
reinvested dividends. At the end of the three-year performance
period, the remuneration committee of the board of directors of
Cadbury Schweppes will determine how much of the award has been
earned. These shares accrue dividend equivalents through the end
of the performance period (which will only be paid to the extent
the performance targets are achieved). The vesting of these
shares is dependent on the executive being continuously employed
with Cadbury Schweppes through the date the award was settled.
In 2007, the remuneration committee of the board of directors of
Cadbury Schweppes granted shares under the long term incentive
plan to NEOs. Mr. Cassagne was entitled to shares with a
value ranging up to 120% of his base salary and the other NEOs
were entitled to shares with a value ranging up to 100% of their
base salaries based on the performance targets achieved during
the performance period.
The determination of the number of shares awarded for 2007 was
determined in February 2008 and is set forth in the Stock
Awards column of the Option Exercises and Stock Vested
Table. Based on a review of the financial performance targets
achieved for the
2005-2007
performance period, the number of shares vested was 55% of the
maximum number of shares that each NEO was eligible to receive
for the performance period.
Other
Equity Plans
Historically, up to and including 2005, annual awards of share
options were granted to the NEOs under the Cadbury Schweppes
share option plan. In addition, restricted share awards were
granted to certain NEOs under the Cadbury Schweppes
international share award plan.
89
Other
Compensation Benefits Plans and Programs
Historically, Cadbury Schweppes provided the following employee
benefit plans and programs to NEOs consistent with local
practices and those of comparable companies.
Employee Stock Purchase Plan. Cadbury
sponsored the employee stock purchase plan that provided
employees with an option to purchase Cadbury Schweppes ADRs at a
15% discount over a two-year period from the date of grant. The
discount price, which was fixed each September, was based on the
closing price of Cadbury Schweppes ADRs on the day before
enrollment for the plan began.
Retirement Benefits. Cadbury sponsored a
qualified defined benefit plan (the personal pension account
plan) and two non-qualified defined benefit plans (the pension
equalization plan and the supplemental executive retirement
plan). In 2007, the personal pension account plan and the
pension equalization plan were closed to new participants. In
addition, Cadbury Schweppes sponsored a qualified defined
contribution plan, and a non-qualified defined contribution
plan. The defined benefit plans and defined contribution plans
are discussed below in further detail in the narrative following
the Pension Benefits Table and the Non-Qualified Deferred
Compensation Table, respectively.
Perquisites. Cadbury provided some or all of
the NEOs with the following additional benefits and perquisites,
which are more fully described under the Summary Compensation
Table:
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An automobile allowance;
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A service allowance to offset the costs of items such as
financial, estate and tax planning; and
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Annual physicals and disability income premiums.
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In addition, our expatriate NEO, Mr. Herrán, was
provided with an expatriate package, including tax equalization
and other payments. Certain club membership dues and expenses
were also paid on behalf of Mr. Young.
Executive
Employment Agreements
Consistent with our past practices, we have entered into
executive employment agreements with our NEOs at the time they
became an executive officer. These executive employment
agreements are updated from time-to-time, including most
recently to principally address changes in tax laws. We believe
that it is appropriate for our senior executives to have
employment agreements because they provide us with certain
contractual protections, including provisions relating to
non-competition, non-solicitation of our employees and
confidentiality of proprietary information. We also believe that
executive employment agreements are useful in recruiting and
retaining senior employees. For information regarding the
executive employment agreements, see Historical Executive
Compensation Information Executive Employment
Agreements.
Pursuant to their executive employment agreements, we provided
Mr. Cassagne and Mr. Belsito with certain benefits
when they left the company. For information regarding these
benefits, see Historical Executive Compensation
Information Separation Arrangements Related to
Mr. Cassagne and Mr. Belsito.
Historical
Executive Compensation Information
The executive compensation disclosure contained in this section
reflects compensation information for 2007.
The following disclosure tables provide compensation information
for (1) Mr. Young and Mr. Cassagne, each of whom
served as our President and Chief Executive Officer during 2007;
(2) Mr. Stewart, our Executive Vice President and
Chief Financial Officer; (3) Mr. Gier,
Mr. Johnston and Mr. Herrán, the three other
executive officers who were our most highly compensated
executive officers; and (4) Mr. Belsito, who would
have been one of our three most highly compensated officers if
he was serving as an executive officer as of December 31,
2007 (collectively, the named executive officers, or
NEOs). All references to stock options and
stock-based awards, other than the employee stock purchase plan,
relate to equity awards granted by Cadbury Schweppes to acquire
Cadbury Schweppes ordinary shares.
90
Summary
Compensation Table
The following table sets forth information regarding the
compensation earned by NEOs in 2007.
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Change in
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Pension
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Value and
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Non-
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Qualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Salary
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name & Principal Position
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Year
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($)(5)
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($)(6)
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($)(7)
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($)(8)
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($)(9)
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($)(10)
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($)
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Larry D. Young,
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2007
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672,266
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514,402
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112,168
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510,400
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35,000
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197,411
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2,041,647
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President and Chief
Executive Officer(1)
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John O. Stewart,
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2007
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425,654
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407,965
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218,266
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5,000
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78,288
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1,135,173
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Executive Vice President
and Chief Financial Officer
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Randall E. Gier,
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2007
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456,577
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335,509
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329,539
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190,378
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55,000
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57,186
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1,424,189
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Executive Vice President,
Marketing and R&D(2)
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James J. Johnston, Jr.,
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2007
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435,962
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241,532
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98,678
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182,497
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75,000
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52,151
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1,085,820
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President, Finished Goods
and Concentrate Sales
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Pedro Herrán Gacha,
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2007
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431,427
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370,375
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89,966
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89,998
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50,000
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619,936
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1,651,702
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President, Mexico and the
Caribbean
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Gilbert M. Cassagne,
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2007
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714,808
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448,019
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322,341
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448,406
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910,000
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2,257,202
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5,100,776
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Former President and Chief
Executive Officer(3)
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John L. Belsito,
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2007
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470,354
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193,466
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77,652
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241,414
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120,000
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80,280
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1,186,812
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Former President, Snapple
Distributors(4)
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(1) |
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Mr. Young was appointed President and Chief Executive
Officer on October 10, 2007. |
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(2) |
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Mr. Gier, formerly Executive Vice President
Marketing and R&D, left the company effective
September 26, 2008. |
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(3) |
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Mr. Cassagne, formerly President and Chief Executive
Officer, left the company effective October 12, 2007. |
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(4) |
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Mr. Belsito, formerly President, Snapple Distributors, left
the company effective December 19, 2007. |
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(5) |
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The amounts shown in this column represent the base salary
reported on each
Form W-2
for each of our NEOs for 2007. Due to our payroll practices, the
amounts shown reflect base salary earned between
December 21, 2006 and December 22, 2007. Base salary
earned between December 23, 2007 and December 31, 2007
will be reported on the 2008
Form W-2
and reflected in the Summary Compensation Table in our 2009
proxy statement. |
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(6) |
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The amounts shown in this column represent the dollar amount of
the accounting expense recognized for financial statement
reporting purposes for 2007 for all outstanding stock awards
granted to the NEOs pursuant to the international share award
plan, the bonus share retention plan and the long-term incentive
plan, in accordance with the rules of SFAS 123(R). For
Mr. Cassagne and Mr. Belsito, these amounts also
include the dollar amount of the accounting expense recognized
for outstanding stock awards granted pursuant to the integration
share success plan. The amounts disregard adjustment for
forfeiture assumptions and do not reflect amounts realized or
paid to the NEOs in 2007 or prior years. Assumptions used to
calculate these amounts (disregarding forfeiture assumptions)
are included in note 14 to our audited combined financial
statements. For further information on the stock awards granted
in 2007, see the Grants of Plan-Based Awards Table. |
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(7) |
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The amounts shown in this column represent the dollar amount of
the accounting expense recognized for financial statement
reporting purposes for 2007 for all outstanding option awards
granted to the NEOs pursuant to the Cadbury Schweppes share
option plan in accordance with SFAS 123(R). The amounts
disregard adjustment for forfeiture assumptions and do not
reflect amounts realized or paid to the NEOs in |
91
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2007 or prior years. Assumptions used to calculate these amounts
(disregarding forfeiture assumptions) are included in
note 14 to our audited combined financial statements. No
option awards were granted to the NEOs in 2007. |
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(8) |
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The amounts shown in this column represent the annual incentive
awards for 2007 that were paid to our NEOs in March 2008
pursuant to the annual incentive plan. |
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(9) |
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The amounts shown in this column represent an estimate of the
aggregate change during 2007 in the actuarial present value of
accumulated benefits under the personal pension account plan,
the pension equalization plan and the supplemental executive
retirement plan (as applicable), as described in more detail
below in the Pension Benefits Table. The change in the actuarial
present value of the accumulated benefits under the plans was
determined in accordance with SFAS 87. Assumptions used to
calculate these amounts are included in note 13 to our
audited combined financial statements and include amounts that
the NEOs may not be currently entitled to receive because such
amounts are not vested. |
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(10) |
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The amounts shown in this column represent the following
components: |
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Perquisites ($)
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Disability
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Company
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Automobile
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Service
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Income
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Contributions
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Other
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Allowance
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Allowance
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Premiums
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($)(a)
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($)(b)
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Total ($)
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Mr. Young
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30,010
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19,000
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4,214
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27,002
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117,185
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197,411
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Mr. Stewart
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21,544
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14,000
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1,986
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16,883
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23,875
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78,288
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Mr. Gier
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19,944
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14,000
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3,314
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18,120
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1,808
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57,186
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Mr. Johnston
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13,670
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14,000
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2,965
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17,549
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3,967
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52,151
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Mr. Herrán
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65,413
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14,000
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3,307
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17,114
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520,102
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619,936
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Mr. Cassagne
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25,627
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24,000
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2,531
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28,703
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2,176,341
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2,257,202
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Mr. Belsito
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23,515
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21,000
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18,688
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17,077
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80,280
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(a) |
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The amounts shown represent Cadbury Schweppes matching
contributions to the tax-qualified defined contribution plan and
non-tax qualified defined contribution plan. The contributions
to the tax-qualified defined contribution plan are as follows:
for Mr. Young, $9,111; for Mr. Stewart, $8,857; for
Mr. Gier, $8,857; for Mr. Johnston, $9,111; for
Mr. Herrán, $8,857; for Mr. Cassagne, $9,111; and
for Mr. Belsito, $8,857. The contributions to the non-tax
qualified plan are as follows: for Mr. Young, $17,891; for
Mr. Stewart, $8,026; for Mr. Gier, $9,263; for
Mr. Johnston, $8,438; for Mr. Herrán, $8,257; for
Mr. Cassagne, $19,592; and for Mr. Belsito, $9,831. |
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(b) |
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The amounts shown reflect the following costs: for
Mr. Young, $117,185 for club membership dues and expenses;
for Mr. Stewart, $1,875 for executive physical and $22,000
for home sale bonus; for Mr. Gier, $1,808 for executive
physical; for Mr. Johnston, $3,967 for sporting events; for
Mr. Herrán, $23,450 for education expenses, $84,155
for security expenses, $206,228 for tax equalization expenses,
$43,156 for location allowance, $53,954 for foreign service
premium, $101,789 for housing allowance, $2,300 for tax
preparation expenses, $1,078 for cost of living adjustments,
$3,296 for
10-year
service award and $696 for club membership dues and expenses;
for Mr. Cassagne, $2,171,154 for separation payments and
$5,187 for
25-year
service award; and for Mr. Belsito, $2,075 for executive
physical and $15,002 for merit bonus. For additional information
about further amounts payable to Mr. Cassagne and
Mr. Belsito, see Separation Arrangements
Related to Mr. Cassagne and Mr. Belsito. |
92
Grants of
Plan-Based Awards
The following table sets forth information regarding equity plan
awards and non-equity incentive plan awards by Cadbury Schweppes
to our NEOs for 2007.
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Grant Date
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Fair Value of
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Estimated Future Payouts Under
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Estimated Future Payouts Under
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Equity
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Non-Equity Incentive Plan Awards(1)
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Equity Incentive Plan Awards(2)
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Incentive
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Grant
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Threshold
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Target
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Maximum
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Threshold
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Target
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Maximum
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Plan Awards
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Name
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Date
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($)
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($)
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($)
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(#)
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(#)
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(#)
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(3)($)
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Larry D. Young
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2/15/07
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200,000
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800,000
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1,200,000
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3/29/07
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18,968
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63,230
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477,041
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3/4/07
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23,745
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59,363
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375,000
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John O. Stewart
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2/15/07
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85,514
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342,055
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513,083
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3/29/07
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9,616
|
|
|
|
|
|
|
|
32,054
|
|
|
|
241,833
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
3,385
|
|
|
|
20,792
|
|
Randall E. Gier
|
|
|
2/15/07
|
|
|
|
74,588
|
|
|
|
298,350
|
|
|
|
447,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,764
|
|
|
|
|
|
|
|
35,886
|
|
|
|
270,743
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
|
|
|
|
18,675
|
|
|
|
121,500
|
|
James J. Johnston, Jr.
|
|
|
2/15/07
|
|
|
|
71,500
|
|
|
|
286,000
|
|
|
|
429,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,320
|
|
|
|
|
|
|
|
34,400
|
|
|
|
259,532
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
|
|
|
|
5,878
|
|
|
|
38,250
|
|
Pedro Herrán Gacha
|
|
|
2/15/07
|
|
|
|
70,525
|
|
|
|
282,100
|
|
|
|
423,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,178
|
|
|
|
|
|
|
|
33,930
|
|
|
|
255,986
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
|
|
|
|
12,215
|
|
|
|
75,000
|
|
Gilbert M. Cassagne
|
|
|
2/15/07
|
|
|
|
175,073
|
|
|
|
700,290
|
|
|
|
1,050,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,322
|
|
|
|
|
|
|
|
27,740
|
|
|
|
209,285
|
|
John L. Belsito
|
|
|
2/15/07
|
|
|
|
94,319
|
|
|
|
377,275
|
|
|
|
565,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,632
|
|
|
|
|
|
|
|
15,440
|
|
|
|
116,488
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
2,196
|
|
|
|
49,770
|
|
|
|
|
(1) |
|
The amounts shown in the first row of these columns for each NEO
represent the potential payouts of annual cash incentive
compensation granted to our NEOs in 2007 under the annual
incentive plan subject to the achievement of certain performance
measures. The actual amount of the awards made to the NEOs and
paid in cash will be set forth in the Non-Equity Incentive
Plan Compensation column of the Summary Compensation Table
after payment is made. |
|
(2) |
|
The amounts shown in the second row of these columns for each
NEO represent the threshold and maximum payouts of conditional
shares granted to our NEOs pursuant to the long term incentive
plan, subject to the achievement of certain performance
measures. The performance measures are applied over a three-year
performance period beginning on January 1, 2007 and ending
on December 31, 2009. For more information regarding the
terms of the conditional share awards, see the section entitled
Long-Term Share-Based Incentives
Long Term Incentive Plan. The amounts shown in the third
row of these columns for each NEO represent matched shares
granted by Cadbury Schweppes on the portion of the annual
incentive award that each NEO earned in 2006 and elected to
defer under the bonus share retention plan on March 4, 2007
in the form of Cadbury Schweppes ordinary shares (basic
shares). In accordance with the terms of the bonus share
retention plan, each NEO is eligible for (i) an award equal
to 40% of the number of his basic shares if he remains employed
through the date the award is paid in the first quarter of 2010
(as shown in the column Threshold Estimated
Future Payouts Under Equity Incentive Plan Awards) and
(ii) an award equal to 60% of the number of his basic
shares if certain performance measures are achieved during the
three-year period beginning on January 1, 2007 and ending
on December 31, 2009 and the NEO remains employed through
the date the award is paid in the first quarter of 2010. The
amounts shown in the column Maximum Estimated
Future Payouts Under Equity Incentive Plan Awards
represent the total maximum number of matched shares that the
NEO is eligible to receive. |
93
|
|
|
(3) |
|
The amounts shown in this column represent the grant date fair
value of various awards in accordance with SFAS 123(R)
based on a potential payout of maximum award. The grant date
fair value generally reflects the amount we would expense in our
financial statements over the awards vesting schedule, and
does not correspond to the actual value that may be realized by
or paid to the NEOs. |
Outstanding
Equity Awards
The following table sets forth information regarding exercisable
and unexercisable stock options and vested and unvested equity
awards held by each NEO as of December 31, 2007. All such
awards relate to Cadbury Schweppes ordinary shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Year-End
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Number
|
|
|
Market
|
|
|
Awards:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
of
|
|
|
Value of
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
or Units
|
|
|
or Units
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
Number of
|
|
|
Securities
|
|
|
Number of
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
of Stock
|
|
|
Units, or
|
|
|
Shares, Units,
|
|
|
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
Securities
|
|
|
|
|
|
|
|
|
That
|
|
|
That
|
|
|
Other
|
|
|
or
|
|
|
|
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Have
|
|
|
Have
|
|
|
Rights That
|
|
|
Other Rights
|
|
|
|
|
|
|
Unexercised
|
|
|
Options
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Not
|
|
|
Not
|
|
|
Have
|
|
|
That Have Not
|
|
|
|
|
|
|
Options
|
|
|
Unexercisable
|
|
|
Unearned
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Vested
|
|
|
|
|
Name
|
|
Exercisable (#)
|
|
|
(#)
|
|
|
Options (#)
|
|
|
($)(1)
|
|
|
Date
|
|
|
(#)
|
|
|
($)(2)
|
|
|
(#)
|
|
|
($)(2)
|
|
|
Grant Date
|
|
|
Larry D. Young
|
|
|
|
|
|
|
96,000
|
|
|
|
|
|
|
|
10.98
|
|
|
|
5/27/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,745
|
|
|
|
294,515
|
|
|
|
35,618
|
|
|
|
441,778
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,666
|
|
|
|
764,858
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,230
|
|
|
|
784,256
|
|
|
|
3/29/07
|
(5)
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
11/30/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
16,794
|
|
|
|
2,031
|
|
|
|
25,191
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,668
|
|
|
|
281,156
|
|
|
|
11/6/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,054
|
|
|
|
397,573
|
|
|
|
3/29/07
|
(5)
|
Randall E. Gier
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
8.48
|
|
|
|
3/26/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/26/04
|
(3)
|
|
|
|
59,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
8/29/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,973
|
|
|
|
24,472
|
|
|
|
2,960
|
|
|
|
36,714
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
92,652
|
|
|
|
11,205
|
|
|
|
138,978
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,546
|
|
|
|
416,079
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,886
|
|
|
|
445,102
|
|
|
|
3/29/07
|
(5)
|
James J. Johnston, Jr.
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
8.86
|
|
|
|
9/11/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/11/98
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
8.15
|
|
|
|
9/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/99
|
(3)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
64,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
|
|
31,814
|
|
|
|
3,848
|
|
|
|
47,728
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
29,160
|
|
|
|
3,527
|
|
|
|
43,746
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,546
|
|
|
|
416,079
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,400
|
|
|
|
426,671
|
|
|
|
3/29/07
|
(5)
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
8.86
|
|
|
|
9/11/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/11/98
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
8.15
|
|
|
|
9/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/99
|
(3)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
6.62
|
|
|
|
3/14/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/14/03
|
(3)
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
8/29/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
148,839
|
|
|
|
|
|
|
|
|
|
|
|
2/16/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,995
|
|
|
|
49,551
|
|
|
|
5,993
|
|
|
|
74,333
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
60,602
|
|
|
|
7,329
|
|
|
|
90,903
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,626
|
|
|
|
342,652
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,930
|
|
|
|
420,842
|
|
|
|
3/29/07
|
(5)
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Year-End
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Number
|
|
|
Market
|
|
|
Awards:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
of
|
|
|
Value of
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
or Units
|
|
|
or Units
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
Number of
|
|
|
Securities
|
|
|
Number of
|
|
|
|
|
|
|
|
|
of Stock
|
|
|
of Stock
|
|
|
Units, or
|
|
|
Shares, Units,
|
|
|
|
|
|
|
Securities
|
|
|
Underlying
|
|
|
Securities
|
|
|
|
|
|
|
|
|
That
|
|
|
That
|
|
|
Other
|
|
|
or
|
|
|
|
|
|
|
Underlying
|
|
|
Unexercised
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Have
|
|
|
Have
|
|
|
Rights That
|
|
|
Other Rights
|
|
|
|
|
|
|
Unexercised
|
|
|
Options
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Not
|
|
|
Not
|
|
|
Have
|
|
|
That Have Not
|
|
|
|
|
|
|
Options
|
|
|
Unexercisable
|
|
|
Unearned
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Not Vested
|
|
|
Vested
|
|
|
|
|
Name
|
|
Exercisable (#)
|
|
|
(#)
|
|
|
Options (#)
|
|
|
($)(1)
|
|
|
Date
|
|
|
(#)
|
|
|
($)(2)
|
|
|
(#)
|
|
|
($)(2)
|
|
|
Grant Date
|
|
|
Gilbert M. Cassagne
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
145,500
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,830
|
|
|
|
345,182
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,351
|
|
|
|
748,548
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,740
|
|
|
|
344,066
|
|
|
|
3/29/07
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
620,162
|
|
|
|
6/30/06
|
(7)
|
John L. Belsito
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
8.93
|
|
|
|
3/16/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/16/01
|
(3)
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
34,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
26,084
|
|
|
|
3,155
|
|
|
|
39,132
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
10,890
|
|
|
|
1,318
|
|
|
|
16,347
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,688
|
|
|
|
182,179
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,178
|
|
|
|
386,708
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,440
|
|
|
|
191,506
|
|
|
|
3/29/07
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
124,032
|
|
|
|
6/30/06
|
(7)
|
|
|
|
(1) |
|
The option exercise prices were converted from pounds sterling
to U.S. dollars based on a December 31, 2007 currency
exchange rate of 1 pound sterling to 1.9973 U.S. dollars |
|
(2) |
|
The amount for each row represents the total number of shares or
other rights awarded under an equity incentive plan that have
not vested multiplied by the closing price of a Cadbury
Schweppes ordinary share on the London Stock Exchange on
December 31, 2007. The price of an ordinary share was
converted from pounds sterling to U.S. dollars based on a
December 31, 2007 currency exchange rate of 1 pound
sterling to 1.9973 U.S. dollars. |
|
(3) |
|
Share Option Plan. An option grant does not
become exercisable until performance vesting criteria have been
satisfied. No portion of the option may be exercised unless the
performance measure is satisfied on the third anniversary of the
grant date. |
|
(4) |
|
Bonus Share Retention Plan. The amounts in the
Number of Shares or Units of Stock That Have Not
Vested column will vest on the third anniversary of the
applicable grant date if the NEO is employed with Cadbury
Schweppes on such date. The amounts in Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested column will vest based on Cadbury
Schweppes achieving the maximum compound annual growth in
aggregate underlying economic profit target over a three-year
performance period. Payout could range up to 100% of the
conditional shares disclosed. Pursuant to these terms: |
|
|
|
|
|
Mr. Gier, Mr. Johnston, Mr. Herrán and
Mr. Belsito were each granted an award subject to a
performance period from January 1, 2006 to
December 31, 2008 and a vesting date of March 2009; and
|
|
|
|
Mr. Young, Mr. Stewart, Mr. Gier,
Mr. Johnston, Mr. Herrán and Mr. Belsito
were each granted an award subject to a performance period from
January 1, 2007 to December 31, 2009 and a vesting
date of March 2010.
|
95
In addition, the amounts shown in the following table represent
the number of Cadbury Schweppes ordinary shares (the basic
shares) that each NEO received on the applicable grant
date upon his election to defer all or a portion of their prior
year annual incentive plan awards into the bonus share retention
plan.
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
Number of Basic Shares
|
|
|
Mr. Young
|
|
|
3/4/07
|
|
|
|
59,363
|
|
Mr. Stewart
|
|
|
3/4/07
|
|
|
|
3,385
|
|
Mr. Gier
|
|
|
3/4/06
|
|
|
|
4,933
|
|
|
|
|
3/4/07
|
|
|
|
18,675
|
|
Mr. Johnston
|
|
|
3/4/06
|
|
|
|
6,413
|
|
|
|
|
3/4/07
|
|
|
|
5,878
|
|
Mr. Herrán
|
|
|
3/4/06
|
|
|
|
9,988
|
|
|
|
|
3/4/07
|
|
|
|
12,215
|
|
Mr. Cassagne
|
|
|
|
|
|
|
|
|
Mr. Belsito
|
|
|
3/4/06
|
|
|
|
8,765
|
|
|
|
|
3/4/07
|
|
|
|
8,240
|
|
|
|
|
(5) |
|
Long Term Incentive Plan. Share grants will
vest on the third anniversary of the applicable grant date if
the NEO is employed with Cadbury Schweppes on such date and
based on the achievement of compound annual growth in the
aggregate underlying earnings per share target of Cadbury
Schweppes and total shareholder return relative to an index of
peer companies of Cadbury Schweppes over the applicable
performance period. Vesting could range up to 100% of the
conditional shares disclosed. Pursuant to these terms: |
|
|
|
|
|
Mr. Cassagne and Mr. Belsito were granted an award
subject to a retest for the performance period from
January 1, 2003 to December 31, 2008 and a vesting
date of March 2009;
|
|
|
|
all of the NEOs were granted an award subject to a three-year
performance period from January 1, 2006 to
December 31, 2008 and a vesting date of March 2009; and
|
|
|
|
all the NEOs were granted an award subject to a three-year
performance period from January 1, 2007 to
December 31, 2009 and a vesting date of March 2010.
|
|
|
|
(6) |
|
International Share Award Plan. For
Mr. Gier and Mr. Herrán, the share awards will
vest on the third anniversary of the grant date. For
Mr. Stewart, the share award will vest in equal
installments on the second and third anniversary of the grant
date. |
|
(7) |
|
Integration Success Share Plan. Awards under
the integration success share plan are payable in the first
quarter of 2008, subject to compliance with restrictive
covenants in the individuals employment agreement. For
further information, see Separation Arrangements Related
to Mr. Cassagne and Mr. Belsito. |
96
Option
Exercises and Stock Vested
The following table sets forth information regarding Cadbury
Schweppes ordinary shares acquired in 2007 by each NEO upon the
exercise of stock options and vesting of stock awards during
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized on
|
|
|
Acquired on
|
|
|
Value on
|
|
|
|
on Exercise
|
|
|
Exercise
|
|
|
Vesting
|
|
|
Vesting
|
|
Name
|
|
(#)(1)
|
|
|
($)(2)
|
|
|
(#)
|
|
|
($)(3)
|
|
|
Larry D. Young
|
|
|
|
|
|
|
|
|
|
|
21,051
|
(5)
|
|
|
229,870
|
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(4)
|
|
|
258,780
|
|
Randall E. Gier
|
|
|
|
|
|
|
|
|
|
|
13,270
|
(5)
|
|
|
144,904
|
|
|
|
|
|
|
|
|
|
|
|
|
6,531
|
(6)
|
|
|
71,316
|
|
James J. Johnston, Jr.
|
|
|
|
|
|
|
|
|
|
|
12,563
|
(5)
|
|
|
137,184
|
|
|
|
|
|
|
|
|
|
|
|
|
2,028
|
(6)
|
|
|
22,145
|
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
200,931
|
|
|
|
10,811
|
(5)
|
|
|
118,053
|
|
Gilbert M. Cassagne
|
|
|
|
|
|
|
|
|
|
|
40,857
|
(5)
|
|
|
446,145
|
|
John L. Belsito
|
|
|
20,000
|
|
|
|
28,440
|
|
|
|
23,732
|
(5)
|
|
|
259,146
|
|
|
|
|
(1) |
|
The amounts shown in this column reflect the aggregate number of
Cadbury Schweppes ordinary shares underlying the options that
were exercised in 2007. |
|
(2) |
|
The amounts shown in this column are calculated by multiplying
(x) the difference between the closing price on the London
Stock Exchange of a Cadbury Schweppes ordinary share on the date
of exercise and the exercise price of the options by
(y) the number of Cadbury Schweppes ordinary shares
acquired upon exercise. The amounts shown in this column were
converted from pounds sterling to U.S. dollars based on the
currency exchange rate on the date of exercise. |
|
(3) |
|
The amounts shown in this column are calculated by multiplying
(x) the closing price of a Cadbury Schweppes ordinary share
on the London Stock Exchange on the date of vesting by
(y) the number of Cadbury Schweppes ordinary shares
acquired upon vesting. The amounts shown in this column were
converted from pounds sterling to U.S. dollars based on the
currency exchange rate on the date of vesting. |
|
(4) |
|
The amount shown reflects the number of awards under the
international share award plan that vested in 2007. |
|
(5) |
|
The amounts shown reflect the number of Cadbury Schweppes
ordinary shares awarded for the
2005-2007
performance period under the long term incentive plan. |
|
(6) |
|
The amount shown reflects the number of Cadbury Schweppes
ordinary shares awarded for the
2005-2007
performance period under the bonus share retention plan. |
97
Pension
Benefits Table
The following table sets forth information regarding pension
benefits accrued by each NEO under our defined benefit plans and
supplemental contractual arrangements for 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Years
|
|
Present Value of
|
|
Payments
|
|
|
|
|
Credited
|
|
Accumulated
|
|
During Last
|
|
|
|
|
Service
|
|
Benefit
|
|
Fiscal Year
|
Name
|
|
Plan Name
|
|
(#)
|
|
($)(1)
|
|
($)
|
|
Larry D. Young
|
|
Personal Pension Account Plan
|
|
|
1.67
|
|
|
|
15,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
1.67
|
|
|
|
20,000
|
|
|
|
|
|
John O. Stewart
|
|
Personal Pension Account Plan
|
|
|
1.15
|
|
|
|
5,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
1.15
|
|
|
|
0
|
|
|
|
|
|
Randall E. Gier
|
|
Personal Pension Account Plan
|
|
|
3.78
|
|
|
|
45,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
3.78
|
|
|
|
100,000
|
|
|
|
|
|
James J. Johnston, Jr.
|
|
Personal Pension Account Plan
|
|
|
15.08
|
|
|
|
245,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
15.08
|
|
|
|
235,000
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
Personal Pension Account Plan
|
|
|
10.39
|
|
|
|
135,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
10.39
|
|
|
|
225,000
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
Personal Pension Account Plan
|
|
|
25.74
|
|
|
|
685,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
25.74
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
25.74
|
|
|
|
455,000
|
|
|
|
|
|
John L. Belsito
|
|
Personal Pension Account Plan
|
|
|
20.20
|
|
|
|
330,000
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
20.20
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown reflect the actuarial present value of
benefits accumulated under the respective plans in accordance
with the assumptions included in note 13 to our audited
combined financial statements. These amounts assume that each
NEO retires at age 65. The discount rate used to determine
the present value of accumulated benefits is 6.20%. The present
values assume no pre-retirement mortality and utilize the RP
2000 healthy white collar male and female mortality tables
projected to calendar year 2015. |
Personal
Pension Account Plan
NEOs are provided with retirement benefits under the Cadbury
Schweppes personal pension account plan (the PPA
Plan), a tax-qualified defined benefit pension plan
covering full-time and part-time employees with at least one
year of service who were actively employed as of
December 31, 2006. The PPA Plan was closed to employees who
were hired after December 31, 2006.
The PPA Plan provides a retirement benefit to participants based
on a percentage of the participants annual compensation
(which includes base salary and annual incentive award). The
percentage, which is based on age and years of service, varies
as follows:
|
|
|
|
|
|
|
|
|
|
|
Age/Service Credit Percentage
|
|
|
|
Compensation up to
|
|
|
Compensation over
|
|
Age Plus Years of Service
|
|
Taxable Wage Base
|
|
|
Taxable Wage Base
|
|
|
Less than 35
|
|
|
23/4
|
%
|
|
|
51/2
|
%
|
35 but less than 45
|
|
|
33/4
|
%
|
|
|
71/2
|
%
|
45 but less than 55
|
|
|
41/2
|
%
|
|
|
9
|
%
|
55 but less than 65
|
|
|
6
|
%
|
|
|
11
|
%
|
65 but less than 75
|
|
|
8
|
%
|
|
|
13
|
%
|
75 or more
|
|
|
10
|
%
|
|
|
15
|
%
|
Participants fully vest in their retirement benefits after five
years of service or upon attaining age 65. Participants are
also eligible for early retirement benefits if they separate
from service on or after attaining age 55
98
with 10 years of service. Participants who leave Cadbury
Schweppes before they are fully vested in their retirement
benefits forfeit their accrued benefit under the PPA Plan.
The Internal Revenue Code places limitations on compensation and
pension benefits for tax-qualified defined benefit plans such as
the PPA Plan. We have established two non-qualified supplemental
defined benefit pension programs (the Cadbury Schweppes pension
equalization plan and the Cadbury Schweppes supplemental
executive retirement plan), as discussed below, to restore some
of the pension benefits limited by the Internal Revenue Code.
Pension
Equalization Plan
Cadbury Schweppes sponsored a pension equalization plan (the
PEP), an unfunded, non-tax qualified excess defined
benefit plan covering key employees who were actively employed
as of December 31, 2006 and whose base salary exceeded
certain statutory limits imposed by the Internal Revenue Code.
As with the PPA Plan, the PEP was closed to employees who were
hired after December 31, 2006.
The purpose of the PEP was to restore to PEP participants any
PPA Plan benefits that were limited by statutory restrictions
imposed by the Internal Revenue Code that were taken into
consideration when determining their PPA Plan benefits.
Participants fully vest in their benefits under the PEP after
five years of service. Participants who voluntarily resign from
service before they are vested in their benefits under the PEP
forfeit their unvested accrued benefit. Participants who are
terminated without cause or resign for good
reason are entitled to have their unvested accrued
benefits under the PEP automatically vested.
In addition, pursuant to the terms of the executive employment
agreements, if a NEO is terminated without cause or
resigns for good reason and is not vested in his
accrued benefit under the PPA Plan, such NEO will be entitled to
have his accrued and unvested benefits under the PPA Plan paid
under the PEP. As of December 31, 2007, Mr. Young,
Mr. Stewart and Mr. Gier have not vested in their
accrued benefits under the PPA Plan.
Supplemental
Executive Retirement Plan
Cadbury Schweppes sponsored a supplemental executive retirement
plan (the SERP), a non-tax qualified defined benefit
plan covering certain senior executives. The SERP was designed
to ensure that the total pension benefits due to participants,
including benefits under the PPA Plan and PEP, provided a
certain level of income at retirement. Combined benefits range
from 50% of a participants final average compensation
after 15 years of service to 60% of final average
compensation after 25 years of service. Benefits under the
SERP vest after 10 years of service. In 2007, only
Mr. Cassagne and Mr. Belsito participated in the SERP.
Only Mr. Cassagnes SERP benefit is fully vested.
Mr. Belsito did not satisfy the vesting conditions under
the SERP as of the date he left the company and forfeited the
amount accrued under the SERP. No current or future employees
are eligible to participate in the SERP.
Deferred
Compensation
Savings
Incentive Plan
Cadbury Schweppes sponsored a savings incentive plan (the
SIP), a tax-qualified 401(k) defined contribution
plan. The plan permitted participants to contribute up to 75% of
their base salary in the SIP within certain statutory
limitations under the Internal Revenue Code and Cadbury
Schweppes matched 100% of the first 4% of base salary that is
deferred to the SIP by a participant. Employees participating in
the SIP were always fully vested in their, as well as the
employers, contributions to the plan.
Supplemental
Savings Plan
The only nonqualified deferred compensation plan sponsored by
Cadbury Schweppes for NEOs is the supplemental savings plan (the
SSP), a non-tax qualified defined contribution plan.
The SSP is for employees who are actively enrolled in the SIP
and whose deferrals under the SIP are limited by Internal
Revenue Code compensation limitations. Employees may elect to
defer up to 75% of their base salary over the Internal Revenue
Code compensation limit to the SSP, and Cadbury Schweppes
matches 100% of the first 4% of base salary that is contributed
by these employees. Employees participating in the SSP are
always fully vested in their, as well as the
99
employers, contributions to the plan. Participants
self-direct the investment of their account balances among
various mutual funds.
The following table sets forth information regarding the
nonqualified deferred compensation under the SSP for each NEO
for 2007.
Nonqualified
Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Balance
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Withdrawals/
|
|
|
at Last
|
|
|
|
in Last Year
|
|
|
in Last Year
|
|
|
in Last Year
|
|
|
Distribution
|
|
|
Year-End
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
|
|
($)
|
|
|
Larry D. Young
|
|
|
53,672
|
|
|
|
17,891
|
|
|
|
267
|
|
|
|
|
|
|
|
71,829
|
|
John O. Stewart
|
|
|
150,491
|
|
|
|
8,026
|
|
|
|
510
|
|
|
|
|
|
|
|
159,327
|
|
Randall E. Gier
|
|
|
34,737
|
|
|
|
9,263
|
|
|
|
7,500
|
|
|
|
|
|
|
|
156,323
|
|
James J. Johnston, Jr.
|
|
|
18,987
|
|
|
|
8,438
|
|
|
|
3,706
|
|
|
|
|
|
|
|
73,105
|
|
Pedro Herrán Gacha
|
|
|
14,450
|
|
|
|
8,257
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
51,154
|
|
Gilbert M. Cassagne
|
|
|
146,942
|
|
|
|
19,592
|
|
|
|
58,338
|
|
|
|
|
|
|
|
1,556,013
|
|
John L. Belsito
|
|
|
14,746
|
|
|
|
9,831
|
|
|
|
12,872
|
|
|
|
|
|
|
|
229,612
|
|
|
|
|
(1) |
|
The amounts shown in this column represent the aggregate amount
of contributions made by our NEOs to the SSP in 2007. These
amounts are included in the Salary column of the
Summary Compensation Table. |
|
(2) |
|
The amounts shown in this column represent the aggregate amount
of employer contributions to the NEOs accounts under the
SSP in 2007. These amounts are also included in the All
Other Compensation column of the Summary Compensation
Table. |
|
(3) |
|
The amounts shown in this column represent the aggregate amount
of interest or other earnings credited to the NEOs
accounts under the SSP in 2007. |
Executive
Employment Agreements
Consistent with our past practices, we have entered into
executive employment agreements with each of our NEOs at the
time they became an executive officer. Each agreement is between
the NEO and our subsidiary, CBI Holdings Inc., which is now
renamed as DPS Holdings Inc. The current executive employment
agreements each have a term of 10 years. In addition to
setting forth their basic duties, the executive employment
agreements provide the NEOs with a base salary and entitle them
to participate in the annual incentive plan and all other
applicable employee compensation and benefit plans and programs.
In the event we terminate Mr. Young or Mr. Stewart
without cause or they resign for good
reason during the employment term, they are entitled to
(1) a lump sum severance payment equal to 12 months of
their annual base salary and their Target Award under the annual
incentive plan; (2) a lump sum cash payment equal to their
annual incentive plan payment, pro-rated through the employment
termination date and based on the actual performance targets
achieved for the year in which such termination of employment
occurred; (3) salary continuation for up to 12 months
equal to their annual base salary and their Target Award under
the annual incentive plan (subject to mitigation for new
employment); and (4) medical, dental and vision benefits
for the salary continuation period. In the event we terminate
Mr. Gier, Mr. Johnston or Mr. Herrán
without cause or they resign for good
reason during the employment term, they are entitled to
(1) a lump sum severance payment equal to nine months of
their annual base salary and 75% of their Target Award under the
annual incentive plan; (2) a lump sum cash payment equal to
their annual incentive plan payment, pro-rated through the
employment termination date and based on the actual performance
targets achieved for the year in which such termination of
employment occurred; (3) salary continuation for up to nine
months equal to their annual base salary and Target Award under
the annual incentive plan (subject to mitigation for new
employment); and (4) medical, dental and vision benefits
for the salary continuation period. The NEOs are also entitled
to outplacement services for their salary continuation period
and certain payments under the qualified and non-qualified
pension plans. In the event a NEO is terminated without
cause or resigns for good reason, he is
entitled to have his unvested accrued benefits under the PEP
automatically vested. Such NEO will also be entitled to have his
accrued and unvested
100
benefits under the PPA Plan paid under the PEP. In addition, in
the event the NEO is terminated due to death or disability, he
is entitled to his Target Award, pro rated through the date on
which his death or disability occurs.
Generally, cause is defined as termination of the
NEOs employment for his: (1) willful failure to
substantially perform his duties; (2) breach of a duty of
loyalty toward the company; (3) commission of an act of
dishonesty toward the company, theft of our corporate property,
or usurpation of our corporate opportunities; (4) unethical
business conduct including any violation of law connected with
the NEOs employment; or (5) conviction of any felony
involving dishonest or immoral conduct. Generally, good
reason is defined as a resignation by the NEO for any of
the following reasons: (1) our failure to perform any of
our material obligations under the employment agreement;
(2) a relocation by us of the NEOs principal place of
employment to a site outside a 50 mile radius of the
current site of the principal place of employment; or
(3) the failure by a successor to assume the employment
agreement.
The employment agreements include non-competition and
non-solicitation provisions. These provisions state that the NEO
will not, for a period of one year after termination of
employment, become engaged with companies that are in
competition with us, including but not limited to a
predetermined list of companies. Also, the NEO agrees for a
period of one year after termination of employment not to
solicit or attempt to entice away any of our employees or
directors.
Potential
Payments upon Certain Terminations of Employment
|
|
|
|
|
The tables include estimates of amounts that would have been
paid to Mr. Young, Mr. Stewart, Mr. Gier,
Mr. Herrán and Mr. Johnston assuming a
termination event occurred on December 31, 2007. The
employment of these NEOs did not actually terminate on
December 31, 2007, and as a result, these NEOs did not
receive any of the amounts shown in the tables below. The actual
amounts to be paid to a NEO in connection with a termination
event can only be determined at the time of such termination
event.
|
|
|
|
The tables assume that the price of Cadbury Schweppes ordinary
shares is $12.40 per share, the closing market price per share
on December 31, 2007. The price of an ordinary share was
converted from pounds sterling to U.S. dollars based on a
December 31, 2007 currency exchange rate of £1 to
$1.9973.
|
|
|
|
Each NEO is entitled to receive amounts earned during the term
of his employment regardless of the manner of termination. These
amounts include accrued base salary, accrued vacation time and
other employee benefits to which the NEO was entitled on the
date of termination, and are not shown in the tables below.
|
|
|
|
For purposes of the tables below, the specific definitions of
cause and good reason are defined above
in this section.
|
|
|
|
To receive the benefits under the employment agreements, each of
the NEOs is required to provide a general release of claims
against us and our affiliates and subject to mitigation for new
employment. In addition, if NEOs receive severance payments
under the employment agreements, they will not be entitled to
receive any severance benefits under the Cadbury Schweppes
general severance pay plan.
|
101
The following tables below outline the potential payments to
Mr. Young, Mr. Stewart, Mr. Gier,
Mr. Johnston and Mr. Herrán upon the occurrence
of various termination events, including termination for
cause or not for good reason,
termination without cause or for good
reason or termination due to death or disability. The
following assumptions apply with respect to the tables below and
any termination of employment of a NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
without
|
|
|
|
|
|
for Cause or
|
|
|
|
|
|
Cause or
|
|
|
|
|
|
Resignation
|
|
|
|
|
|
Resignation
|
|
|
|
|
|
without Good
|
|
|
Death/
|
|
|
for Good
|
|
|
|
|
|
Reason
|
|
|
Disability
|
|
|
Reason
|
|
Name
|
|
Compensation Element
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Larry D. Young
|
|
Salary Continuation Payments(1)
|
|
|
|
|
|
|
|
|
|
|
1,600,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
800,000
|
|
|
|
510,400
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(5)
|
|
|
|
|
|
|
183,112
|
|
|
|
183,112
|
|
|
|
Bonus Share Retention Plan(6)
|
|
|
|
|
|
|
940,190
|
|
|
|
940,190
|
|
|
|
Long Term Incentive Plan(7)
|
|
|
|
|
|
|
1,032,408
|
|
|
|
1,032,408
|
|
|
|
Other(9)
|
|
|
|
|
|
|
|
|
|
|
125,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
2,955,710
|
|
|
|
5,991,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
Salary Continuation Payments(1)
|
|
|
|
|
|
|
|
|
|
|
900,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
400,000
|
|
|
|
218,266
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus Share Retention Plan(6)
|
|
|
|
|
|
|
53,607
|
|
|
|
53,607
|
|
|
|
Long Term Incentive Plan(7)
|
|
|
|
|
|
|
283,116
|
|
|
|
283,116
|
|
|
|
International Share Award Plan(8)
|
|
|
|
|
|
|
115,995
|
|
|
|
115,995
|
|
|
|
Other(9)
|
|
|
|
|
|
|
|
|
|
|
28,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
852,718
|
|
|
|
2,498,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall E. Gier(10)
|
|
Salary Continuation Payments(1)
|
|
|
|
|
|
|
|
|
|
|
568,013
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
|
|
|
|
|
|
|
|
344,250
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
|
|
|
|
|
|
|
|
|
223,763
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
298,350
|
|
|
|
190,378
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(5)
|
|
|
|
|
|
|
78,204
|
|
|
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
|
|
|
|
|
656,838
|
|
|
|
656,838
|
|
|
|
Long Term Incentive Plan(7)
|
|
|
|
|
|
|
709,391
|
|
|
|
709,391
|
|
|
|
International Share Award Plan(8)
|
|
|
|
|
|
|
114,246
|
|
|
|
114,246
|
|
|
|
Other(9)
|
|
|
|
|
|
|
|
|
|
|
164,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,857,029
|
|
|
|
3,049,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
without
|
|
|
|
|
|
for Cause or
|
|
|
|
|
|
Cause or
|
|
|
|
|
|
Resignation
|
|
|
|
|
|
Resignation
|
|
|
|
|
|
without Good
|
|
|
Death/
|
|
|
for Good
|
|
|
|
|
|
Reason
|
|
|
Disability
|
|
|
Reason
|
|
Name
|
|
Compensation Element
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
James J. Johnston, Jr.
|
|
Salary Continuation Payments(1)
|
|
|
|
|
|
|
|
|
|
|
544,500
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
|
|
|
|
|
|
|
|
|
214,500
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
286,000
|
|
|
|
182,497
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(5)
|
|
|
|
|
|
|
78,204
|
|
|
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
|
|
|
|
|
302,713
|
|
|
|
302,713
|
|
|
|
Long Term Incentive Plan(7)
|
|
|
|
|
|
|
690,823
|
|
|
|
690,823
|
|
|
|
Other(9)
|
|
|
|
|
|
|
|
|
|
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,357,740
|
|
|
|
2,362,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
Salary Continuation Payments(1)
|
|
|
|
|
|
|
|
|
|
|
537,075
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
|
|
|
|
|
|
|
|
325,500
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
|
|
|
|
|
|
|
|
|
211,575
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
282,100
|
|
|
|
89,998
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(5)
|
|
|
|
|
|
|
78,204
|
|
|
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
|
|
|
|
|
392,947
|
|
|
|
392,947
|
|
|
|
Long Term Incentive Plan(7)
|
|
|
|
|
|
|
600,292
|
|
|
|
600,292
|
|
|
|
International Share Award Plan(8)
|
|
|
|
|
|
|
266,856
|
|
|
|
266,856
|
|
|
|
Other(9)
|
|
|
|
|
|
|
|
|
|
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,620,399
|
|
|
|
2,521,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount shown represents salary continuation in an amount
equal to (x) annual base salary and (y) Target Award.
The amount shown represents 100% for Mr. Young and
Mr. Stewart and 75% for Mr. Gier, Mr. Johnston
and Mr. Herrán, in each case, according to the terms
of their respective executive employment agreements. |
|
(2) |
|
The amount shown represents a lump sum cash payment equal to the
annual base salary for Mr. Young and Mr. Stewart and
75% of the annual base salary for Mr. Gier,
Mr. Johnston and Mr. Herrán. |
|
(3) |
|
The amount shown represents a lump sum payment under the annual
incentive plan equal to the Target Award for Mr. Young and
Mr. Stewart and equal to 75% of the Target Award for
Mr. Gier, Mr. Johnston and Mr. Herrán. |
|
(4) |
|
The amount shown under the Death/Disability column
represents each NEOs Target Award, pro-rated through the
assumed employment termination date. The amount shown under the
Termination Without Cause or Resignation for Good
Reason column represents a lump sum cash payment equal to
each NEOs 2007 annual incentive plan payment, pro-rated
through the assumed employment termination date and based on the
actual performance targets achieved for the year in which such
assumed termination of employment occurred. |
103
|
|
|
(5) |
|
The amount shown represents the value of the unvested stock
options as of December 31, 2007 assuming the performance
targets have been achieved. These stock options remain
exercisable for 12 months from the employment termination
date. |
|
(6) |
|
The amount shown represents the combined value of
(i) Cadbury Schweppes ordinary shares that each NEO elected
to defer under the bonus share retention plan (the basic
shares), (ii) a matched share award equal to 40% of
the number of his basic shares, pro-rated through the assumed
employment termination date and (iii) a matched share award
equal to 60% of the number of his basic shares, pro-rated
through the employment termination date and assuming that the
maximum performance targets were achieved. |
|
(7) |
|
The amount shown represents the value of unvested equity awards
under the long term incentive plan as of December 31, 2007,
assuming the achievement of performance targets and pro-rated
through the employment termination date. |
|
(8) |
|
The amount shown represents the value of unvested share awards
under the international share award plan, pro-rated through the
employment termination date. |
|
(9) |
|
The amounts shown in the Termination Without Cause or
Resignation for Good Reason column reflect the following
elements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical, Dental
|
|
|
Outplacement
|
|
|
Unvested Accrued
|
|
|
|
|
|
|
and Vision Benefits
|
|
|
Services
|
|
|
Pension Benefit
|
|
|
|
|
Name
|
|
($)(a)
|
|
|
($)
|
|
|
($)(b)
|
|
|
Total
|
|
|
Mr. Young
|
|
|
12,156
|
|
|
|
78,600
|
|
|
|
35,000
|
|
|
|
125,756
|
|
Mr. Stewart
|
|
|
12,156
|
|
|
|
10,850
|
|
|
|
5,000
|
|
|
|
28,006
|
|
Mr. Gier
|
|
|
9,117
|
|
|
|
9,950
|
|
|
|
145,000
|
|
|
|
164,067
|
|
Mr. Johnston
|
|
|
9,117
|
|
|
|
9,950
|
|
|
|
|
|
|
|
19,067
|
|
Mr. Herrán
|
|
|
9,117
|
|
|
|
9,950
|
|
|
|
|
|
|
|
19,067
|
|
|
|
|
(a) |
|
Estimated combined cash value over the salary continuation
period. |
|
(b) |
|
Unvested accrued benefits under the Cadbury Schweppes PPA Plan
and PEP to be paid to the NEO under the PEP. |
|
|
|
(10) |
|
Mr. Giers departure from the Company, effective
September 26, 2008, will be treated as a Termination
Without Cause for severance purposes. Mr. Giers
severance was paid in accordance with his executive employment
agreement, which is filed as Exhibit 10.13 to Amendment
No. 2 to our Registration Statement on Form 10 filed
on February 12, 2008. |
Separation
Arrangements Related to Mr. Cassagne and
Mr. Belsito
Mr. Cassagnes Separation. Pursuant
to the terms of his executive employment agreement,
Mr. Cassagne is entitled to (1) a lump sum payment of
$1,800,000, which is equal to the sum of his annual base salary
and his full Target Award under the annual incentive plan;
(2) a lump sum payment equal to his annual incentive plan
payment, pro-rated through his employment termination date and
based on the actual performance targets achieved for the year in
which such termination of employment occurred; (3) salary
continuation for up to 12 months equal to a total of
$1,800,000 (subject to mitigation for new employment);
(4) medical, dental and vision benefits continuation for
the salary continuation period; (5) his accrued vested
awards under the bonus share retention plan and long term
incentive plan; (6) an award under the integration success
share plan of 50,000 Cadbury Schweppes ordinary shares in the
first quarter of 2008; and (7) transitional employment
services for 12 months. Pursuant to the terms of the
Cadbury Schweppes share option plan, Mr. Cassagne will be
able to exercise all of his vested stock options, as of his
departure date, until October 11, 2008. In addition,
Mr. Cassagne will be able to exercise all of his unvested
performance options for 12 months following the third
anniversary of the date of grant, to the extent the performance
targets are met at the end of the three-year performance period.
To the extent the performance targets are not met at the end of
the third anniversary of the date of grant, the performance
targets will be reviewed again at the fifth anniversary of the
date of grant. If the performance targets are met,
Mr. Cassagne will be entitled to exercise the options for
12 months following the satisfaction of the performance
period. If the performance targets are not met, all of his
unvested options will be forfeited.
104
Mr. Belsitos Separation. Pursuant
to the terms of his executive employment agreement,
Mr. Belsito is entitled to (1) a lump sum payment of
$853,200, which is equal to the sum of his annual base salary
and his full Target Award under the annual incentive plan;
(2) a lump sum payment equal to his annual incentive plan
payment, pro-rated through his employment termination date and
based on the actual performance targets achieved for the year in
which such termination of employment occurred; (3) salary
continuation for up to 12 months equal to a total of
$853,200 (subject to mitigation for new employment);
(4) medical, dental and vision benefits continuation for
the salary continuation period; (5) his accrued vested
award under the bonus share retention plan and long term
incentive plan; (6) an award under the integration success
share plan of 10,000 Cadbury Schweppes ordinary shares in the
first quarter of 2008; and (7) transitional employment
services for 12 months. Pursuant to the terms of the
Cadbury Schweppes share option plan, Mr. Belsito will be
able to exercise all of his vested stock options, as of his
departure date, until December 18, 2008. In addition,
Mr. Belsito will be able to exercise 100% of his unvested
performance options for 12 months following the third
anniversary of the date of grant, to the extent the performance
targets are met at the end of the three-year performance period.
To the extent the performance targets are not met at the end of
the third anniversary, the performance targets will be reviewed
again at the fifth anniversary of the date of grant. If the
performance targets are met, Mr. Belsito will be entitled
to exercise the options for 12 months following the
satisfaction of the performance period. If the performance
targets are not met, all of his unvested options will be
forfeited.
The tables below include the actual termination payments accrued
by Mr. Cassagne and Mr. Belsito as of their date of
separation on October 12, 2007 and December 19, 2007,
respectively.
|
|
|
|
|
|
|
|
|
|
|
Separation from
|
|
Name
|
|
Compensation Element
|
|
Service Payment($)
|
|
|
Gilbert M. Cassagne
|
|
Salary Continuation Payments(1)
|
|
|
1,800,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
900,000
|
|
|
|
Lump Sum Annual Incentive Plan Payment(3)
|
|
|
900,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
448,406
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
|
227,868
|
|
|
|
Long Term Incentive Plan(6)
|
|
|
2,281,155
|
|
|
|
Integration Success Share Plan(7)
|
|
|
612,712
|
|
|
|
Other(9)
|
|
|
90,756
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,260,897
|
|
|
|
|
|
|
|
|
John L. Belsito
|
|
Salary Continuation Payments(1)
|
|
|
853,200
|
|
|
|
Lump Sum Cash Payments(2)
|
|
|
474,000
|
|
|
|
Lump Sum Annual Incentive Plan Payment(3)
|
|
|
379,200
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
241,414
|
|
|
|
Accelerated Equity Vesting
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|
|
|
|
|
|
Stock Options(5)
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67,437
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|
Long Term Incentive Plan(6)
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1,280,622
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Integration Success Share Plan(7)
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124,588
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|
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Bonus Share Retention Plan(8)
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304,729
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Other(9)
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|
23,006
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|
|
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Total
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3,748,196
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(1) |
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The amount shown represents salary continuation in an amount
equal to (x) the annual base salary and (y) Target
Award. |
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(2) |
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The amount shown represents a lump sum cash payment equal to the
annual base salary. |
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(3) |
|
The amount shown represents a lump sum payment under the annual
incentive plan equal to the Target Award. |
105
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(4) |
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The amount shown represents a lump sum cash payment equal to
each NEOs 2007 annual incentive plan payment, pro-rated
through the employment termination date and based on the actual
performance targets achieved for 2007. |
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(5) |
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The amount shown represents the value of the unvested stock
options through the employment termination date for
Mr. Cassagne and Mr. Belsito, October 17, 2007
and December 19, 2007, respectively assuming the
performance targets were achieved. To the extent the performance
targets are not met at the end of the third anniversary of the
date of grant, the performance targets will be reviewed again at
the fifth anniversary of the date of grant. If the performance
targets are met, each NEO will be entitled to exercise the
options for 12 months following the satisfaction of the
performance period. If the performance targets are not met, all
of their unvested options will be forfeited. |
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(6) |
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The amount shown represents the value of the unvested equity
awards under the long term incentive plan through the employment
termination date. |
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(7) |
|
The amount shown represents the value of the unvested award
under the integration success share plan pro-rated through the
employment termination date. |
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(8) |
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The amount shown represents the combined value of
(i) Cadbury Schweppes ordinary shares that Mr. Belsito
elected to defer under the bonus share retention plan (the
basic shares), (ii) a matched share award equal
to 40% of the number of his basic shares, pro-rated through the
employment termination date and (iii) a matched share award
equal to 60% of the number of his basic shares, pro-rated
through the employment termination date and assuming that the
maximum performance targets were achieved. |
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(9) |
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This amount represents the estimated combined cash value over
the salary continuation period of the continuation of medical,
dental and vision benefits for Mr. Cassagne ($12,156) and
Mr. Belsito ($12,156) and transitional employment services
for Mr. Cassagne ($78,600) and for Mr. Belsito
($10,850). |
New
Plans
Prior to the separation, we adopted the following plans: the Dr
Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008
(the stock incentive plan) and the Dr Pepper Snapple
Group, Inc. Annual Cash Incentive Plan (the cash incentive
plan).
Omnibus
Stock Incentive Plan of 2008
On May 5, 2008, Cadbury Schweppes Limited, our sole
shareholder at the time, approved and adopted the Dr Pepper
Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008, which
allows us to reward employees, non-employee directors and
consultants by enabling them to acquire shares of common stock
of Dr Pepper Snapple Group, Inc. The following is a summary of
the terms of the stock incentive plan.
Common Stock Available for Awards. The maximum
number of shares of common stock available for issuance under
the stock incentive plan is 9,000,000 shares. In the
discretion of our compensation committee, 2,000,000 of these
shares of common stock may be granted in the form of incentive
stock options. If any shares covered by an award are cancelled,
forfeited, terminated, expire unexercised or are settled through
issuance of consideration other than shares of our common stock
(including, without limitation, cash), these shares will again
become available for award under the stock incentive plan.
Eligibility. Awards may be made under the
stock incentive plan to any employee of the company or its
subsidiaries, or any of our non-employee directors or
consultants. Participation and the types of awards under the
stock incentive plan are subject to the discretion of our
compensation committee, but generally any employee at the
managerial level and above is eligible to particpate.
Administration. Our compensation committee
administers the stock incentive plan. Subject to the terms of
the stock incentive plan, the administrator of the plan may
select participants to receive awards, determine the types of
awards and the terms and conditions of awards, interpret
provisions of the plan and make all factual and legal
determinations regarding the plan and any award agreements.
Types of Awards. The stock incentive plan
provides for grants of stock options (which may consist of
incentive stock options or nonqualified stock options), stock
appreciation rights, stock awards (which may consist
106
of restricted stock and restricted stock unit awards) or
performance awards. The terms of the awards will be embodied in
an award agreement and awards may be granted singly, in
combination or in tandem. All or part of an award may be subject
to such terms and conditions established by our compensation
committee, including, but not limited to, continuous service
with the company and its subsidiaries, achievement of specific
business objectives and attainment of performance goals. No
award may be repriced without shareholder approval.
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Stock Options and Stock Appreciation
Rights. The stock incentive plan permits the
granting of stock options to purchase shares of common stock and
stock appreciation rights. The exercise price of each stock
option and stock appreciation right may not be less than the
fair market value of our common stock on the date of grant. The
term of each stock option or stock appreciation right will be
set by our compensation committee and may not exceed ten years
from the date of grant. Our compensation committee will
determine the date each stock option or stock appreciation right
may be exercised and the period of time, if any, after
retirement, death, disability or other termination of employment
during which stock options or stock appreciation rights may be
exercised. In general, a grantee may pay the exercise price of
an option in cash or shares of common stock. Our compensation
committee may allow the grantee to exercise an option by means
of a cashless exercise. With respect to the initial grant of
stock options that was made in connection with the separation,
our compensation committee determined that, due to possible
price fluctuations in our common stock during the first trading
days on the New York Stock Exchange following the separation,
the initial grants would be determined using the volume weighted
average price of our common stock as reported on the New York
Stock Exchange on the first trading day.
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Stock Awards. The stock incentive plan permits
the granting of stock awards. Stock awards that are not
performance awards will be restricted for a minimum period of
three years from the date of grant; provided, however, that our
compensation committee may provide for earlier vesting following
an employees termination of employment for death,
disability or retirement or upon a change of control or other
specified events. The three-year restricted period does not
apply to stock awards that are granted in lieu of salary or
bonus or to replace awards forfeited in connection with the
separation. Vesting of the stock awards may occur incrementally
over the three-year restricted period.
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Performance Awards. The stock incentive plan
permits the granting of performance awards. Performance awards
will be restricted for a minimum period of one year from the
date of grant; provided, however, our compensation committee may
provide for earlier vesting following an employees
termination of employment for death, disability or retirement or
upon a change of control or other specified events. Our
compensation committee will determine the terms, conditions and
limitations applicable to the performance awards and set the
performance goals in its discretion. The performance goals will
determine the value and amount of performance awards that will
be paid to participants and the portion of an award that may be
exercised to the extent such performance goals are met.
Performance awards may be designed by our compensation committee
to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code (Section
162(m)) but are not required to qualify under
Section 162(m). For purposes of Section 162(m), performance
goals will be designated by our compensation committee and will
be based upon one or more of the following performance goal
measures:
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revenue and income measures (including those relating to
revenue, gross margin, income from operations, net income, net
sales and earnings per share);
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expense measures (including those relating to costs of goods
sold, selling, general and administrative expenses and overhead
costs);
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operating measures (including those relating to volume, margin,
productivity and market share);
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cash flow measures (including those relating to net cash flow
from operating activities and working capital);
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liquidity measures (including those relating to earnings before
or after the effect of certain items such as interest, taxes,
depreciation and amortization, and free cash flow);
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leverage measures (including those relating to
debt-to-equity
ratio and net debt);
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107
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market measures (including those relating to stock price, total
shareholder return and market capitalization measures);
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return measures (including those relating to return on equity,
return on assets and return on invested capital);
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corporate value measures (including those relating to
compliance, safety, environmental and personnel
matters); and
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other measures such as those relating to acquisitions,
dispositions or customer satisfaction.
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Any performance criteria selected by our compensation committee
may be used to measure our performance as a whole or the
performance of any of our segments, and may be measured for the
company alone or relative to a peer group or index.
Awards to Non-Employee Directors. Our
compensation committee may grant non-employee directors one or
more awards and establish the terms of the award in the
applicable award agreement. No award will confer upon any
director any right to serve as a director for any period of time
or to continue at any rate of compensation.
Award Payments. Awards may be paid in cash,
common stock or a combination of cash and common stock. At the
discretion of our compensation committee, the payment of awards
may also be deferred, subject to compliance with
Section 409A of the Internal Revenue Code. In addition, in
the discretion of our compensation committee, rights to
dividends or dividend equivalents may be extended to any shares
of common stock or units denominated in shares of common stock.
Under the plan, during any one-year period, participants may not
be granted options or stock appreciation rights exercisable for
more than 500,000 shares of common stock or stock awards
exercisable for more than 250,000 shares of common stock.
Adjustments. If any changes in shares of
common stock resulting from stock splits, stock dividends,
reorganizations, recapitalizations, any merger or consolidation
of the company, or any other event that affects our
capitalization occurs, the terms of any outstanding awards and
the number of shares of common stock issuable under the stock
incentive plan may be adjusted in order to prevent enlargement
or dilution of the benefits or potential benefits intended to be
made available under the stock incentive plan.
Section 162(m) of the Internal Revenue
Code. Section 162(m) limits us to an annual
deduction for federal income tax purposes of $1,000,000 for
compensation paid to covered employees. Performance-based
compensation is excluded from this limitation. The stock
incentive plan is designed to permit our compensation committee
to grant awards that qualify as performance-based for purposes
of satisfying the conditions of Section 162(m).
Assignability. No award under the stock
incentive plan is assignable or otherwise transferable, unless
otherwise determined by our compensation committee.
Amendment, Modification and Termination. The
stock incentive plan will terminate automatically ten years
after its effective date, which was May 7, 2008. Our board
or our compensation committee may amend, modify, suspend or
terminate the stock incentive plan, to the extent that no such
action will materially adversely affect the rights of a
participant holding an outstanding award under the stock
incentive plan without such participants consent, and no
such action will be taken without shareholder approval, to the
extent shareholder approval is legally required.
Federal Income Tax Consequences of Awards.
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Incentive Stock Options. The grant of an
incentive stock option under the stock incentive plan will not
be a taxable event for the grantee or the company. A grantee
will not recognize taxable income upon exercise of an incentive
stock option, except that the alternative minimum tax may apply,
and any gain realized upon a disposition of shares of common
stock received pursuant to the exercise of an incentive stock
option will be taxed as long-term capital gain if the grantee
holds the shares for at least two years after the date of grant
and for one year after the date of exercise, or the applicable
capital gains holding period requirement. We will not be
entitled to any tax deduction with respect to the exercise of an
incentive stock option, except as discussed below.
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108
For the exercise of a stock option to qualify for the foregoing
tax treatment, the grantee generally must be an employee of the
company from the date the stock option is granted through a date
within three months before the date of exercise of the stock
option.
If all of the foregoing requirements are met, except the
applicable capital gains holding period requirement discussed
above, the grantee will recognize ordinary income upon the
disposition of the shares in an amount generally equal to the
excess of the fair market value of the shares at the time the
stock option was exercised over the stock option exercise price,
but not in excess of the gain realized on the sale. The balance
of the realized gain, if any, will be short-term or long-term
capital gain. We will be allowed a tax deduction to the extent
the grantee recognizes ordinary income, subject to our
compliance with Section 162(m) and to certain tax reporting
requirements.
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Nonqualified Stock Options. The grant of a
nonqualified stock option under the stock incentive plan will
not be a taxable event for the grantee or the company. Upon
exercising a nonqualified stock option, a grantee will recognize
ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the
date of exercise. Upon a subsequent sale or exchange of shares
acquired pursuant to the exercise of a non-qualified stock
option, the grantee will have taxable capital gain or loss,
measured by the difference between the amount realized on the
disposition and the tax basis of the shares, generally, the
amount paid for the shares plus the amount treated as ordinary
income at the time the stock option was exercised. If we comply
with applicable reporting requirements and with the restrictions
of Section 162(m), we will be entitled to a tax deduction
in the same amount and generally at the same time as the grantee
recognizes ordinary income.
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Stock Appreciation Rights. There are no
immediate tax consequences of receiving an award of stock
appreciation rights under the stock incentive plan. Upon
exercising a stock appreciation right, a grantee will recognize
ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the
date of exercise. If we comply with applicable reporting
requirements and with the restrictions of Section 162(m),
we will be entitled to a tax deduction in the same amount and
generally at the same time as the grantee recognizes ordinary
income.
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Restricted Stock. A grantee who is awarded
restricted stock under the stock incentive plan will not
recognize any taxable income for federal income tax purposes in
the year of the award, provided that the shares are
nontransferable and subject to a substantial risk of forfeiture.
However, the grantee may elect under Section 83(b) of the
Internal Revenue Code to recognize ordinary income in the year
of the award in an amount equal to the fair market value of the
shares on the date of the award, less the purchase price, if
any, determined without regard to the restrictions. If the
grantee does not make such a Section 83(b) election, the fair
market value of the shares on the date the restrictions lapse,
less the purchase price, if any, will be treated as ordinary
income to the grantee and will be taxable in the year the
restrictions lapse. We will be entitled to a tax deduction in
the same amount and generally at the same time as the grantee
recognizes ordinary income.
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Restricted Stock Units. A grantee who is
awarded a restricted stock unit under the stock incentive plan
will not recognize any taxable income for federal income tax
purposes and the company will not be entitled to a tax
deduction, in each case at that time. When the restricted stock
unit award vests and shares are transferred to the grantee, the
grantee will recognize ordinary income in an amount equal to the
fair market value of the transferred shares at such time less
any cash consideration which the grantee paid for the shares,
and the company will be entitled to a corresponding deduction.
Any gain or loss realized upon the grantees sale or
exchange of the shares will be treated as long-term or
short-term capital gain or loss. The grantees basis for
the shares will be the amount recognized as taxable compensation
plus any cash consideration which the grantee paid for the
shares. The grantees holding period for the shares will
begin on the day after the date the shares are transferred to
the grantee.
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Performance Awards. The grant of a performance
award under the stock incentive plan will not be a taxable event
for the company. The payment of the award is taxable to a
grantee as ordinary income. If we comply with applicable
reporting requirements and with the restrictions of
Section 162(m), we will be entitled to a tax deduction in
the same amount and generally at the same time as the grantee
recognizes ordinary income.
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109
Cash
Incentive Plan
The Board of Directors approved and adopted the Dr Pepper
Snapple Group, Inc. Annual Cash Incentive Plan, which allows us
to reward employees by enabling them to receive
performance-based cash compensation. The following is a summary
of the expected terms of the cash incentive plan.
Eligibility. Awards may be made under the cash
incentive plan to any employee of the company or its
subsidiaries, in the discretion of our compensation committee.
Because participation and the types of awards under the cash
incentive plan are subject to the discretion of our compensation
committee, the number of participants in the plan and the
benefits or amounts that will be received by any participant, or
groups of participants, if the plan is approved, are not
currently determinable.
Administration. Our compensation committee
will administer the cash incentive plan. Subject to the terms of
the cash incentive plan, the administrator of the plan may
select participants to receive awards, determine the terms and
conditions of awards, interpret provisions of the plan and make
factual and legal determinations regarding the plan and any
award agreements.
Awards. The terms of the cash awards will be
embodied in an award agreement. All or part of an award may be
subject to such terms and conditions established by our
compensation committee, including, but not limited to,
continuous service with the company and its subsidiaries and the
attainment of performance goals. For purposes of
Section 162(m), performance goals for the performance-based
awards will be designated by our compensation committee and will
be based upon one or more of the performance goals set forth
under Omnibus Stock Incentive Plan of
2008 Types of Awards Performance
Awards.
For individuals participating in the cash incentive plan for
2008, the weighting of the performance goals for the first half
of 2008 were based 60% on our underlying operating profit and
40% on our net sales in 2008. Upon review, our compensation
committee determined that the performance goals for the second
half of 2008 should be based 60% on net income and 40% on gross
profit. The maximum annual award that may be made to any
participant under the cash incentive plan may not exceed
$5,000,000.
Award Payments. Awards will be paid in cash.
At the discretion of our compensation committee, the payment of
awards may also be deferred, subject to compliance with
Section 409A of the Internal Revenue Code.
Adjustments. If, during a performance period,
any merger, consolidation, acquisition, separation,
reorganization, liquidation or any other event occurs which has
the effect of distorting the applicable performance measures,
the performance goals may be adjusted or modified to the extent
permitted by Section 162(m) in order to prevent enlargement
or dilution of the benefits or potential benefits intended to be
made available under the cash incentive plan.
Section 162(m) of the Internal Revenue
Code. The incentive plan is designed to permit
our compensation committee to grant awards that qualify as
performance-based for purposes of satisfying the conditions of
Section 162(m).
Assignability. No award under the cash
incentive plan is assignable or otherwise transferable, unless
otherwise determined by our compensation committee.
Amendment, Modification and Termination. The
cash incentive plan will terminate automatically ten years after
its effective date, which was May 7, 2008. Our board or our
compensation committee may amend, modify, suspend or terminate
the cash incentive plan, to the extent that no such action will
materially adversely affect the rights of a participant entitled
to an award under the incentive plan without such
participants consent, and no such action will be taken
without shareholder approval, to the extent shareholder approval
is legally required.
110
DESCRIPTION
OF OTHER INDEBTEDNESS
Senior
Credit Facility
On March 10, 2008, we entered into a senior credit
agreement with J.P. Morgan Securities Inc. and Banc of
America Securities LLC, as joint lead arrangers,
J.P. Morgan Securities Inc., Banc of America Securities
LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC, as joint bookrunners, Bank
of America, N.A., as syndication agent, JPMorgan Chase Bank,
N.A., as administrative agent, Goldman Sachs Credit Partners
L.P., Morgan Stanley Senior Funding, Inc. and UBS Securities
LLC, as documentation agents and the lenders parties thereto.
The senior credit agreement was amended and restated on
April 11, 2008.
Our senior credit agreement provides senior unsecured financing
of up to $2.7 billion, consisting of:
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a senior unsecured term loan A facility in an aggregate
principal amount of $2.2 billion with a term of five
years; and
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a revolving credit facility in an aggregate principal amount of
$500 million with a term of five years. Up to
$75 million of the revolving credit facility is available
for the issuance of letters of credit, of which $39 million
was utilized as of September 30, 2008.
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As of September 30, 2008, $1.9 billion of borrowings
were outstanding under our term loan A facility.
Interest
Rates and Fees
Borrowings under the senior credit facility bear interest at a
floating rate per annum based upon the London interbank offered
rate for dollars (LIBOR) or the alternate base rate
(ABR), in each case plus an applicable margin which
varies based upon our debt ratings, from 1.00% to 2.50%, in the
case of LIBOR loans and 0.00% to 1.50% in the case of ABR loans.
The alternate base rate means the greater of (a) JPMorgan
Chase Banks prime rate and (b) the federal funds
effective rate plus one half of 1%. Based on our debt ratings,
the applicable margin for LIBOR loans is 2.00% and for ABR loans
is 1.00%.
Interest is payable on the last day of the interest period, but
not less than quarterly, in the case of any LIBOR loan and on
the last day of March, June, September and December of each year
in the case of any ABR loan.
An unused commitment fee is payable quarterly to the lenders on
the unused portion of the commitments in respect of the
revolving credit facility equal to .15% to .50% per annum,
depending upon our debt ratings.
Prepayments
We may voluntarily prepay outstanding loans under the senior
credit facility at any time, in whole or in part, plus accrued
and unpaid interest and certain breakage costs, subject to prior
notice. Through September 30, 2008, we made combined
mandatory and optional repayments toward the principal totaling
$295 million. These amounts may not be reborrowed.
Maturity
and Amortization
We are required to pay annual amortization (payable in equal
quarterly installments) on the aggregate principal amount of the
term loan A facility equal to: (i) 10% per year for
installments due in the first and second years following the
initial date of funding, (ii) 15% per year for installments
due in the third and fourth years following the initial date of
funding, and (iii) 50% for installments due in the fifth
year following the initial date of funding.
Principal amounts outstanding under the revolving credit
facility are due and payable in full at maturity.
Guarantees
All obligations under the senior credit facility will be
guaranteed by each of our existing and future direct and
indirect domestic material subsidiaries, subject to certain
exceptions.
111
Certain
Covenants and Events of Default
The senior credit facility contains customary negative covenants
that, among other things, restrict our ability to:
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incur debt at subsidiaries that are not guarantors;
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incur liens;
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merge or sell, transfer, lease or otherwise dispose of all or
substantially all assets;
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make investments, loans, advances, guarantees and acquisitions;
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enter into transactions with affiliates; and
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enter into agreements restricting our ability to incur liens or
the ability of subsidiaries to make distributions.
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These covenants are subject to certain exceptions described in
the senior credit agreement.
In addition, the senior credit facility requires us to comply
with the following financial covenants:
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a maximum total leverage ratio covenant; and
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a minimum interest coverage ratio covenant.
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The senior credit facility also contains certain usual and
customary representations and warranties, affirmative covenants
and events of default.
112
THE
EXCHANGE OFFER
Purpose
and Effect of Exchange Offer; Registration Rights
We sold the unregistered notes to Banc of America Securities
LLC, Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Morgan Stanley & Co. Incorporated, UBS
Securities LLC, BNP Paribas Securities Corp., Mitsubishi UFJ
Securities International plc, Scotia Capital (USA) Inc.,
SunTrust Robinson Humphrey, Inc., Wachovia Capital Markets, LLC
and TD Securities (USA) LLC, as the initial purchasers, pursuant
to a purchase agreement dated April 25, 2008. The initial
purchasers resold the unregistered notes in reliance on
Rule 144A under the Securities Act. In connection with the
sale of the unregistered notes, we entered into a registration
rights agreement with the initial purchasers. Under the
registration rights agreement, we agreed to:
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to the extent not prohibited by any applicable law or applicable
interpretations of the staff of the SEC, file with the SEC a
registration statement relating to the exchange offer under the
Securities Act on or prior to 360 days after the date that
the unregistered notes were issued;
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commence the exchange offer promptly upon the effectiveness of
the exchange offer registration statement and to keep the
exchange offer open for not less than 20 business days after the
date a notice of the exchange offer has been mailed to the
holders of the unregistered notes; and
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use our commercially reasonable efforts to cause the exchange
offer to be consummated on or prior to 390 days after the
date that the unregistered notes were issued, or longer if
required by the federal securities laws.
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If you participate in the exchange offer, you will, with limited
exceptions, receive exchange notes that are freely tradable and
not subject to restrictions on transfer. You should read the
information in this prospectus under the heading
Resale of Exchange Notes for more
information relating to your ability to transfer exchange notes.
The exchange offer is not being made to, nor will we accept
tenders for exchange from, holders of unregistered notes in any
jurisdiction in which the exchange offer or the acceptance of
the exchange offer would not be in compliance with the
securities laws or blue sky laws of such jurisdiction.
If you are eligible to participate in this exchange offer and
you do not tender your unregistered notes as described in this
prospectus, you will not have any further registration rights.
In that case, your unregistered notes may continue to be subject
to restrictions on transfer under the Securities Act.
Shelf
Registration
In the registration rights agreement, we agreed to file a shelf
registration statement in certain circumstances, including if:
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we determine upon advice of counsel that we are not permitted to
consummate the exchange offer because the exchange offer is not
permitted by applicable law or SEC policy;
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the exchange offer is not consummated for any reason by
May 25, 2009; or
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prior to the
20th business
day following consummation of the exchange offer:
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any initial purchaser so requests with respect to unregistered
notes that are not eligible to be exchanged for exchange notes
in the exchange offer;
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any holder (other than an initial purchaser) is not eligible to
participate in the exchange offer; or
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in the case of any initial purchaser that participates in the
exchange offer or acquires exchange notes, such initial
purchaser does not receive freely tradable exchange notes in
exchange for unregistered notes constituting any portion of an
unsold allotment.
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If a shelf registration statement is required, we will use our
commercially reasonable best efforts to:
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file the shelf registration statement with the SEC on or prior
to 90 days after such filing obligation arises;
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113
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cause the shelf registration statement to be declared effective
by the SEC on or prior to 90 days after the filing of such
shelf registration statement; and
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keep the shelf registration statement effective until the
earliest of (1) such time as all of the applicable
unregistered notes have been sold under the shelf registration
statement, (2) the date that is two years after the later
of the date that the unregistered notes were issued or the date
of issuance of any notes of the same series as any of the
unregistered notes, provided that we will be required to
continue to keep effective the shelf registration statement for
any unregistered note that is not eligible to be sold by the
holder thereof on such date under Rule 144 (or any similar
provision then in force, but not Rule 144A) under the
Securities Act without being subject to any restrictions under
such rule until such time as it so eligible to be sold or
(3) such notes cease to be outstanding.
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The shelf registration statement will permit only certain
holders to resell their unregistered notes from time to time. In
particular, we may require, as a condition to including a
holders unregistered notes in the shelf registration
statement, such holder to furnish to us information regarding
itself and the proposed disposition by it of its notes as we may
from time to time reasonably request in writing.
If we are required to file a shelf registration statement, we
will provide to each holder of unregistered notes that are
covered by the shelf registration statement copies of the
prospectus that is a part of the shelf registration statement
and notify each such holder when the shelf registration
statement becomes effective. A holder who sells unregistered
notes pursuant to the shelf registration statement will be
required to be named as a selling securityholder in the
prospectus and to deliver a copy of the prospectus to
purchasers. Such holder will be subject to certain of the civil
liability provisions under the Securities Act in connection with
such sales, and will be bound by the provisions of the
registration rights agreement which are applicable to such a
holder (including the applicable indemnification obligations).
Additional
Interest
If a registration default (as defined below) occurs, we will be
required to pay additional interest to each holder of
unregistered notes. During the first
90-day
period immediately after the first registration default occurs,
we will pay additional interest equal to 0.25% per annum, which
will increase by an additional 0.25% per annum during each
subsequent
90-day
period until all registration defaults are cured, up to a
maximum of 1.00% per annum. Such additional interest will accrue
only for those days that a registration default occurs and is
continuing. Following the cure of all registration defaults, no
more additional interest will accrue and the interest rate will
revert to the rate otherwise payable under the terms of the
notes.
A registration default includes any of the following:
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we fail to file any registration statement on or before the date
specified for such filing pursuant to the registration rights
agreement;
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any shelf registration statement required to be filed is not
declared effective by the SEC on or prior to the date specified
for such effectiveness; or
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we fail to consummate the exchange offer by May 25, 2009.
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The exchange offer is intended to satisfy our exchange offer
obligations under the registration rights agreement. The
exchange notes will not have rights to additional interest as
set forth above, upon the consummation of the exchange offer.
The above summary of the registration rights agreement is not
complete and is subject to, and qualified by reference to, all
the provisions of the registration rights agreement. A copy of
the registration rights agreement is an exhibit to the
registration statement that includes this prospectus.
Terms of
the Exchange Offer
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we are
offering to exchange $1,000 principal amount of exchange notes
for each $1,000 principal amount of unregistered notes. You may
tender some or all of your unregistered notes only in minimum
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denominations of $2,000 and larger integral multiples of $1,000.
As of the date of this prospectus, $1,700,000,000 aggregate
principal amount of the unregistered notes are outstanding.
The terms of the exchange notes to be issued are substantially
similar to the unregistered notes, except that the offering of
the exchange notes will have been registered under the
Securities Act and, therefore, the certificates for the exchange
notes will not bear legends restricting their transfer. In
addition, the exchange notes will not have registration rights
and will not have rights to additional interest. The exchange
notes will not be subject to the special mandatory redemption
feature of the unregistered notes, because we consummated our
separation from Cadbury on May 7, 2008. The exchange notes
will be issued under and be entitled to the benefits of the
indenture pursuant to which the unregistered notes were issued.
In connection with the issuance of the unregistered notes, we
arranged for the unregistered notes to be issued and
transferable in book-entry form through the facilities of DTC.
The exchange notes will also be issuable and transferable in
book-entry form through DTC.
There will be no fixed record date for determining the eligible
holders of the unregistered notes that are entitled to
participate in the exchange offer. We will be deemed to have
accepted for exchange validly tendered unregistered notes when
and if we have given oral (promptly confirmed in writing) or
written notice of acceptance to the exchange agent. The exchange
agent will act as agent for the tendering holders of
unregistered notes for the purpose of receiving exchange notes
from us and delivering them to such holders.
If any tendered unregistered notes are not accepted for exchange
because of an invalid tender or the occurrence of certain other
events described herein, certificates for any such unaccepted
unregistered notes will be returned, without expenses, to the
tendering holder thereof as promptly as practicable after the
expiration of the exchange offer.
Holders of unregistered notes who tender in the exchange offer
will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal,
transfer taxes with respect to the exchange of unregistered
notes for exchange notes pursuant to the exchange offer. We will
pay all charges and expenses, other than certain applicable
taxes, in connection with the exchange offer. It is important
that you read the section Fees and Expenses below
for more details regarding fees and expenses incurred in the
exchange offer.
Any unregistered notes which holders do not tender or which we
do not accept in the exchange offer will remain outstanding and
continue to accrue interest and may be subject to restrictions
on transfer under the Securities Act. We will not have any
obligation to register the offer or sale of such unregistered
notes under the Securities Act. Holders wishing to transfer
unregistered notes would have to rely on exemptions from the
registration requirements of the Securities Act.
Conditions
of the Exchange Offer
You must tender your unregistered notes in accordance with the
requirements of this prospectus and the letter of transmittal in
order to participate in the exchange offer. Notwithstanding any
other provision of the exchange offer, or any extension of the
exchange offer, we will not be required to accept for exchange
any unregistered notes, and may amend or terminate the exchange
offer if:
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the exchange offer, or the making of any exchange by a holder of
unregistered notes, violates applicable law or any applicable
interpretation of the staff of the SEC;
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any action or proceeding shall have been instituted or
threatened with respect to the exchange offer which, in our
reasonable judgment, would impair our ability to proceed with
the exchange offer; and
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any law, rule or regulation or applicable interpretations of the
staff of the SEC have been issued or promulgated, which, in our
good faith determination, does not permit us to effect the
exchange offer.
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Expiration
Date; Extensions; Amendment; Termination
The exchange offer will expire 5:00 p.m., New York City
time, on January 14, 2009, unless we, in our sole
discretion, extend it. In the case of any extension, we will
notify the exchange agent orally (promptly confirmed in
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writing) or in writing of any extension. We will also notify the
registered holders of unregistered notes of the extension no
later than 9:00 a.m., New York City time, on the business
day after the previously scheduled expiration of the exchange
offer.
To the extent we are legally permitted to do so, we expressly
reserve the right, in our sole discretion, to:
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delay accepting any unregistered senior note;
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waive any condition of the exchange offer; and
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amend the terms of the exchange offer in any manner.
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We will give oral or written notice of any non-acceptance or
amendment to the registered holders of the unregistered notes as
promptly as practicable. If we consider an amendment to the
exchange offer to be material, we will promptly inform the
registered holders of unregistered notes of such amendment in a
reasonable manner.
If we determine, in our sole discretion, that any of the events
or conditions described in Conditions of the
Exchange Offer has occurred, we may terminate the exchange
offer. We may:
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refuse to accept any unregistered notes and return to the
holders any unregistered notes that have been tendered;
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extend the exchange offer and retain all unregistered notes
tendered prior to the expiration of the exchange offer, subject
to the rights of the holders to withdraw their tendered
unregistered notes; or
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waive the condition with respect to the exchange offer and
accept all properly tendered unregistered notes that have not
been withdrawn.
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If any such waiver constitutes a material change in the exchange
offer, we will disclose the change by means of a supplement to
this prospectus that will be distributed to each registered
holder of unregistered notes, and we will extend the exchange
offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to
the registered holders of the unregistered notes, if the
exchange offer would otherwise expire during that period.
Any determination by us concerning the events described above
will be final and binding upon the parties. Without limiting the
manner by which we may choose to make public announcements of
any extension, delay in acceptance, amendment or termination of
the exchange offer, we will have no obligation to publish,
advertise, or otherwise communicate any public announcement,
other than by making a timely release to a financial news
service.
Interest
on the Exchange Notes
The unregistered notes accrue interest from and including
April 30, 2008. The first interest payment on the
unregistered notes was made on November 1, 2008. The
exchange notes will accrue interest from and including
November 1, 2008. Interest will be paid on the exchange
notes semiannually on May 1 and November 1 of each year,
commencing on May 1, 2009. Holders of unregistered notes
that are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest accrued from
the date of the last interest payment date that was made in
respect of the unregistered notes until the date of the issuance
of the exchange notes. Consequently, holders of exchange notes
will receive the same interest payments that they would have
received had they not accepted the exchange offer.
Resale of
Exchange Notes
Based upon existing interpretations of the staff of the SEC set
forth in several no-action letters issued to third parties
unrelated to us, we believe that the exchange notes issued
pursuant to the exchange offer for the unregistered notes may be
offered for resale, resold and otherwise transferred by you
without complying with the registration and prospectus delivery
provisions of the Securities Act, provided that:
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any exchange notes to be received by you will be acquired in the
ordinary course of your business;
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you are not engaged in, do not intend to engage in and have no
arrangement or understanding with any person to engage in, the
distribution of the unregistered notes or exchange notes;
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you are not an affiliate (as defined in
Rule 405 under the Securities Act) of ours or, if you are
such an affiliate, you will comply with the registration and
prospectus delivery requirements of the Securities Act to the
extent applicable;
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if you are a broker-dealer, you have not entered into any
arrangement or understanding with us or any of our
affiliates to distribute the exchange notes; and
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you are not acting on behalf of any person or entity that could
not truthfully make these representations.
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If you wish to participate in the exchange offer, you will be
required to make these representations to us in the letter of
transmittal. If our belief is inaccurate and you transfer any
exchange note without delivering a prospectus meeting the
requirements of the Securities Act or without an exemption from
registration under the Securities Act, you may incur liability
under the Securities Act. We do not assume or indemnify you
against such liability.
In addition, if you are a broker-dealer and you will receive
exchange notes for your own account in exchange for unregistered
notes that were acquired as a result of market-making activities
or other trading activities, you will be required to acknowledge
that you will deliver a prospectus in connection with any resale
of the exchange notes. The letter of transmittal states that by
so acknowledging and by delivering a prospectus, you will not be
deemed to admit that you are an underwriter within
the meaning of the Securities Act. The prospectus, as it may be
amended or supplemented from time to time, may be used by any
broker-dealers in connection with resales of exchange notes
received in exchange for unregistered notes. We have agreed to
use commercially reasonable efforts to have the registration
statement, of which this prospectus forms a part, remain
effective until 180 days after the exchange offer expires
for use by the participating broker-dealers. We have also agreed
to amend or supplement this prospectus during this
180-day
period, if requested by one or more participating
broker-dealers, in order to expedite or facilitate such resales.
Upon consummation of the exchange offer, the exchange notes will
have different CUSIP and ISIN numbers from the unregistered
notes.
Procedures
for Tendering
The term holder with respect to the exchange offer
means any person in whose name unregistered notes are registered
on our agents books or any other person who has obtained a
properly completed bond power from the registered holder, or any
person whose unregistered notes are held of record by DTC who
desires to deliver such unregistered notes by book-entry
transfer at DTC.
Except in limited circumstances, only a DTC participant listed
on a DTC notes position listing with respect to the unregistered
notes may tender its unregistered notes in the exchange offer.
To tender unregistered notes in the exchange offer:
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holders of unregistered notes that are DTC participants may
follow the procedures for book-entry transfer as provided for
below under Book-Entry Transfer and in
the letter of transmittal.
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In addition:
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the exchange agent must receive any corresponding certificate or
certificates representing unregistered notes along with the
letter of transmittal;
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the exchange agent must receive, before expiration of the
exchange offer, a timely confirmation of book-entry transfer of
unregistered notes into the exchange agents account at DTC
according to standard operating procedures for electronic
tenders described below and a properly transmitted agents
message described below; or
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the holder must comply with the guaranteed delivery procedures
described below.
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The tender by a holder of unregistered notes will constitute an
agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal. If
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less than all the unregistered notes held by a holder of
unregistered notes are tendered, a tendering holder should fill
in the amount of unregistered notes being tendered in the
specified box on the letter of transmittal. The entire amount of
unregistered notes delivered to the exchange agent will be
deemed to have been tendered unless otherwise indicated.
The method of delivery of unregistered notes, the letter of
transmittal and all other required documents or transmission of
an agents message, as described under
Book Entry Transfer, to the exchange
agent is at the election and risk of the holder. Instead of
delivery by mail, we recommend that holders use an overnight or
hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery prior to the expiration of the
exchange offer. No letter of transmittal or unregistered notes
should be sent to us but must instead be delivered to the
exchange agent. Delivery of documents to DTC in accordance with
their procedures will not constitute delivery to the exchange
agent.
If you are a beneficial owner of unregistered notes that are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to tender your
unregistered notes, you should contact the registered holder
promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, you must,
prior to completing and executing the letter of transmittal and
delivering your unregistered notes, either:
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make appropriate arrangements to register ownership of the
unregistered notes in your name; or
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obtain a properly completed bond power from the registered
holder.
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The transfer of record ownership may take considerable time and
might not be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal
as described in Withdrawal of Tenders
below, as the case may be, must be guaranteed by a member firm
of a registered national securities exchange or the Financial
Industry Regulatory Authority, Inc., a commercial bank or trust
company having an office or correspondent in the United States
or an eligible guarantor institution within the
meaning of
Rule 17Ad-15
under the Exchange Act, unless the unregistered notes tendered
pursuant thereto are tendered:
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by a registered holder who has not completed the box entitled
Special Registration Instructions or Special
Delivery Instructions in the letter of transmittal; or
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for the account of an eligible institution.
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If the letter of transmittal is signed by a person other than
the registered holder of any unregistered notes listed therein,
the unregistered notes must be endorsed or accompanied by
appropriate bond powers which authorize the person to tender the
unregistered notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders
appears on the unregistered notes. If the letter of transmittal
or any unregistered notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when
signing and, unless waived by us, evidence satisfactory to us of
their authority to so act must be submitted with the letter of
transmittal.
We will determine in our sole discretion all the questions as to
the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of the tendered unregistered notes.
Our determinations will be final and binding. We reserve the
absolute right to reject any and all unregistered notes not
validly tendered or any unregistered notes the acceptance of
which would, in the opinion of our counsel, be unlawful. We
reserve the absolute right to waive any irregularities or
conditions of tender as to particular unregistered notes. Our
interpretation of the terms and conditions of the exchange offer
(including the instructions in the letter of transmittal) will
be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of unregistered
notes must be cured within such time as we will determine.
Neither we, the exchange agent nor any other person shall be
under any duty to give notification of defects or irregularities
with respect to tenders of unregistered notes nor shall any of
them incur any liability for failure to give such notification.
Tenders of unregistered notes will not be deemed to have been
made until such irregularities have been cured or waived. Any
unregistered notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost by
the exchange agent to the tendering
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holder of such unregistered notes, unless otherwise provided in
the letter of transmittal, as soon as practicable following the
expiration date of the exchange offer.
In addition, we reserve the right in our sole discretion to
(1) purchase or make offers for any unregistered notes that
remain outstanding subsequent to the expiration date, and
(2) to the extent permitted by applicable law, purchase
unregistered notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or
offers may differ from the terms of the exchange offer.
Book-Entry
Transfer
We understand that the exchange agent will make a request
promptly after the date of this document to establish an account
with respect to the unregistered notes at DTC for the purpose of
facilitating the exchange offer. Any financial institution that
is a participant in DTCs system may make book-entry
delivery of unregistered notes by causing DTC to transfer such
unregistered notes into the exchange agents DTC account in
accordance with DTCs Automated Tender Offer Program
procedures for such transfer. The exchange for tendered
unregistered notes will only be made after a timely confirmation
of a book-entry transfer of the unregistered notes into the
exchange agents account at DTC, and timely receipt by the
exchange agent of an agents message.
The term agents message means a message,
transmitted by DTC and received by the exchange agent and
forming part of the confirmation of a book-entry transfer, which
states that DTC has received an express acknowledgment from a
participant tendering unregistered notes and that such
participant has received an appropriate letter of transmittal
and agrees to be bound by the terms of the letter of
transmittal, and we may enforce such agreement against the
participant. Delivery of an agents message will also
constitute an acknowledgment from the tendering DTC participant
that the representations contained in the appropriate letter of
transmittal and described above are true and correct.
Guaranteed
Delivery Procedures
Holders who wish to tender their unregistered notes and
(1) whose unregistered notes are not immediately available,
or (2) who cannot deliver their unregistered notes, the
letter of transmittal, or any other required documents to the
exchange agent prior to the expiration date, or if such holder
cannot complete DTCs standard operating procedures for
electronic tenders before expiration of the exchange offer, may
tender their unregistered notes if:
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the tender is made through an eligible institution;
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before expiration of the exchange offer, the exchange agent
receives from the eligible institution either a properly
completed and duly executed notice of guaranteed delivery in the
form accompanying this prospectus, by facsimile transmission,
mail or hand delivery, or a properly transmitted agents
message in lieu of notice of guaranteed delivery:
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setting forth the name and address of the holder and the
certificate number or numbers of the unregistered notes tendered
and the principal amount of unregistered notes tendered;
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stating that the tender offer is being made by guaranteed
delivery; and
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guaranteeing that, within three (3) business days after
expiration of the exchange offer, the letter of transmittal, or
facsimile of the letter of transmittal, together with the
unregistered notes tendered and any other documents required by
the letter of transmittal or, alternatively, a book-entry
confirmation will be deposited by the eligible institution with
the exchange agent; and
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the exchange agent receives the properly completed and executed
letter of transmittal, or facsimile of the letter of
transmittal, as well as all tendered unregistered notes in
proper form for transfer and all other documents required by the
letter of transmittal or, alternatively, a book-entry
confirmation, within three (3) business days after
expiration of the exchange offer.
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Upon request to the exchange agent, a notice of guaranteed
delivery will be sent to holders who wish to tender their
unregistered notes according to the guaranteed delivery
procedures set forth above.
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Withdrawal
of Tenders
Except as otherwise provided herein, tenders of unregistered
notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on January 14, 2009, the expiration date of
the exchange offer.
For a withdrawal to be effective:
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the exchange agent must receive a written notice of withdrawal,
which may be by facsimile transmission or letter, at the address
set forth below under Exchange Agent; or
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for DTC participants, holders must comply with their respective
standard operating procedures for electronic tenders and the
exchange agent must receive an electronic notice of withdrawal
from DTC.
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Any notice of withdrawal must:
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specify the name of the person who tendered the unregistered
notes to be withdrawn;
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identify the unregistered notes to be withdrawn, including the
certificate number or numbers and principal amount to be
withdrawn;
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be signed by the person who tendered the unregistered notes in
the same manner as the original signature on the letter of
transmittal, including any required signature
guarantees; and
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specify the name in which the unregistered notes are to be
re-registered, if different from that of the withdrawing holder.
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If unregistered notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at
DTC to be credited with the withdrawn unregistered notes and
otherwise comply with the procedures of the facility. We will
determine all questions as to the validity, form and eligibility
(including time of receipt) for such withdrawal notices, and our
determination shall be final and binding on all parties. Any
unregistered notes so withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer, and no
exchange notes will be issued with respect thereto unless the
unregistered notes so withdrawn are validly re-tendered.
Properly withdrawn unregistered notes may be re-tendered by
following the procedures described above under Procedures
for Tendering at any time prior to the expiration date.
Consequences
of Failure to Exchange
If you do not tender your unregistered notes to be exchanged in
this exchange offer, they will remain restricted
securities within the meaning of Rule 144(a)(3) of
the Securities Act.
Accordingly, they:
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may be resold only if (1) registered pursuant to the
Securities Act, (2) an exemption from registration is
available or (3) neither registration nor an exemption is
required by law; and
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shall continue to bear a legend restricting transfer in the
absence of registration or an exemption therefrom.
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As a result of the restrictions on transfer of the unregistered
notes, as well as the availability of the exchange notes, the
unregistered notes are likely to be much less liquid than before
the exchange offer.
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Exchange
Agent
Wells Fargo Bank, N.A. has been appointed as the exchange agent
for the exchange of the unregistered notes. Questions and
requests for assistance relating to the exchange of the
unregistered notes should be directed to the exchange agent
addressed as follows:
By Hand, by Mail or by Overnight Carrier:
Wells Fargo Bank, N.A.
Corporate Trust Services
45 Broadway 14th Floor
New York, New York 10006
By Facsimile (for Eligible Institutions Only):
(212) 515-1589
For Information or Confirmation by Telephone:
(212) 515-5260
Fees and
Expenses
We will bear the expenses of soliciting tenders pursuant to the
exchange offer. The principal solicitation for tenders pursuant
to the exchange offer is being made by mail. Additional
solicitations may be made by our officers and regular employees
and our affiliates in person or by telephone.
We will not make any payments to brokers, dealers or other
persons soliciting acceptances of the exchange offer. We,
however, will pay the exchange agent reasonable and customary
fees for its services and will reimburse the exchange agent for
its related reasonable out-of-pocket expenses and accounting and
legal fees. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of
this prospectus, letters of transmittal and related documents to
the beneficial owners of the unregistered notes and in handling
or forwarding tenders for exchange.
We will pay all transfer taxes, if any, applicable to the
exchange of unregistered notes pursuant to the exchange offer.
The tendering holder, however, will be required to pay any
transfer taxes, whether imposed on the registered holder or any
other person, if:
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certificates representing exchange notes or unregistered notes
for principal amounts not tendered or accepted for exchange are
to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the
notes tendered;
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tendered notes are registered in the name of any person other
than the person signing the letter of transmittal; or
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a transfer tax is imposed for any reason other than the exchange
of unregistered notes under the exchange offer.
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If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the
amount of such transfer taxes will be billed directly to such
tendering holder.
Accounting
Treatment
We will record the exchange notes in our accounting records at
the same carrying value as the unregistered notes, which is the
aggregate principal amount as reflected in our accounting
records on the date of exchange. Accordingly, we will not
recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. The exchange offer costs
will be amortized as part of deferred financing costs over the
life of the notes.
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DESCRIPTION
OF THE EXCHANGE NOTES
General
The exchange notes will be issued under an indenture, dated as
of April 30, 2008, as supplemented by a supplemental
indenture, dated as of May 7, 2008, among the Company, as
issuer, the Subsidiary Guarantors, as guarantors, and Wells
Fargo Bank N.A., as trustee (collectively, the
indenture).
The summary herein of certain provisions of the indenture does
not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the
indenture (filed as an exhibit to the registration statement
that includes this prospectus), including definitions therein of
certain terms. Certain terms used in this summary are defined
under the subheading Certain Definitions. In this
description, (i) the term Company refers to Dr
Pepper Snapple Group, Inc., (ii) the terms we,
our, and us refer to the Company and any
of its successors and their respective subsidiaries and
(iii) the term notes refer to the exchange
notes.
Without the consent of the holders of the notes, at any time and
from time to time the Company will have the ability under the
indenture to issue further notes having identical terms and
conditions as the notes of any series offered hereby (subject to
certain exceptions), and may issue additional notes in one or
more additional series under the indenture. See
Further Issuances below. The Company
will issue notes only in fully registered form without coupons,
in minimum denominations of $2,000 and larger integral multiples
of $1,000.
Brief
Description of the Exchange Notes
The notes:
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are unsecured unsubordinated obligations of the Company; and
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will be guaranteed on an unsecured unsubordinated basis by any
Subsidiary of the Company that guarantees the obligations of the
Company under any other Indebtedness on and after the Issue Date.
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The 6.12% exchange senior notes due 2013, 6.82% exchange senior
notes due 2018 and 7.45% exchange senior notes due 2038 will
each be issued as separate series of notes under the indenture.
Maturity,
Interest and Principal
The exchange notes due 2013 will mature on May 1, 2013, the
exchange notes due 2018 will mature on May 1, 2018, and the
exchange notes due 2038 will mature on May 1, 2038.
Interest on the exchange notes due 2013 will initially accrue at
a rate of 6.12% per annum, interest on the exchange notes due
2018 will initially accrue at a rate of 6.82% per annum and
interest on the exchange notes due 2038 will initially accrue at
a rate of 7.45% per annum. In each case interest will be payable
semi-annually in arrears on May 1 and November 1 of each year
and on the maturity date (each, an interest payment
date), commencing May 1, 2009, to the persons in
whose names the notes are registered at the close of business on
April 15 and October 15, as the case may be (in each case,
whether or not a business day) immediately preceding the related
interest payment date; provided, however, that
interest payable on the maturity date shall be payable to the
person to whom the principal of such notes shall be payable.
Interest on the notes will be computed on the basis of a
360-day year
composed of twelve
30-day
months.
Interest payable on any interest payment date or the maturity
date shall be the amount of interest accrued from, and
including, the next preceding interest payment date in respect
of which interest has been paid or duly provided for (or from
and including the Issue Date, if no interest has been paid or
duly provided for with respect to the exchange notes) to, but
excluding, such interest payment date or maturity date, as the
case may be. If any interest payment date or the maturity date
falls on a day that is not a business day, the interest payment
and, if the maturity date, the payment of principal will be made
on the next succeeding day that is a business day as if it were
made on the date such payment was due, and no interest on such
payment shall accrue for the period from and after the scheduled
interest payment date or maturity date to the next succeeding
business day.
By business day we mean a weekday which is not a day
when banking institutions in the place of payment are authorized
or required by law or regulation to be closed.
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Principal of, premium, if any, and interest on notes will be
payable at the office or agency of the Company maintained for
such purpose or, at the option of the Company, may be made by
check mailed to the holders of the notes at their respective
addresses set forth in the register of holders; provided that
all payments of principal, premium, if any, and interest with
respect to the notes represented by one or more global notes
registered in the name of The Depository Trust Company
(DTC) or its nominee will be made by wire transfer
of immediately available funds to the accounts specified by the
holder or holders thereof. Until otherwise designated by the
Company, the Companys office or agency will be the office
of the trustee maintained for such purpose.
Interest
Rate Adjustment
The interest rate payable on the notes will be subject to
adjustments from time to time if either of Moodys or
S&P (or, in either case, any Substitute Rating Agency
thereof), downgrades (or subsequently upgrades) the debt rating
assigned to the notes, in the manner described below.
If the rating of the notes from Moodys or any Substitute
Rating Agency thereof is decreased to a rating set forth in the
immediately following table, the interest rate on the notes will
increase from the interest rate payable on the notes on the
Issue Date by the percentage set forth opposite that rating:
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Moodys Rating*
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Percentage
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Ba1
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0.25
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%
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Ba2
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0.50
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%
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Ba3
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0.75
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%
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B1 or below
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1.00
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%
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* |
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Including the equivalent ratings of any Substitute Rating Agency. |
If the rating of the notes from S&P or any Substitute
Rating Agency thereof is decreased to a rating set forth in the
immediately following table, the interest rate on the notes will
increase from the interest rate payable on the notes on the
Issue Date by the percentage set forth opposite that rating:
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S&P Rating*
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Percentage
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BB+
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0.25
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%
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BB
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0.50
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%
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BB-
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0.75
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%
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B+ or below
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1.00
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%
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* |
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Including the equivalent ratings of any Substitute Rating Agency. |
If at any time the interest rate on the notes has been adjusted
upward and either Moodys or S&P (or, in either case,
a Substitute Rating Agency thereof), as the case may be,
subsequently increases its rating of the notes to any of the
ratings set forth in the tables above, the interest rate on the
notes will be decreased such that the interest rate for the
notes equals the interest rate payable on the notes on the Issue
Date plus the applicable percentages set forth opposite the
ratings in the tables above in effect immediately following the
increase. If Moodys or any Substitute Rating Agency
thereof subsequently increases its rating of the notes to Baa3
(or its equivalent, in the case of a Substitute Rating Agency)
or higher and S&P or any Substitute Rating Agency thereof
increases its rating to BBB- (or its equivalent, in the case of
a Substitute Rating Agency) or higher, the interest rate on the
notes will be decreased to the interest rate payable on the
notes on the Issue Date.
Each adjustment required by any decrease or increase in a rating
set forth above, whether occasioned by the action of
Moodys or S&P (or, in either case, any Substitute
Rating Agency thereof), shall be made independent of any and all
other adjustments. In no event shall (1) the interest rate
for the notes be reduced to below the interest rate payable on
the notes on the Issue Date or (2) the total increase in
the interest rate on the notes exceed 2.00% above the interest
rate payable on the notes on the Issue Date.
No adjustments in the interest rate of the notes shall be made
solely as a result of a Rating Agency ceasing to provide a
rating. If at any time less than two Rating Agencies provide a
rating of the notes for reason beyond the
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Companys control, we will use our commercially reasonable
efforts to obtain a rating of the notes from a Substitute Rating
Agency, to the extent one exists, and if a Substitute Rating
Agency exists, for purposes of determining any increase or
decrease in the interest rate on the notes pursuant to the table
above (a) such Substitute Rating Agency will be substituted
for the last Rating Agency to provide a rating of the notes but
which has since ceased to provide such rating, (b) the
relative ratings scale used by such Substitute Rating Agency to
assign ratings to senior unsecured debt will be determined in
good faith by an independent investment banking institution of
national standing appointed by us and, for purposes of
determining the applicable ratings included in the applicable
table above with respect to such Substitute Rating Agency, such
ratings will be deemed to be the equivalent ratings used by
Moodys or S&P, as applicable, in such table and
(c) the interest rate on the notes will increase or
decrease, as the case may be, such that the interest rate equals
the interest rate payable on the notes on their Issue Date plus
the appropriate percentage, if any, set forth opposite the
rating from such Substitute Rating Agency in the applicable
table above (taking into account the provisions of
clause (b) above) (plus any applicable percentage resulting
from a decreased rating by the other Rating Agency). For so long
as only one Rating Agency provides a rating of the notes, any
subsequent increase or decrease in the interest rate of the
notes necessitated by a reduction or increase in the rating by
the agency providing the rating shall be twice the percentage
set forth in the applicable table above. For so long as no
Rating Agency provides a rating of the notes, the interest rate
on the notes will increase to, or remain at, as the case may be,
2.00% above the interest rate payable on the notes on the Issue
Date.
In addition, the interest rates on the notes of each series will
permanently cease to be subject to any adjustment described
above (notwithstanding any subsequent decrease in the ratings by
either or both Rating Agencies) if the notes of that series
become rated A3 and A- (or its equivalent, in the case of a
Substitute Rating Agency) or higher by Moodys and S&P
(or, in either case, any Substitute Rating Agency thereof) or
one of these ratings if the notes are only rated by one Rating
Agency.
Any interest rate increase or decrease described above will take
effect from the first day of the interest period during which a
rating change requires an adjustment in the interest rate. If
Moodys or S&P or any Substitute Rating Agency thereof
changes its rating of the notes more than once during any
particular interest period, the last change by such agency
during such period will control for purposes of any interest
rate increase or decrease described above relating to such
agencys action.
Guarantees
Each Subsidiary Guarantor will jointly and severally guarantee
the Companys obligations under the notes. The obligations
of each Subsidiary Guarantor under its Subsidiary Guarantee will
be limited as necessary to prevent that Subsidiary Guarantee
from constituting a fraudulent conveyance under applicable law.
See Risk Factors Risks Related to the Exchange
Notes and the Exchange Offer Federal and state laws
regarding fraudulent conveyance allow courts, under specific
circumstances, to void debts, including guarantees, and would
require holders of the exchange notes to return payments
received from us or the subsidiary guarantors.
Each Subsidiary Guarantor that makes a payment under its
Subsidiary Guarantee will be entitled upon payment in full of
all guaranteed obligations under the indenture to contribution
from each other Subsidiary Guarantor in an amount equal to such
other Subsidiary Guarantors pro rata portion of
such payment based on the respective net assets of all the
Subsidiary Guarantors at the time of such payment.
If a Subsidiary Guarantee were rendered voidable, it could be
subordinated by a court to all other indebtedness (including
guarantees and other contingent liabilities) of the applicable
Subsidiary Guarantor, and, depending on the amount of such
indebtedness, a Subsidiary Guarantors liability on its
Subsidiary Guarantee could be reduced to zero.
The Subsidiary Guarantee of a Subsidiary Guarantor will be
automatically and unconditionally released and discharged,
without the consent of the holders, and no further action by the
Company, any Subsidiary Guarantor or the Trustee shall be
required for such release (unless we shall notify the Trustee
that no release and discharge shall occur as a result thereof)
upon:
(1) the sale or other disposition (including by way of
consolidation or merger) of such Subsidiary Guarantor to a
Person other than the Company or any Subsidiary of the Company
as permitted by the indenture;
124
(2) the concurrent release of such Subsidiary Guarantor
from all of its obligations under its guarantee of any other
Indebtedness of the Company; or
(3) the exercise by the Company of its legal defeasance
option under Defeasance or the discharge of the
Companys obligations under the indenture in accordance
with the terms of the indenture.
Ranking
The notes and the Subsidiary Guarantees will be senior unsecured
obligations of the Company and the Subsidiary Guarantors,
respectively, and will rank equally in right of payment with all
existing and future unsecured and unsubordinated obligations of
the Company and the Subsidiary Guarantors, respectively.
The notes and the Subsidiary Guarantees will effectively rank
junior to all existing and future secured indebtedness of the
Company and the Subsidiary Guarantors, respectively, to the
extent of the value of the assets securing such indebtedness. As
of September 30, 2008, the total secured indebtedness of
the Company and the Subsidiary Guarantors was approximately
$19 million.
In addition, the notes will effectively rank junior to all
liabilities of the Companys Subsidiaries that are not
guaranteeing the notes. The Company derives a portion of its
operating income and cash flow from its investments in its
Subsidiaries that will not become Subsidiary Guarantors. For the
nine months ended September 30, 2008, and the years ended
December 31, 2007 and 2006, respectively, our
non-Subsidiary Guarantors accounted for $463 million,
$575 million and $534 million of net sales, and
$118 million, $126 million and $125 million of
income from operations. Claims of creditors of the
Companys Subsidiaries that are not guaranteeing the notes
generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of Companys
creditors, including holders of the notes. Accordingly, the
notes will be effectively subordinated to creditors, including
trade creditors and preferred stockholders, if any, of the
Companys Subsidiaries that are not guaranteeing the notes.
As of September 30, 2008, and December 31, 2007 and
2006, respectively, the total liabilities of our non-guarantor
subsidiaries were approximately $118 million,
$153 million and $670 million, and the total assets of
such subsidiaries were approximately $564 million,
$590 million and $468 million. See Risk
Factors Risks Related to the Exchange Notes and the
Exchange Offer The exchange notes are effectively
subordinated to the indebtedness of our subsidiaries that are
not guaranteeing such notes.
Offer to
Repurchase Upon Change of Control Triggering Event
Upon the occurrence of a Change of Control Triggering Event,
unless the Company has exercised its right to redeem the notes
as described below under Optional
Redemption, the indenture provides that each holder of
notes will have the right to require the Company to purchase all
or a portion (equal to $2,000 or an integral multiple or $1,000
in excess thereof) of such holders notes pursuant to the
offer described below (the Change of Control
Offer), at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase, subject to the rights of holders
of notes on the relevant record date to receive interest due on
the relevant interest payment date.
Within 30 days following the date upon which the Change of
Control Triggering Event occurred, or at the Companys
option, prior to any Change of Control but after the public
announcement of the pending Change of Control, the Company will
be required to send, by first class mail, a notice to each
holder of notes, with a copy to the trustee, which notice will
govern the terms of the Change of Control Offer. Such notice
will state, among other things, the purchase date, which must be
no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required by
law (the Change of Control Payment Date). The
notice, if mailed prior to the date of consummation of the
Change of Control, will state that the Change of Control Offer
is conditioned on the Change of Control being consummated on or
prior to the Change of Control Payment Date. Holders of notes
electing to have notes purchased pursuant to a Change of Control
Offer will be required to surrender their notes, with the form
entitled Option of Holder to Elect Purchase on the
reverse of the note completed, to the paying agent at the
address specified in the notice, or transfer their notes to the
paying agent by book-entry transfer pursuant to the applicable
procedures of the paying agent, prior to the close of business
on the third business day prior to the Change of Control Payment
Date.
125
The senior credit agreement dated as of March 10, 2008, as
amended and restated on April 11, 2008, among the Company
and the lenders, issuing banks and agents party thereto
provides, and future credit agreements or other agreements
relating to any indebtedness to which the Company becomes a
party may provide, that certain change of control events with
respect to the Company would constitute a default thereunder. If
we experience a change of control that triggers a default under
the senior credit agreement or such other agreements, we could
seek a waiver of such default or seek to refinance the senior
credit agreement or the indebtedness under such other
agreements. In the event we do not obtain such a waiver or
refinance the senior credit agreement or the indebtedness under
such other agreements, such default could result in amounts
outstanding under the senior credit agreement or such other
agreements being declared due and payable, which could have a
material adverse effect on us.
Our ability to pay cash to the holders of notes following the
occurrence of a Change of Control may be limited by our
then-existing financial resources. Therefore, sufficient funds
may not be available when necessary to make any required
repurchases.
The definition of Change of Control under the indenture includes
a phrase relating to the direct or indirect sale, lease,
transfer, conveyance or other disposition of all or
substantially all of our and our subsidiaries
properties or assets taken as a whole. Although there is a
limited body of case law interpreting the phrase
substantially all, there is no precise established
definition of the phrase under applicable law. Accordingly, the
ability of a holder of notes to require us to repurchase such
holders notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of our and our
subsidiaries assets taken as a whole to another person or
group may be uncertain.
The Company will not be required to make a Change of Control
Offer if a third party makes such an offer in the manner, at the
times and otherwise in compliance with the requirements for such
an offer made by the Company and such third party purchases all
notes properly tendered and not withdrawn under its offer.
Notwithstanding anything to the contrary herein, a Change of
Control Offer may be made in advance of a Change of Control
Triggering Event conditional upon such Change of Control.
The Company will comply with the requirements of
Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), and any other securities laws
and regulations thereunder to the extent those laws and
regulations are applicable in connection with the repurchase of
notes as a result of a Change of Control Triggering Event. To
the extent that the provisions of any such securities laws or
regulations conflict with the Change of Control Offer provisions
of the notes, we will comply with those securities laws and
regulations and will not be deemed to have breached our
obligations under the Change of Control Offer provisions of the
notes by virtue of any such conflict.
Optional
Redemption
The Company will have the right to redeem the notes of any
series, in whole or in part from time to time, at its option, on
at least 30 days but no more than 60 days
prior written notice mailed to the registered holders of such
series of notes to be redeemed. Upon redemption of the notes,
the Company will pay a redemption price equal to the greater of
(1) 100% of the principal amount of the notes to be
redeemed and (2) the sum of the present values of the
Remaining Scheduled Payments (as defined below) of the notes to
be redeemed, discounted to the date of redemption on a
semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the Treasury Rate (as defined below) plus
45 basis points, in the case of the 6.12% exchange senior
notes due 2013, 45 basis points, in the case of the 6.82%
exchange senior notes due 2018, or 45 basis points, in the
case of the 7.45% exchange senior notes due 2038, in each case
plus accrued and unpaid interest thereon to the redemption date.
Treasury Rate means, for any redemption date,
the rate per annum equal to the semi-annual equivalent yield to
maturity, computed as the second business day immediately
preceding that redemption date, of the Comparable Treasury
Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for that redemption date.
Comparable Treasury Issue means the United
States Treasury security selected by an Independent Investment
Banker as having a maturity comparable to the remaining term of
the notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the notes to be redeemed.
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Comparable Treasury Price means, with respect
to any redemption date (1) the average of the Reference
Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest of the Reference Treasury
Dealer Quotations, or (2) if the Independent Investment
Banker obtains fewer than four Reference Treasury Dealer
Quotations, the average of all of these quotations.
Independent Investment Banker means one of
the Reference Treasury Dealers appointed by us.
Reference Treasury Dealer means each of Banc
of America Securities LLC, Goldman, Sachs & Co.,
J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated and UBS Securities LLC (or their respective
affiliates that are primary U.S. Government securities
dealers), and their respective successors, or if at any time any
of the above is not a primary U.S. Government securities
dealer, one other nationally recognized investment banking firm
selected by the Company that is a primary U.S. Government
securities dealer.
Reference Treasury Dealer Quotations means,
with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Independent
Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the
Independent Investment Banker by such Reference Treasury Dealer
at 5:00 p.m., New York City time, on the third business day
preceding such redemption date.
Remaining Scheduled Payments means, with
respect to each note to be redeemed, the remaining scheduled
payments of the principal thereof and interest thereon that
would be due after the related redemption date for such
redemption; provided, however, that, if such redemption
date is not an interest payment date with respect to such note,
the amount of the next succeeding scheduled interest payment
thereon will be reduced by the amount of interest accrued
thereon to such redemption date.
The notice of redemption will state any conditions applicable to
a redemption and the amount of notes of any series to be
redeemed. If less than all the notes of any series are to be
redeemed, the notes of such series to be redeemed shall be
selected by the trustee by such method as the trustee deems fair
and appropriate. Unless we default in payment of the redemption
price, on and after the redemption date, interest will cease to
accrue on the notes or portions thereof called for redemption.
Except as described above, the notes will not be redeemable by
us prior to maturity.
No
Mandatory Redemption
The Company will not be required to make any mandatory
redemption or sinking fund payments with respect to any series
of the notes. The Company may at any time and from time to time
purchase notes in the open market or otherwise.
Further
Issuances
The Company may from time to time, without notice to or the
consent of the holders of the notes of any series, create and
issue additional notes of any series offered hereby, having the
same terms as, and ranking equally and ratably with, the notes
of such series in all respects (except with respect to the issue
date, registration rights and, if applicable, the payment of
interest accruing prior to the issue date of such additional
notes and the first payment of interest following the issue date
of such additional notes). These additional notes will be
guaranteed by the Subsidiary Guarantors on the same basis as the
notes offered hereby and will be consolidated into and form a
single series with, and will have the same terms as to
redemption, waivers, amendments or otherwise as the notes of the
series of which they are in addition to, and will vote together
as one class on all matters with respect to the notes of such
series. The Company may also, without notice to or the consent
of the holders of the notes, issue additional notes in one or
more series different from the notes offered hereby. Notes of
such different series may have different terms than the notes
offered hereby and will be treated as separate classes of notes
under the indenture for purposes of redemption, waivers,
amendments or otherwise.
127
Certain
Covenants
Principal
and Interest
The Company covenants to pay the principal of and interest on
the notes when due and in the manner provided in the indenture.
Consolidation,
Merger or Sale of Assets
The Company will not consolidate or combine with or merge with
or into or, directly or indirectly, sell, assign, convey, lease,
transfer or otherwise dispose of all or substantially all of its
assets to any person or persons in a single transaction or
through a series of transactions, unless:
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the Company shall be the successor or continuing person or, if
the Company is not the successor or continuing person, the
resulting, surviving or transferee person (the surviving
entity) is a company organized and existing under the laws
of the United States, any State thereof or the District of
Columbia that expressly assumes all of the Companys
obligations under the notes and the indenture pursuant to a
supplemental indenture executed and delivered to the trustee;
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immediately after giving effect to such transaction or series of
transactions, no default has occurred and is continuing; and
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the Company or the surviving entity will have delivered to the
trustee an officers certificate and opinion of counsel
stating that the transaction or series of transactions and a
supplemental indenture, if any, complies with the indenture.
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If any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or
substantially all of the Companys assets occurs in
accordance with the indenture, the surviving entity will succeed
to, and be substituted for, and may exercise every right and
power of the Company under the indenture with the same effect as
if such surviving entity had been named as the Company. The
Company will (except in the case of a lease) be discharged from
all obligations and covenants under the indenture and any debt
securities issued thereunder.
Notwithstanding the foregoing, the Company may merge or
consolidate into or with any Subsidiary Guarantor.
Limitation
on Secured Indebtedness
The Company will not, and will not permit any of its
Subsidiaries to, incur, issue, assume or guarantee any
Indebtedness secured by a Lien on any Principal Property or on
any Capital Stock or Indebtedness of any Subsidiary of the
Company owning any Principal Property, whether now owned or
hereafter acquired by the Company or any Subsidiary of the
Company, without effectively providing that the outstanding
notes and the Subsidiary Guarantees (together with, if the
Company shall so determine, any other Indebtedness of the
Company or such Subsidiary then existing or thereafter created
which is not subordinate to the notes or the Subsidiary
Guarantees) shall be secured equally and ratably with (or prior
to) such secured Indebtedness so long as such secured
Indebtedness shall be so secured. The foregoing restrictions do
not apply to:
(1) Permitted Encumbrances;
(2) Liens on any asset or property existing at the date of
the indenture, provided that
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such Liens shall not apply to any other property or asset of the
Company or any Subsidiary of the Company (other than the
proceeds or products of the property or asset originally subject
to such Liens), and
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such Liens shall secure only those obligations which it secures
on the date of the indenture and extensions, renewals and
replacements thereof that do not increase the outstanding
principal amount thereof;
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(3) Liens on any asset or property of any corporation or
other Person existing at the time such corporation or other
Person becomes a Subsidiary of the Company or is merged with or
into or consolidated with the Company or any Subsidiary of the
Company, provided that
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such Liens were in existence prior to such corporation or other
Person becoming a Subsidiary of the Company or such merger or
consolidation and shall not apply to any other property or asset
of the Company or any Subsidiary of the Company (other than the
proceeds or products of the property or asset originally subject
to such Liens), and
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such Liens shall secure only those obligations which it secures
on the date that such corporation or other Person becomes a
Subsidiary of the Company or the date of such merger or
consolidation, and extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
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(4) Liens securing Indebtedness of
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a Subsidiary of the Company to the Company or a Subsidiary
Guarantor,
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the Company to a Subsidiary Guarantor, or
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a Subsidiary Guarantor to the Company or another Subsidiary
Guarantor;
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(5) Liens on any property or asset to secure the payment of
all or any part of the purchase price of such property or asset
upon the acquisition of such property or asset by the Company or
a Subsidiary of the Company or to secure any Indebtedness
incurred prior to, at the time of, or within 270 days
after, the later of the date of acquisition of such property or
asset and the date such property or assets is placed in service,
for the purpose of financing all or any part of the purchase
price thereof, or Liens to secure any Indebtedness incurred for
the purpose of financing the cost to the Company or a Subsidiary
of the Company of construction, alteration or improvement to
such acquired property or asset;
(6) Liens securing industrial revenue bonds, pollution
control bonds or other similar tax-exempt bonds;
(7) any other Liens incidental to construction or
maintenance of real property of the Company or any Subsidiary of
the Company which were not incurred in connection with borrowing
money or obtaining advances or credits or the acquisition of
property or assets and in the aggregate do not materially impair
the use of any property or assets or which are being contested
in good faith by the Company or such Subsidiary; or
(8) any extension, renewal or replacement (including
successive extensions, renewals or replacements), as a whole or
in part, of any of the Liens enumerated in clauses (1)
through (7) above; provided, however, that
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such extension, renewal or replacement Liens are limited to all
or part of the same property or asset that secured the Liens
extended, renewed, or replaced (plus improvements on such
property or asset) and
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the principal amount of Indebtedness secured by such Liens at
such time is not increased.
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Notwithstanding the restrictions set forth in the preceding
paragraph, the Company and its Subsidiaries will be permitted to
incur, issue, assume or guarantee Indebtedness secured by a Lien
on any Principal Property or on any Capital Stock or
Indebtedness of any Subsidiary of the Company owning any
Principal Property which would otherwise be subject to the
foregoing restrictions without equally and ratably securing the
notes and the Subsidiary Guarantees, if as of the time of such
incurrence, issuance, assumption or guarantee, after giving
effect thereto, the aggregate principal amount of all
Indebtedness secured by Liens on any Principal Property or on
any Capital Stock or Indebtedness of any Subsidiary of the
Company owning any Principal Property (not including
Indebtedness secured by Liens permitted under clauses (1)
through (8) above), together (without duplication) with the
aggregate amount of Attributable Debt outstanding in respect of
sale and leaseback transactions entered into pursuant to the
second paragraph of the Limitation on Sale and
Lease-back Transactions covenant described below, does not
at the time exceed 15% of Consolidated Net Tangible Assets of
the Company calculated as of the time of such incurrence,
issuance, assumption or guarantee of secured Indebtedness.
Limitation
on Sale and Leaseback Transactions
The Company will not directly or indirectly, and will not permit
any of its Subsidiaries directly or indirectly to, engage in the
sale or transfer of any Principal Property to a Person and the
taking back by the Company or any of its
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Subsidiaries, as the case may be, of a lease of such Principal
Property, whether now owned or hereafter acquired, unless:
(1) such transaction was entered into prior to date of the
indenture;
(2) such transaction was for the sale and leasing back to
the Company by any one of its Subsidiaries;
(3) such transaction involves a lease for not more than
three years;
(4) such transaction occurs within six months from the date
of acquisition of the subject Principal Property or the date of
the completion of construction or commencement of full
operations of such Principal Property, whichever is later;
(5) the Company or such Subsidiary would be entitled to
incur Indebtedness secured by a Lien with respect to such sale
and lease-back transaction without equally and ratably securing
the notes pursuant to the provisions described in
clauses (1) through (8) of the
Limitation on Secured Indebtedness
covenant described above; or
(6) the Company or such Subsidiary applies an amount equal
to the net proceeds from the sale of such Principal Property to
the purchase of other property or assets used or useful in its
business or to the retirement of Funded Debt within
270 days before or after the effective date of any such
sale and leaseback transaction; provided that, in lieu of
applying such amount to the retirement of Funded Debt, the
Company or such Subsidiary may deliver notes to the trustee for
cancellation, such notes to be credited to the amount of net
proceeds from the sale of such property or assets at the cost of
acquisition of such notes to the Company or such Subsidiary.
Notwithstanding the restrictions set forth in the preceding
paragraph, the Company and its Subsidiaries may enter into any
sale and leaseback transaction which would otherwise be
prohibited by the foregoing restrictions, if as of the time of
entering into such sale and leaseback transaction, after giving
effect thereto, the aggregate amount of all Attributable Debt
with respect to sale and leaseback transactions (not including
Attributable Debt with respect to sale and leaseback
transactions permitted under clauses (1) through
(5) above), together (without duplication) with the
aggregate principal amount of all Indebtedness secured by Liens
on any Principal Property or on any Capital Stock or
Indebtedness of any Subsidiary of the Company owning any
Principal Property outstanding pursuant to the second paragraph
of the Limitation on Secured
Indebtedness covenant described above, does not at the
time exceed 15% of Consolidated Net Tangible Assets of the
Company calculated as of the time of entry into of such sale and
leaseback transaction.
Reports
The Company will furnish to the trustee, within 15 days
after the Company files the same with the SEC, copies of the
annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as
the SEC may from time to time by rules and regulations
prescribe) which the Company files with the SEC pursuant to
Section 13 or Section 15(d) of the Exchange Act.
In addition, the Company will furnish (or cause the trustee to
furnish) to holders of notes, and prospective investors upon
their request, any information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act so long as the
notes are not freely transferable under the Securities Act.
Existence
Except as permitted under Consolidation,
Merger or Sale of Assets, the indenture requires the
Company to do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence.
Future
Subsidiary Guarantors
The Company will cause any Subsidiary of the Company that
guarantees, directly or indirectly, any Indebtedness of the
Company (including any Indebtedness under any Credit Agreement)
to at the same time, execute and deliver to the trustee a
supplemental indenture pursuant to which such Subsidiary will
guarantee
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payment of the notes on the same terms and conditions as those
set forth in the indenture. Thereafter, such Subsidiary shall be
a Subsidiary Guarantor for all purposes of the indenture until
such Subsidiary Guarantee is released in accordance with the
provisions of the indenture.
Events of
Default
Each of the following is an event of default under
the indenture with respect to the notes of any series:
(1) default in paying interest on the notes when it becomes
due and the default continues for a period of 30 days or
more;
(2) default in paying principal, or premium, if any, on the
notes when due;
(3) default in the performance, or breach, of any covenant
in the indenture (other than defaults specified in
clause (1) or (2) above) and the default or breach
continues for a period of 90 days or more after the Company
receives written notice from the trustee or the trustee receives
notice from the Holders of at least 25% in aggregate principal
amount of the outstanding notes (including any additional notes)
of such series;
(4) a default on any Indebtedness of the Company or a
Subsidiary Guarantor which default results in the acceleration
of such Indebtedness in an amount in excess of $100 million
without such Indebtedness having been discharged or the
acceleration having been cured, waived, rescinded or annulled
for a period of 30 days after written notice thereof to the
Company by the trustee or to the Company and the trustee by the
holders of not less than 25% in principal amount of the
outstanding notes (including any additional notes) of such
series;
(5) certain events of bankruptcy, insolvency,
reorganization, administration or similar proceedings with
respect to the Company or any Significant Subsidiary or group of
Subsidiaries of the Company constituting a Significant
Subsidiary has occurred; and
(6) any Subsidiary Guarantee of a Significant Subsidiary
ceases to be, or the Subsidiary Guarantees of any group of
Subsidiaries of the Company constituting a Significant
Subsidiary cease to be, in full force and effect (other than in
accordance with the terms of the indenture) or any Subsidiary
Guarantor that is a Significant Subsidiary denies or disaffirms
its obligations under its Subsidiary Guarantee; or any group of
Subsidiaries that are Subsidiary Guarantors constituting a
Significant Subsidiary deny or disaffirm their obligations under
their Subsidiary Guarantees.
The occurrence of an event of default may constitute an event of
default under our senior credit agreement, and certain of our
other indebtedness incurred from time to time.
If an event of default (other than an event of default specified
in clause (5) with respect to the Company or any
Significant Subsidiary or group of Subsidiaries of the Company
constituting a Significant Subsidiary) under the indenture
occurs with respect to the notes of any series and is
continuing, then the trustee may and, at the direction of the
holders of at least 25% in principal amount of the outstanding
notes of that series, will (subject to certain exceptions as
provided in this paragraph) by written notice, require the
Company to repay immediately the entire principal amount of the
outstanding notes of that series, together with all accrued and
unpaid interest and premium, if any. The indenture will provide
that the trustee may withhold from the holders of the notes
notice of continuing default, except a default to the payment of
principal, premium, if any, or interest, if it determines that
withholding of notice is in their interest.
If an event of default with respect to any series of notes under
the indenture specified in clause (5) with respect to the
Company or any Significant Subsidiary or group of Subsidiaries
of the Company constituting a Significant Subsidiary occurs and
is continuing, then the entire principal amount of the
outstanding notes of such series shall automatically become due
immediately and payable without any declaration or other act on
the part of the trustee or any holder.
After a declaration of acceleration described above or any
automatic acceleration under clause (5) described above,
the holders of a majority in principal amount of outstanding
notes of any series may rescind this accelerated payment
requirement if all existing events of default, except for
nonpayment of the principal and interest on the notes of that
series that has become due solely as a result of the accelerated
payment requirement, have been cured
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or waived and if the rescission of acceleration would not
conflict with any judgment or decree. The holders of a majority
in principal amount of the outstanding notes of any series also
have the right to waive past defaults with respect to such
series, except a default in paying principal or interest on any
outstanding note of such series, or in respect of a covenant or
a provision that cannot be modified or amended without the
consent of all holders of the notes of that series.
Holders of at least 25% in principal amount of the outstanding
notes of a series may seek to institute a proceeding only after
they have made written request, and offered indemnity as the
trustee may reasonably require, to the trustee to institute a
proceeding and the trustee has failed to do so within
60 days after it received this notice. In addition, within
this 60-day
period the trustee must not have received directions
inconsistent with this written request by holders of a majority
in principal amount of the outstanding notes of that series.
These limitations do not apply, however, to a suit instituted by
a holder of a note for the enforcement of the payment of
principal, interest or any premium on or after the due dates for
such payment.
During the existence of an event of default of which a
responsible officer of the trustee has actual knowledge or has
received written notice from the Company or any holder of the
notes, the trustee is required to exercise the rights and powers
vested in it under the indenture and use the same degree of care
and skill in its exercise as a prudent person would under the
circumstances in the conduct of that persons own affairs.
If an event of default has occurred and is continuing, the
trustee is not under any obligation to exercise any of its
rights or powers at the request or direction of any of the
holders unless the holders have offered to the trustee security
or indemnity as the trustee may reasonably require. Subject to
certain provisions, the holders of a majority in principal
amount of the outstanding notes of any series have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the trustee with respect to such
series, or exercising any trust, or power conferred on the
trustee with respect to such series.
The trustee will, within 60 days after any default occurs,
give notice of the default to the holders of the notes of each
affected series, unless the default was already cured or waived.
Unless there is a default in paying principal, interest or any
premium when due, the trustee can withhold giving notice to the
holders if it determines in good faith that the withholding of
notice is in the interest of the holders.
The Company is required to furnish to the trustee an annual
statement as to compliance with all conditions and covenants
under the indenture.
Defeasance
Legal Defeasance. The indenture provides that
the Company may be discharged from any and all obligations in
respect of the notes of any series, except for:
(a) the rights of holders of outstanding notes of such
series to receive solely from the trust fund created pursuant to
the indenture, payments in respect of the principal of, premium,
if any, or interest on such notes when such payments are due;
(b) the Companys obligations with respect to any such
notes concerning transfers and exchanges, issuing temporary
notes, registration of such notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of
the trustee under the indenture and the Companys
obligations in connection therewith; and
(d) the legal defeasance provisions of the indenture.
The Company will be so discharged upon the satisfaction of the
conditions set forth in the indenture, including the irrevocable
deposit with the trustee, in trust, for the benefit of the
holders, cash in U.S. dollars, non-callable
U.S. government notes or a combination of cash in
U.S. dollars and non-callable U.S. government notes,
in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants to pay the
principal, premium, if any, and interest on the outstanding
notes of the applicable series on the dates such installments of
principal, premium, if any, and interest are due in accordance
with the terms of the indenture and such notes. This legal
defeasance may occur only if, among other things, the Company
has delivered to the trustee
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an opinion of counsel reasonably acceptable to the trustee,
subject to customary assumptions and exceptions, confirming that
(a) the Company has received from, or there has been
published by, the United States Internal Revenue Service a
ruling or (b) since the issuance of the notes, there has
been a change in the applicable United States federal income tax
law, in either case to the effect that, and based thereon such
opinion shall confirm that, subject to customary assumptions and
exclusions, the holders of the notes will not recognize income,
gain or loss for United States federal income tax purposes
as a result of the legal defeasance and will be subject to
United States federal income tax on the same amounts and in the
same manner and at the same times as would have been the case if
such legal defeasance had not occurred.
If the Company exercises its legal defeasance option with
respect to any series of notes, the Subsidiary Guarantees will
terminate with respect to the applicable series of notes. The
Company may exercise its legal defeasance option notwithstanding
a prior exercise of its covenant defeasance option, described
below. If the Company exercises its legal defeasance option and
complies with all necessary conditions, payment of the notes
with respect to such series may not be accelerated because of an
event of default with respect thereto. If legal defeasance is
exercised and complies with all necessary conditions, holders of
notes would have to rely solely on the trust deposit for the
payment of the notes and could not demand payment in the event
of a short fall from the Company.
Defeasance of Certain Covenants. The indenture
provides that upon compliance with certain conditions:
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the Company will be released from obligations with respect to
any series of notes thereafter (and such Subsidiary Guarantors
shall be released from all of their obligations under the
Subsidiary Guarantee with respect to such series of notes) with
respect to the covenants set forth in the indenture described
under the headings Offer to Repurchase Upon
Change of Control Triggering Event and
Certain Covenants (other than the
covenants described under Certain
Covenants Principal and Interest and
Certain Covenants Consolidation,
Merger or Sale of Assets (except for the provision
requiring no occurrence of a default therein)) and certain other
covenants and the events of default relating to the foregoing
covenants, and
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any omission to comply with those covenants will not result in
liability in respect of any term, condition or limitation set
forth in any such covenant and will not constitute a default or
an event of default with respect to the notes of the applicable
series, which is referred to as a covenant
defeasance.
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However, the Company and the Subsidiary Guarantors will still
have other obligations under the indenture including with
respect to their obligation to, for the benefit of the holders,
make payments on the notes.
The conditions to covenant defeasance include:
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irrevocably depositing with the trustee, in trust, for the
benefit of the holders, cash in U.S. dollars, noncallable
U.S. government notes, or a combination of cash in
U.S. dollars and non-callable U.S. government notes,
in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal, premium, if any, and interest on the outstanding
notes of the applicable series on the dates such installments of
principal, premium, if any, and interest are due in accordance
with the terms of the indenture and the notes; and
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delivering to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that, subject to customary
assumptions and exceptions, the holders of the outstanding notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred.
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Satisfaction
and Discharge
The indenture will be discharged and cease to be of further
effect with respect to any series of notes, except as to
surviving rights of registration of transfer or exchange of such
notes, as to all such notes issued thereunder, when:
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all notes of such series that have been previously authenticated
and delivered (except lost, stolen or destroyed notes that have
been replaced or paid and notes for whose payment money has
previously been deposited in
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trust or segregated and held in trust by the Company and is
thereafter repaid to the Company or discharged from the trust)
have been delivered to the trustee for cancellation; or
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(i) all notes of such series that have not been previously
delivered to the trustee for cancellation, have become due and
payable by reason of the giving of notice of redemption or
otherwise, will become due and payable within one year or are to
be called for redemption and redeemed within one year under
arrangements satisfactory to the trustee for the giving of
notice of redemption by the trustee in the name, and at the
expense, of the Company, and the Company or a Subsidiary
Guarantor has irrevocably deposited or caused to be deposited
with the trustee as trust funds in trust solely for the benefit
of the holders, cash in U.S. dollars, non-callable
U.S. government notes, or a combination of cash in
U.S. dollars and non-callable U.S. government notes,
in such amounts as shall be sufficient without consideration of
any reinvestment of interest, to pay and discharge the entire
indebtedness on the notes of such series not previously
delivered to the trustee for cancellation or redemption for
principal, premium, if any, and accrued interest to the date of
maturity or redemption; (ii) the Company has paid or caused
to be paid all sums payable by it under the indenture with
respect to such series of notes; and (iii) the Company has
delivered irrevocable instructions to the trustee to apply the
deposited money toward the payment of the notes of such series
at stated maturity or on the redemption date,
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as the case may be; and in the case of clauses (i), (ii) or
(iii) above;
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no default or event of default with respect to such series of
notes shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the
Company is a party or by which the Company is bound; and
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the Company shall have delivered to the trustee an
officers certificate and opinion of counsel stating that
all conditions precedent relating to the satisfaction and
discharge of the indenture with respect to such series of notes
have been satisfied.
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Modification
and Waiver
The indenture may be amended or modified without the consent of
any holder of notes in order to:
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cure any ambiguity, defect or inconsistency, provided that the
interests of the holders are not adversely affected in any
material respect;
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add events of default for the notes of any series;
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provide for the issuance of notes of additional series, or
additional notes of any series;
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provide for the assumption of the Companys obligations in
the case of a merger or consolidation and the discharge of the
Company upon such assumption provided that the provision under
the Consolidation, Merger or Sale of Assets covenant
is complied with;
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add covenants or make any change that would provide any
additional rights or benefits to the holders of the notes of any
series;
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add Subsidiary Guarantors, additional guarantors or additional
obligors with respect to the notes of any series;
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release a Subsidiary Guarantor upon the satisfaction of all
conditions for release of such Subsidiary Guarantor as provided
under the indenture;
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secure the notes of any series;
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add or appoint a successor or separate trustee;
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make any change that does not adversely affect the interests of
any holder of notes; and
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obtain or maintain the qualification of the indenture under the
Trust Indenture Act.
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Other amendments and modifications of the indenture or the notes
issued may be made with the consent of the holders of not less
than a majority of the aggregate principal amount of the
outstanding notes of each series affected by the amendment or
modification (each series voting as a separate class), and the
Companys compliance with any provision of the indenture
with respect to any series of notes may be waived by written
notice to the trustee by the holders of a majority of the
aggregate principal amount of the outstanding notes of such
series (voting as a separate class). However, no modification or
amendment may, without the consent of the holder of each
outstanding note affected:
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reduce the principal amount, or extend the fixed maturity, of
the notes, or alter or waive the redemption provisions of the
notes;
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change the place of payment or currency in which principal, any
premium or interest is paid;
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reduce the percentage in principal amount outstanding of notes
of any series which must consent to an amendment, supplement or
waiver or consent to take any action;
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impair the right to institute suit for the enforcement of any
payment on the notes; waive a payment default with respect to
the notes or any guarantor;
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reduce the interest rate or extend the time for payment of
interest on the notes; or
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adversely affect the ranking of the notes of any series.
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Certain
Definitions
As used in this section, the following terms have the meanings
set forth below.
Attributable Debt in respect of a sale and
leaseback transaction means, at any time of determination, the
present value at that time of the obligation of the lessee for
net rental payments during the remaining term of the lease
included in such sale and leaseback transaction. Such present
value will be calculated using a discount rate equal to the rate
of interest implicit in such transaction, determined in
accordance with generally accepted accounting principles;
provided, however, that if such sale and leaseback
transaction results in a Capital Lease Obligation, the amount of
Attributable Debt represented thereby will be determined in
accordance with the definition of Capital Lease
Obligation.
Capital Lease Obligation means, at any time
of determination, the amount of the liability in respect of a
capital lease that would at that time be required to be
capitalized on a balance sheet prepared in accordance with GAAP.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or
limited); and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of the issuing Person.
Change of Control means the occurrence of any
one of the following:
(1) the direct or indirect sale, lease, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any person (as that
term is used in Section 13(d)(3) of the Exchange Act) other
than to the Company or one of its Subsidiaries;
(2) the consummation of any transaction (including without
limitation, any merger or consolidation) the result of which is
that any person (as that term is used in
Section 13(d)(3) of the Exchange Act) becomes the
beneficial owner (as defined in
Rules 13d-3
and 13d-5
under the Exchange Act), directly or indirectly, of
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more than 50% of the outstanding Voting Stock of the Company,
measured by voting power rather than number of shares;
(3) the Company consolidates with, or merges with or into,
any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction
in which any of the outstanding Voting Stock of the Company or
such other Person is converted into or exchanged for cash,
securities or other property, other than any such transaction
where the shares of the Voting Stock of the Company outstanding
immediately prior to such transaction constitute, or are
converted into or exchanged for, a majority of the Voting Stock
of the surviving Person immediately after giving effect to such
transaction;
(4) the first day on which the majority of the members of
the board of directors of the Company cease to be Continuing
Directors; or
(5) the adoption of a plan relating to the liquidation or
dissolution of the Company.
Change of Control Triggering Event means the
occurrence of both a Change of Control and a Rating Event.
Consolidated Net Tangible Assets means, with
respect to any Person, as of any date of determination, the
total assets less the sum of goodwill, net, and other intangible
assets, net, in each case reflected on the consolidated balance
sheet of such Person and its subsidiaries as of the end of the
most recently ended fiscal quarter of such Person for which
financial statements have been furnished to the holders of notes
pursuant to the Reports covenant
described above, determined on a consolidated basis in
accordance with GAAP.
Continuing Director means, as of any date of
determination, any member of the board of directors of the
Company who:
(1) was a member of such board of directors on the date of
the indenture; or
(2) was nominated for election, elected or appointed to
such board of directors with the approval of a majority of the
Continuing Directors who were members of such board of directors
at the time of such nomination, election or appointment.
Credit Agreements means the Existing Credit
Agreements as such agreements may be amended, supplemented or
otherwise modified from time to time, and any agreement
indenture or other documentation relating to extensions,
refinancings, replacements or restructuring of the credit
facilities governed by the Existing Credit Agreements, whether
the same or any other agent, agents, lenders or group of lenders
is or are parties thereto.
Existing Credit Agreement means (1) the
credit agreement dated as of March 10, 2008 and amended and
restated on April 11, 2008 among the Company, the lenders
and the issuing banks party thereto, JPMorgan Chase Bank, N.A.,
as administrative agent, Bank of America, N.A., as syndication
agent, and Goldman Sachs Credit Partners L.P., Morgan Stanley
Senior Funding, Inc. and UBS Securities LLC, as documentation
agents and (2) the 364 day bridge credit agreement
dated as of March 10, 2008 and amended and restated on
April 11, 2008 among the Company, the lenders and issuing
banks party thereto, JPMorgan Chase Bank, N.A., as
administrative agent, Bank of America, N.A., as syndication
agent, and Goldman Sachs Credit Partners L.P., Morgan Stanley
Senior Funding, Inc. and UBS Securities LLC, as documentation
agents.
Funded Debt means Indebtedness which by its
terms matures at or is extendible or renewable at the option of
the obligor to date more than 12 months after the date of
the creation or incurrence of such Indebtedness.
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Public Company Accounting Oversight Board (United States) and
statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity
as have been approved by a significant segment of the accounting
profession, which are in effect as of the date of determination.
Indebtedness means, with respect to any
Person, without duplication, any indebtedness of such Person,
whether or not contingent:
(1) in respect of borrowed money;
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(2) evidenced by bonds, notes, debentures, or similar
instruments or letters of credit (or reimbursement agreements
with respect thereto);
(3) in respect of bankers acceptances, bank
guarantees, surety bonds or similar instruments;
(4) representing Capital Lease Obligations; or
(5) representing the balance deferred and unpaid of the
purchase price of any property or services due more than six
months after such property is acquired or such services are
completed, except any such balance that constitutes a trade
payable or similar obligation to a trade creditor incurred in
the ordinary course of business; if and to the extent any of the
preceding items (other than letters of credit) would appear as a
liability upon a balance sheet (excluding the notes thereto) of
the specified Person prepared in accordance with GAAP.
In addition, the term Indebtedness includes all of
the following items, whether or not any such items would appear
as a liability on a balance sheet of the specified Person in
accordance with GAAP:
(1) all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person); and
(2) to the extent not otherwise included, any guarantee by
the specified Person of Indebtedness of any other Person.
Investment Grade means a rating of Baa3 or
better by Moodys (or its equivalent under any successor
rating category of Moodys) and a rating of BBB-or better
by S&P (or its equivalent under any successor rating
category of S&P).
Issue Date means April 30, 2008.
Lien means any mortgage, lien, pledge,
charge, security interest or other encumbrance of any kind,
whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option
or other agreement to sell or give a security interest in and
any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statute) of any
jurisdiction. Notwithstanding the foregoing, an operating lease
shall not be deemed to constitute a Lien.
Moodys means Moodys Investors
Service, Inc., a subsidiary of Moodys Corporation, and its
successors.
Permitted Encumbrances means:
(1) Liens imposed by law for taxes, assessments or
governmental charges that are not overdue for a period of more
than 30 days or that are being contested in good faith;
(2) carriers, warehousemens, mechanics,
materialmens, repairmens and other like Liens
imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than
30 days (or if more than 30 days overdue, are unfiled
and no other action has been taken to enforce such Liens) or are
being contested in good faith;
(3) (i) pledges and deposits made in the ordinary
course of business in compliance with workers
compensation, unemployment insurance and other social security
laws or regulations and (ii) pledges and deposits in the
ordinary course of business securing liability for reimbursement
or indemnification obligations of (including obligations in
respect of letters of credit or bank guarantees for the benefit
of) insurance carriers providing property, casualty or liability
insurance to the Company or any Subsidiary of the Company;
(4) deposits to secure the performance of bids, trade
contracts (other than for the repayment of borrowed money),
leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature
(including those to secure health, safety and environmental
obligations), in each case in the ordinary course of business;
(5) judgment liens in respect of judgments that the Company
or a Subsidiary of the Company is in good faith prosecuting an
appeal or other proceeding for review or Liens incurred by the
Company or a Subsidiary of
137
the Company for the purpose of obtaining a stay or discharge in
the course of any litigation or other proceeding to which the
Company or a Subsidiary of the Company is a party;
(6) easements, restrictions, rights-of-way and similar
encumbrances and minor title defects on real property imposed by
law or arising in the ordinary course of business that do not
secure any payment obligations and do not, in the aggregate,
materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Company
or any Subsidiary of the Company;
(7) leases, licenses, subleases or sublicenses granted to
others in the ordinary course of business which do not
(i) interfere in any material respect with the business of
the Company and its Subsidiaries, taken as a whole, or
(ii) secure any Indebtedness;
(8) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
in connection with the importation of goods in the ordinary
course of business;
(9) Liens (i) of a collection bank on the items in the
course of collection, (ii) attaching to commodity trading
accounts or other commodities brokerage accounts incurred in the
ordinary course of business and (iii) in favor of a banking
or other financial institution arising as a matter of law
encumbering deposits or other funds maintained with a financial
institution (including the right of set off) and which are
customary in the banking industry;
(10) any interest or title of a lessor under leases entered
into by the Company or any of its Subsidiaries in the ordinary
course of business and financing statements with respect to a
lessors right in and to personal property leased to the
Company or any of its Subsidiaries in the ordinary course of the
Companys or any of its Subsidiaries business other
than through a capital lease;
(11) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for sale of goods
entered into by the Company or any Subsidiaries in the ordinary
course of business;
(12) Liens deemed to exist in connection with reasonable
customary initial deposits and margin deposits and similar Liens
attaching to commodity trading accounts or other brokerage
accounts maintained in the ordinary course of business and not
for speculative purposes;
(13) Liens that are contractual rights of set-off:
(i) relating to the establishment of depository relations
with banks or other financial institutions not given in
connection with the issuance of Indebtedness, (ii) relating
to pooled deposit or sweep accounts of the Company or any
Subsidiary of the Company to permit satisfaction of overdraft or
similar obligations incurred in the ordinary course of business
of the Company and its Subsidiaries or (iii) relating to
purchase orders and other agreements entered into with customers
of the Company or any Subsidiary of the Company in the ordinary
course of business;
(14) Liens solely on any cash earnest money deposits made
by the Company or any Subsidiaries in connection with any letter
of intent or purchase agreement;
(15) ground leases in respect of real property on which
facilities owned or leased by the Company or any of its
Subsidiaries are located;
(16) Liens on insurance policies and the proceeds thereof
securing the financing of the premiums with respect thereto;
(17) any zoning or similar law or right reserved to or
vested in any governmental authority to control or regulate the
use of any real property that does not materially interfere with
the ordinary conduct of the business of the Company or any
Subsidiary of the Company; and
(18) Liens on specific items of inventory or other goods
and the proceeds thereof securing such Persons obligations
in respect of documentary letters of credit or bankers
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory
or goods.
Person means any individual, corporation,
partnership, joint venture, association, limited liability
company, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
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Principal Property means (i) any
manufacturing, processing or bottling plant, warehouse or
distribution center (including the land upon which it is
situated), owned and operated by the Company or any Subsidiary
of the Company on the date the separation of the Company from
Cadbury Schweppes is completed, other than property which, in
the opinion of the Board of Directors of the Company,
individually and in the aggregate, is not of material importance
to the business conducted by the Company and its Subsidiaries,
taken as a whole, and (ii) any manufacturing, processing or
bottling plant, warehouse or distribution center (including the
land upon which it is situated), purchased or constructed by the
Company or any Subsidiary of the Company after the date the
separation of the Company from Cadbury Schweppes is completed,
provided that the original cost of such purchase or construction
is an amount greater than 1% of Consolidated Net Tangible Assets
of the Company.
Rating Agency means:
(1) each of Moodys and S&P, and
(2) if either of Moodys or S&P ceases to rate
the notes or fails to make a rating of the notes publicly
available for reasons outside of the Companys control, a
Substitute Rating Agency in lieu thereof.
Rating Event means (i) the rating of the
notes is lowered by both Rating Agencies during the period (the
Trigger Period) commencing on the earlier of
the first public notice of (a) the occurrence of a Change
of Control or (b) the Companys intention to effect a
Change of Control and ending 60 days following consummation
of such Change of Control (which period shall be extended so
long as the rating of the notes is under publicly announced
consideration for a possible downgrade by either of the Rating
Agencies) and (ii) the notes are rated below an Investment
Grade Rating by both Rating Agencies on any day during the
Trigger Period. If either Rating Agency is not providing a
rating of the notes on any day during the Trigger Period for any
reason, the rating of such Rating Agency shall be deemed to be
below Investment Grade on such day and such Rating Agency will
be deemed to have lowered its rating of the notes during the
Trigger Period.
S&P means Standard &
Poors Ratings Services, a division of The McGraw-Hill
Companies, Inc., and its successors.
SEC means the Securities and Exchange
Commission.
Significant Subsidiary means any Subsidiary,
or any group of Subsidiaries considered collectively in the
aggregate, that would be a significant subsidiary as
defined in Article 1,
Rule 1-02
of
Regulation S-X
promulgated pursuant to the Securities Act of 1933, as amended,
as in effect on the Issue Date. more than 50% of the total
voting power of shares of capital stock entitled (without regard
to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or one or
more of the other Subsidiaries of that person or a combination
thereof.
Subsidiary Guarantor means each Subsidiary of
the Company that executes the indenture as a guarantor pursuant
to the terms of the indenture after the Issue Date.
Subsidiary Guarantee means a guarantee by a
Subsidiary Guarantor of the Companys obligations with
respect to the notes.
Substitute Rating Agency means a
nationally recognized statistical rating
organization within the meaning of
Rule 15c3-1(c)(2)(vi)(F)
under the Exchange Act, selected by the Company (as certified by
a resolution of the board of directors of the Company and
reasonably acceptable to the Trustee) as a replacement agency
for Moodys or S&P, or both of them, as the case may
be.
Voting Stock of any specified Person as of
any date means the Capital Stock of such Person that is at the
time entitled to vote generally in the election of the board of
directors of such Person.
Unclaimed
Funds
All funds deposited with the trustee or any paying agent for the
payment of principal, interest, premium or additional amounts in
respect of the notes of any series that remain unclaimed for two
years after the maturity date of the notes of that series will
be repaid to the Company upon its request. Thereafter, any right
of any holder of notes
139
of that series to such funds shall be enforceable only against
the Company, and the trustee and paying agents will have no
liability therefor.
Governing
Law
The indenture and the notes for all purposes shall be governed
by and construed in accordance with the laws of the State of New
York.
Concerning
the Trustee
The trustee, in its individual and any other capacity, may make
loans to, accept deposits from, and perform services for the
Company or any Subsidiary Guarantor as if it were not the
trustee; however, if it acquires any conflicting interest, it
must eliminate such conflict within 90 days, apply to the
SEC for permission to continue or resign.
The indenture will provide that in case an event of default
shall occur and be continuing (which shall not be cured), the
trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under
no obligation to exercise any of its rights or powers under the
indenture at the request of any holder of the notes, unless such
holder shall have offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
An affiliate of the trustee is a lender under our senior credit
facility, for which it will receive customary fees and
commissions. In addition, the trustee and its affiliates from
time to time have provided certain commercial banking and
financial advisory services to us and to Cadbury, for which they
have received customary fees and commissions, and they may
provide these services to us in the future, for which they would
receive customary fees and commissions.
Book-Entry
Settlement and Clearance
The
Global Notes
The exchange notes will be issued in one or more fully
registered global notes (the Global Notes). Upon
issuance, each of the Global Notes will be deposited with the
trustee as custodian for The Depository Trust Company
(DTC) and registered in the name of Cede &
Co., as nominee of DTC.
Ownership of beneficial interests in each Global Note will be
limited to persons who have accounts with DTC (DTC
participants) or persons who hold interests through DTC
participants. Beneficial interests in the Global Notes will be
held in minimum denominations of $2,000 and integral multiples
of $1,000 in excess of $2,000.
We expect that under procedures established by DTC:
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upon deposit of each Global Note with DTCs custodian, DTC
will credit portions of the principal amount of the Global Note
to the accounts of the DTC participants designated by the
initial purchasers; and
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ownership of beneficial interests in each Global Note will be
shown on, and transfer of ownership of those interests will be
effected only through, records maintained by DTC (with respect
to interests of DTC participants) and the records of DTC
participants (with respect to other owners of beneficial
interests in any of the Global Notes).
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Beneficial interests in the Global Notes may not be exchanged
for notes in physical, certificated form (Certificated
Notes) except in the limited circumstances described
below. Transfers of beneficial interests in the Global Notes
will be subject to the applicable rules and procedures of DTC
and its direct and indirect participants (including, if
applicable, those of Euroclear and Clearstream), which may
change from time to time.
Book-entry
procedures for the Global Notes
All interests in the Global Notes will be subject to the
operations and procedures of DTC, Euroclear and Clearstream. We
provide the following summaries of those operations and
procedures solely for the convenience of
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investors. The operations and procedures of each settlement
system are controlled by that settlement system and may be
changed at any time. Neither we nor the initial purchasers are
responsible for those operations or procedures.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York;
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a banking organization within the meaning of the New
York State Banking Law;
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a member of the Federal Reserve System;
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a clearing corporation within the meaning of the
Uniform Commercial Code; and
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a clearing agency registered under Section 17A
of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between its participants through electronic
book-entry changes to the accounts of its participants.
DTCs participants include securities brokers and dealers,
including the initial purchasers; banks and trust companies;
clearing corporations and other organizations. Indirect access
to DTCs system is also available to others such as banks,
brokers, dealers and trust companies; these indirect
participants clear through or maintain a custodial relationship
with a DTC participant, either directly or indirectly. Investors
who are not DTC participants may beneficially own securities
held by or on behalf of DTC only through DTC participants or
indirect participants in DTC.
So long as DTCs nominee is the registered owner of a
Global Note, that nominee will be considered the sole owner or
holder of the notes represented by that Global Note for all
purposes under the indenture. Except as provided below, owners
of beneficial interests in a Global Note:
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will not be entitled to have notes represented by the Global
Note registered in their names;
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will not receive or be entitled to receive physical delivery of
notes in certificated form; and
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will not be considered the owners or holders of the
notes under the indenture for any purpose, including with
respect to the giving of any direction, instruction or approval
to the trustee under the indenture.
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As a result, each investor who owns a beneficial interest in a
Global Note must rely on the procedures of DTC to exercise any
rights of a holder of notes under the indenture (and, if the
investor is not a participant or an indirect participant in DTC,
on the procedures of the DTC participant through which the
investor owns its interest).
Payments of principal, premium (if any) and interest with
respect to the notes represented by a Global Note will be made
by the trustee to DTCs nominee as the registered holder of
the Global Note. Neither we nor the trustee will have any
responsibility or liability for the payment of amounts to owners
of beneficial interests in a Global Note, for any aspect of the
records relating to or payments made on account of those
interests by DTC, or for maintaining, supervising or reviewing
any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the
owners of beneficial interests in a Global Note will be governed
by standing instructions and customary industry practice and
will be the responsibility of those participants or indirect
participants and DTC.
Transfers between participants in DTC will be effected in
accordance with DTCs procedures and will be settled in
same-day
funds. Transfers between participants in Euroclear or
Clearstream will be effected in accordance with their respective
rules and operating procedures.
Cross-market transfers between DTC participants, on the one
hand, and Euroclear or Clearstream participants, on the other
hand, will be effected within DTC through the DTC participants
that are acting as depositaries for Euroclear and Clearstream.
To deliver or receive an interest in a Global Note held in a
Euroclear or Clearstream account, an investor must send transfer
instructions to Euroclear or Clearstream, as the case may be, in
accordance with the rules and procedures of that system and
within the established deadlines of that system. If the
transaction meets its settlement requirements, Euroclear or
Clearstream, as the case may be, will send instructions to its
DTC depositary to take action to effect final settlement by
delivering or receiving interests in the relevant Global Notes
in DTC, and making or receiving payment under normal procedures
for same-day
funds settlement applicable to DTC.
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Euroclear and Clearstream participants may not deliver
instructions directly to the DTC depositaries that are acting
for Euroclear or Clearstream.
DTC, Euroclear and Clearstream have agreed to the above
procedures to facilitate transfers of interests in the Global
Notes among participants in those settlement systems. However,
the settlement systems are not obligated to perform these
procedures and may discontinue or change these procedures at any
time. Neither we nor the trustee will have any responsibility
for the performance by DTC, Euroclear or Clearstream or their
participants or indirect participants of their obligations under
the rules and procedures governing their operations.
Exchange
of Global Notes for Certificated Notes
A Global Note is exchangeable for a Certificated Note only if:
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DTC (a) notifies us at any time that it is unwilling or
unable to continue as depositary for the Global Notes, and a
successor depositary is not appointed within 90 days, or
(b) has ceased to be registered as a clearing agency under
the Exchange Act, and we fail to appoint a successor depositary
within 90 days;
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we, at our option, notify the trustee that we elect to cause the
issuance of Certificated Notes, subject to the procedures of
DTC; or
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certain other events provided in the indenture occur.
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Same
Day Settlement and Payment
We will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and
liquidated damages, if any) by wire transfer of immediately
available funds to the accounts specified by the Global Note
holder. We will make all payments of principal, interest and
premium and liquidated damages, if any, with respect to
Certificated Notes by wire transfer of immediately available
funds to the accounts specified by the holders thereof or, if no
account is specified, by mailing a check to that holders
registered address.
The notes represented by the Global Notes are expected to trade
in DTCs Same Day Funds Settlement System, and any
permitted secondary market trading activity in the notes will,
therefore, be required by DTC to be settled in immediately
available funds. We expect that secondary trading in any
Certificated Notes will also be settled in immediately available
funds.
Because of time zone differences, credits of interests in the
Global Notes received in Euroclear or Clearstream as a result of
a transaction with a DTC participant will be made during
subsequent securities settlement processing and dated the
business day following the DTC settlement date. Cash received in
Euroclear or Clearstream from the sale of an interest in a
Global Note to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant
Euroclear or Clearstream cash account as of the business day for
Euroclear or Clearstream following the DTC settlement date.
142
CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Exchange
Offers
The exchange of unregistered notes for exchange notes in the
exchange offers will not constitute a taxable event to holders
for U.S. federal income tax purposes. Consequently, you
will not recognize gain or loss upon receipt of an exchange
note. The holding period of the exchange note will include the
holding period of the unregistered note exchanged therefor and
the basis of the exchange note will be the same as the basis of
the unregistered note immediately before the exchange.
In any event, persons considering the exchange of unregistered
notes for exchange notes should consult their own tax advisors
concerning the U.S. federal income tax consequences in
light of their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
Exchange
Notes
The following is a summary of the certain U.S. federal
income tax considerations of ownership and disposition of the
exchange notes (hereinafter the notes). This
discussion only applies to notes that are held as capital
assets. This discussion does not describe all of the tax
considerations that may be relevant to holders in light of their
particular circumstances or to holders subject to special rules,
such as:
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certain financial institutions;
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insurance companies;
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dealers in securities or foreign currencies;
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persons holding notes as part of a hedge or other integrated
transaction;
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U.S. Holders (as defined below) whose functional currency
is not the U.S. dollar;
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partnerships or other entities classified as partnerships for
U.S. federal income tax purposes; or
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persons subject to the alternative minimum tax.
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This summary is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and
proposed Treasury Regulations, changes to any of which
subsequent to the date of this prospectus may be retroactive and
may affect the tax consequences described herein. Persons
considering the purchase of notes are urged to consult their tax
advisers with regard to the application of the U.S. federal
income tax laws to their particular situations as well as any
tax considerations arising under the U.S. federal estate or
gift tax rules or under the laws of any state, local or
non-U.S. taxing
jurisdiction or under any applicable tax treaty.
Tax
Consequences to U.S. Holders
As used herein, the term U.S. Holder means a
beneficial owner of a note that is for U.S. federal income
tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation, or other entity taxable as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States, any state thereof or of
the District of Columbia;
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an estate the income of which is subject to U.S. federal
income tax regardless of its source; or
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a trust if (i) a U.S. court is able to exercise
primary supervision over administration of the trust and one or
more U.S. persons have authority to control all substantial
decisions of the trust, or (ii) in the case of a trust that
was treated as a domestic trust under the law in effect prior to
1997, a valid election is in place under applicable Treasury
regulations to treat such trust as a domestic trust.
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If a partnership (including for this purpose any entity treated
as a partnership for U.S. federal income tax purposes) is a
beneficial owner of a note, the treatment of a partner in the
partnership generally will depend on the
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status of the partner and the activities of the partnership.
Partnerships and partners in such partnerships should consult
their tax advisors about the U.S. federal income tax
consequences of owning and disposing of a note.
Payments
of Interest
Subject to the discussion below, stated interest paid on a note
will be taxable to a U.S. Holder as ordinary income at the
time it accrues or is received in accordance with the
holders method of accounting for U.S. federal income
tax purposes.
We intend to take the position for U.S. federal income tax
purposes that any payments of additional interest resulting from
adjustments to the ratings assigned to the notes (see
Description of the Exchange Notes Interest
Rate Adjustment) will be taxable to a U.S. Holder as
additional interest income when received or accrued, in
accordance with such holders method of accounting for
U.S. federal income tax purposes. However, the Internal
Revenue Service (IRS) may take a contrary position
from that described above and treat the interest as contingent
interest which, as discussed below, could affect the timing and
character of income, gain or loss from holding or disposing of
the notes. If we are required to pay additional interest on the
notes under such circumstances, U.S. Holders should consult
their own tax advisors concerning the appropriate tax treatment
of the payment of such additional interest.
In certain circumstances (see Description of the Exchange
Notes Offer to Repurchase Upon Change of Control
Triggering Event, Description of the Exchange
Notes Optional Redemption and The
Exchange Offer), we may be obligated to pay amounts in
excess of stated interest or principal on the notes. Although
the issue is not free from doubt, we believe that the
possibility of the payment of such additional amounts does not
result in the notes being treated as contingent payment debt
instruments under the applicable Treasury regulations and as a
result we do not intend to treat these potential payments as
part of the yield to maturity of the notes. Our position is not
binding on the IRS. Under this approach, if we ultimately make
any additional payments, U.S. Holders should recognize such
amounts as ordinary income in accordance with their regular
method of accounting for U.S. federal income tax purposes.
If the IRS takes a contrary position, a U.S. Holder might
be required to accrue income on its notes in excess of stated
interest, and to treat as ordinary income rather than capital
gain any income realized on the taxable disposition of a note
before the resolution of the contingencies. The remainder of
this discussion assumes that the notes are not treated as
contingent payment debt instruments. U.S. Holders should
consult their own tax advisors about the treatment of additional
payments that might be made in respect of the notes.
Market
Discount
If a U.S. Holder purchases a note for an amount that is
less than its stated redemption price at maturity (generally,
the stated principal amount) the amount of the difference will
be treated as market discount unless such difference
is a specified de minimis amount. Market discount is considered
to be de minimis if it is less than
1/4
of 1% of the notes stated redemption price at maturity
multiplied by the number of complete years to maturity after the
note was acquired. Under the market discount rules of the Code,
a U.S. Holder will be required to treat any partial
principal payment on, or any gain realized upon the sale,
redemption or other taxable disposition of, a note as ordinary
income to the extent of the market discount which has not
previously been included in income and is treated as having
accrued on such note at the time of such payment or disposition.
In addition, if a U.S. Holder acquired a note with market
discount such U.S. Holder may be required to defer the
deduction of all or a portion of the interest paid or accrued on
any indebtedness incurred or maintained to purchase or carry
such note until the maturity of the note or its earlier
disposition in a taxable transaction. Market discount is
considered to accrue ratably during the period from the date of
acquisition to the maturity date of a note, unless a
U.S. Holder elects to include market discount in income on
a current basis. A U.S. Holder may elect to include market
discount in income (generally as ordinary income) currently as
it accrues, in which case the rules described above regarding
the deferral of interest deductions will not apply. Such
election will also apply to all debt obligations held or
subsequently acquired by the U.S. Holder on or after the
first day of the taxable year to which the election applies. The
election may not be revoked without the consent of the IRS.
U.S. Holders should consult their own tax advisors before
making this election.
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Amortizable
Premium
In general, subject to special rules applicable to debt
instruments that provide for early call rights, if a
U.S. Holder purchases a note for an amount in excess of the
stated principal amount such U.S. Holder will be treated as
having purchased such note with premium in the amount of such
excess. A U.S. Holder generally may elect to amortize the
premium (with a corresponding decrease in adjusted tax basis)
over the remaining term of the note on a constant yield method
as an offset to interest income when includible in income under
such U.S. Holders regular method of accounting for
U.S. federal income tax purposes. If such U.S. Holder
does not elect to amortize the premium, that premium will
decrease the gain or increase the loss it would otherwise
recognize upon a sale or other disposition of the note. An
election to amortize premium on a constant yield method will
also apply to all debt obligations held or subsequently acquired
by the U.S. Holder on or after the first day of the taxable
year to which the election applies. The election may not be
revoked without the consent of the IRS. U.S. Holders should
consult their own tax advisors before making this election.
The rules governing market discount and amortizable premium are
complex, and U.S. Holders should consult their own tax
advisors concerning the application of these rules.
Disposition
of the Notes
Upon the sale, exchange or retirement or other disposition of a
note, a U.S. Holder will recognize taxable gain or loss
equal to the difference between the amount realized on the sale,
exchange or retirement (other than amounts attributable to
accrued interest on the note, which will be treated as ordinary
interest income for U.S. federal income tax purposes if not
previously included in gross income) and the holders
adjusted tax basis in the note. A U.S. Holders
adjusted tax basis in a note is generally equal to the cost of
the note to such holder.
Gain or loss realized on the sale, exchange or retirement of a
note will generally be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange
or retirement the note has been held for more than one year. The
deductibility of capital losses is subject to limitations under
the Code.
Backup
Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with payments on the notes and the proceeds from a sale or other
disposition of the notes. A U.S. Holder will be subject to
U.S. backup withholding on these payments if the
U.S. Holder fails to provide its taxpayer identification
number to the paying agent and comply with certain certification
procedures or otherwise establish an exemption from backup
withholding. The amount of any backup withholding from a payment
to a U.S. Holder will be allowed as a credit against the
U.S. Holders U.S. federal income tax liability,
if any, and may entitle the U.S. Holder to a refund,
provided that the required information is timely furnished to
the IRS.
Tax
Consequences to
Non-U.S.
Holders
As used herein, the term
Non-U.S. Holder
means a beneficial owner of a note that is, for
U.S. federal income tax purposes:
|
|
|
|
|
an individual who is classified as a nonresident alien for
U.S. federal income tax purposes;
|
|
|
|
a
non-U.S. corporation; or
|
|
|
|
a
non-U.S. estate
or trust.
|
Non-U.S. Holder
does not include a holder who is an individual present in the
United States for 183 days or more in the taxable year of
disposition and who is not otherwise a resident of the United
States for U.S. federal income tax purposes. Such a holder
is urged to consult his or her own tax advisor regarding the
U.S. federal income tax consequences of the ownership and
disposition of a note.
145
Payments
on the Notes
Subject to the discussion below concerning backup withholding,
payments of principal and interest on the notes by us or any
paying agent to any
Non-U.S. Holder
that is not engaged in a trade or business in the United States
will not be subject to U.S. federal income or withholding
tax, provided that, in the case of interest,
|
|
|
|
|
the holder does not own, actually or constructively,
10 percent or more of the total combined voting power of
all classes of our stock entitled to vote and is not a
controlled foreign corporation related, directly or indirectly,
to us through stock ownership;
|
|
|
|
the certification requirement described below has been fulfilled
with respect to the beneficial owner, as discussed
below; and
|
|
|
|
the holder is not a bank whose receipt of interest on a note is
described in Section 881(c)(3)(A) of the Code.
|
Interest will not be exempt from withholding tax unless the
beneficial owner of that note certifies on IRS
Form W-8BEN
(or any successor form), under penalties of perjury, that it is
not a U.S. person.
If a
Non-U.S. Holder
of a note is engaged in a trade or business in the United
States, and if interest on the note is effectively connected
with the conduct of this trade or business, the
Non-U.S. Holder,
although exempt from the withholding tax discussed in the
preceding paragraph, will generally be taxed in the same manner
as a U.S. Holder (see Tax Consequences to
U.S. Holders above), subject to an applicable income
tax treaty providing otherwise. Such a
Non-U.S. Holder
will be required to provide us and any paying agent with a
properly executed IRS
Form W-8ECI
(or any successor form) in order to claim an exemption from
withholding tax. These holders should consult their own tax
advisors with respect to other U.S. tax consequences of the
ownership and disposition of notes, including the possible
imposition of a 30% branch profits tax.
Disposition
of the Notes
Subject to the discussion below concerning backup withholding, a
Non-U.S. Holder
generally will not be subject to U.S. federal income tax on
gain recognized on a sale, exchange, retirement or other
disposition of notes, unless the gain is effectively connected
with a trade or business of the
Non-U.S. Holder
in the United States, subject to an applicable income tax treaty
providing otherwise.
Backup
Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with payments on the notes. Unless the
Non-U.S. Holder
complies with certification procedures to establish that it is
not a U.S. person, information returns may be filed with
the IRS in connection with the proceeds from a sale or other
disposition of the notes and the
Non-U.S. Holder
may be subject to U.S. backup withholding tax on payments
on the notes or on the proceeds from a sale or other disposition
of the notes. The certification procedures required to claim the
exemption from withholding tax on interest described above will
satisfy the certification requirements necessary to avoid backup
withholding as well. The amount of any backup withholding from a
payment to a
Non-U.S. Holder
will be allowed as a credit against the
Non-U.S. Holders
U.S. federal income tax liability and may entitle the
Non-U.S. Holder
to a refund, provided that the required information is timely
furnished to the IRS.
146
PLAN OF
DISTRIBUTION
Each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer
in connection with resales of exchange notes received in
exchange for unregistered notes where such unregistered notes
were acquired as a result of market-making activities or other
trading activities. We have agreed to use commercially
reasonable efforts to have the registration statement, of which
this prospectus forms a part, remain effective until
180 days after the exchange offer expires for use by the
participating broker-dealers. We have also agreed to amend or
supplement this prospectus during this
180-day
period, if requested by one or more participating
broker-dealers, in order to expedite or facilitate such resales.
We will not receive any proceeds from any sale of exchange notes
by broker-dealers. Exchange notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions or a
combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through
brokers or dealers that may receive compensation in the form of
commissions or concessions from any such broker-dealer or the
purchasers of any such exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of such exchange notes may
be deemed to be an underwriter within the meaning of
the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
LEGAL
MATTERS
The validity of the exchange notes offered hereby will be passed
upon for Dr Pepper Snapple Group, Inc. by Shearman &
Sterling LLP.
EXPERTS
The combined financial statements included in this registration
statement have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in
their report appearing herein and elsewhere in the registration
statement (which report expresses an unqualified opinion on the
combined financial statements and includes explanatory
paragraphs referring to the allocation of certain general
corporate overhead costs from Cadbury Schweppes plc and the
change in method of accounting for stock based employee
compensation). Such combined financial statements have been so
included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-4,
of which this prospectus forms a part, with respect to the
issuance of the exchange notes. This prospectus does not contain
all of the information contained in the registration statement
and the exhibits to the registration statement. Some items are
omitted in accordance with the rules and regulations of the SEC.
For further information about us and the exchange notes, we
refer you to the registration statement. You should be aware
that the statements made in this prospectus as to the contents
of any agreement or other document filed as an exhibit to the
registration statement are not complete. Although we believe
that we have summarized the material terms of these documents in
the prospectus, these statements should be read along with the
full and complete text of the related documents.
We are required to file annual, quarterly and special reports,
proxy statements and other information with the SEC. Any reports
or documents we file with the SEC, including the registration
statement, may be inspected and copied at the Public Reference
Room of the SEC located at Room 1580,
100 F Street, N.E., Washington D.C. 20549. Copies of
these reports or other documents may be obtained at prescribed
rates from the Public Reference Room of the SEC located at
Room 1580, 100 F Street, N.E., Washington D.C.
20549. For further information about the Public Reference
Section, call
1-800-SEC-0330.
Such materials may also be accessed electronically by means of
the SECs home page on the Internet
(http://www.sec.gov).
147
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
Unaudited Interim Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
F-37
|
|
|
|
|
F-38
|
|
|
|
|
F-39
|
|
|
|
|
F-40
|
|
|
|
|
F-41
|
|
|
|
|
F-42
|
|
F-1
DR PEPPER
SNAPPLE GROUP, INC.
As of
September 30, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited, in millions except share and per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
239
|
|
|
$
|
67
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $16 and $20, respectively)
|
|
|
521
|
|
|
|
538
|
|
Other
|
|
|
68
|
|
|
|
59
|
|
Related party receivable
|
|
|
|
|
|
|
66
|
|
Note receivable from related parties
|
|
|
|
|
|
|
1,527
|
|
Inventories
|
|
|
330
|
|
|
|
325
|
|
Deferred tax assets
|
|
|
68
|
|
|
|
81
|
|
Prepaid and other current assets
|
|
|
112
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,338
|
|
|
|
2,739
|
|
Property, plant and equipment, net
|
|
|
945
|
|
|
|
868
|
|
Investments in unconsolidated subsidiaries
|
|
|
13
|
|
|
|
13
|
|
Goodwill
|
|
|
3,170
|
|
|
|
3,183
|
|
Other intangible assets, net
|
|
|
3,595
|
|
|
|
3,617
|
|
Other non-current assets
|
|
|
572
|
|
|
|
100
|
|
Non-current deferred tax assets
|
|
|
189
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,822
|
|
|
$
|
10,528
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
862
|
|
|
$
|
812
|
|
Related party payable
|
|
|
|
|
|
|
175
|
|
Current portion of senior unsecured debt
|
|
|
35
|
|
|
|
|
|
Current portion of long-term debt payable to related parties
|
|
|
|
|
|
|
126
|
|
Income taxes payable
|
|
|
6
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
903
|
|
|
|
1,135
|
|
Long-term debt payable to third parties
|
|
|
3,587
|
|
|
|
19
|
|
Long-term debt payable to related parties
|
|
|
|
|
|
|
2,893
|
|
Deferred tax liabilities
|
|
|
1,276
|
|
|
|
1,324
|
|
Other non-current liabilities
|
|
|
726
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,492
|
|
|
|
5,507
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Cadburys net investment
|
|
|
|
|
|
|
5,001
|
|
Preferred stock, $.01 par value, 15,000,000 shares
authorized, no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 800,000,000 shares
authorized, 253,685,733 shares issued and outstanding for
2008 and no shares issued for 2007
|
|
|
3
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,163
|
|
|
|
|
|
Retained earnings
|
|
|
191
|
|
|
|
|
|
Accumulated other comprehensive (loss) income
|
|
|
(27
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
3,330
|
|
|
|
5,021
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
9,822
|
|
|
$
|
10,528
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-2
DR PEPPER
SNAPPLE GROUP, INC.
For the
Nine Months Ended September 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited, in millions, except per share data)
|
|
|
Net sales
|
|
$
|
4,369
|
|
|
$
|
4,347
|
|
Cost of sales
|
|
|
2,003
|
|
|
|
1,984
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,366
|
|
|
|
2,363
|
|
Selling, general and administrative expenses
|
|
|
1,586
|
|
|
|
1,527
|
|
Depreciation and amortization
|
|
|
84
|
|
|
|
69
|
|
Restructuring costs
|
|
|
31
|
|
|
|
36
|
|
Gain on disposal of property and intangible assets, net
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
668
|
|
|
|
731
|
|
Interest expense
|
|
|
199
|
|
|
|
195
|
|
Interest income
|
|
|
(30
|
)
|
|
|
(38
|
)
|
Other (income) expense
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
507
|
|
|
|
576
|
|
Provision for income taxes
|
|
|
199
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
308
|
|
|
|
358
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.21
|
|
|
$
|
1.42
|
|
Diluted
|
|
$
|
1.21
|
|
|
$
|
1.42
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
254.0
|
|
|
|
253.7
|
|
Diluted
|
|
|
254.0
|
|
|
|
253.7
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-3
DR PEPPER
SNAPPLE GROUP, INC.
For the
Nine Months Ended September 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
(As
Restated)(1)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
359
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
102
|
|
|
|
89
|
|
Amortization expense
|
|
|
44
|
|
|
|
38
|
|
Employee stock-based expense, net of tax benefit
|
|
|
5
|
|
|
|
10
|
|
Deferred income taxes
|
|
|
58
|
|
|
|
3
|
|
Write-off of deferred loan costs
|
|
|
21
|
|
|
|
|
|
Other, net
|
|
|
9
|
|
|
|
8
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade and other accounts receivable
|
|
|
3
|
|
|
|
(47
|
)
|
Related party receivable
|
|
|
11
|
|
|
|
(8
|
)
|
Inventories
|
|
|
(6
|
)
|
|
|
(41
|
)
|
Other current assets
|
|
|
(32
|
)
|
|
|
(1
|
)
|
Other non-current assets
|
|
|
(9
|
)
|
|
|
4
|
|
Accounts payable and accrued expenses
|
|
|
30
|
|
|
|
(48
|
)
|
Related party payables
|
|
|
(70
|
)
|
|
|
350
|
|
Income taxes payable
|
|
|
47
|
|
|
|
9
|
|
Other non-current liabilities
|
|
|
1
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
523
|
|
|
|
706
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(203
|
)
|
|
|
(123
|
)
|
Issuances of related party notes receivables
|
|
|
(165
|
)
|
|
|
(1,829
|
)
|
Repayment of related party notes receivables
|
|
|
1,540
|
|
|
|
525
|
|
Other, net
|
|
|
3
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,175
|
|
|
|
(1,450
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of related party long-term debt
|
|
|
1,615
|
|
|
|
2,803
|
|
Proceeds from senior unsecured credit facility
|
|
|
2,200
|
|
|
|
|
|
Proceeds from senior unsecured notes
|
|
|
1,700
|
|
|
|
|
|
Proceeds from bridge loan facility
|
|
|
1,700
|
|
|
|
|
|
Repayment of related party long-term debt
|
|
|
(4,664
|
)
|
|
|
(3,232
|
)
|
Repayment of senior unsecured credit facility
|
|
|
(295
|
)
|
|
|
|
|
Repayment of bridge loan facility
|
|
|
(1,700
|
)
|
|
|
|
|
Deferred financing charges paid
|
|
|
(106
|
)
|
|
|
|
|
Cash Distributions to Cadbury
|
|
|
(2,065
|
)
|
|
|
(189
|
)
|
Change in Cadburys net investment
|
|
|
94
|
|
|
|
1,356
|
|
Other, net
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,523
|
)
|
|
|
742
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
175
|
|
|
|
(2
|
)
|
Currency translation
|
|
|
(3
|
)
|
|
|
1
|
|
Cash and cash equivalents at beginning of period
|
|
|
67
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
239
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
Settlement related to separation from Cadbury
|
|
$
|
150
|
|
|
$
|
|
|
Purchase accounting adjustment related to prior year acquisitions
|
|
|
13
|
|
|
|
|
|
Transfers of property, plant, and equipment to Cadbury
|
|
|
|
|
|
|
9
|
|
Transfers of operating assets and liabilities to Cadbury
|
|
|
|
|
|
|
40
|
|
Reduction in long-term debt from Cadbury
|
|
|
|
|
|
|
257
|
|
Related entities acquisition payments
|
|
|
|
|
|
|
17
|
|
Note payable related to acquisition
|
|
|
|
|
|
|
38
|
|
Liabilities expected to be reimbursed by Cadbury
|
|
|
|
|
|
|
12
|
|
Reclassifications for tax transactions
|
|
|
|
|
|
|
90
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
120
|
|
|
$
|
182
|
|
Income taxes paid
|
|
|
105
|
|
|
|
26
|
|
|
|
|
(1) |
|
See Note 19 for further information. |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-4
DR PEPPER
SNAPPLE GROUP, INC.
For the
Nine Months Ended September 30, 2008 and the Year Ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Cadburys Net
|
|
|
Comprehensive
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Investment
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, in millions)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,249
|
|
|
$
|
1
|
|
|
$
|
3,250
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497
|
|
|
|
|
|
|
|
497
|
|
|
$
|
497
|
|
Contributions from Cadbury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
Distributions to Cadbury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,001
|
|
|
|
20
|
|
|
|
5,021
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
118
|
|
|
|
|
|
|
|
309
|
|
|
$
|
309
|
|
Contributions from Cadbury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
Distributions to Cadbury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,242
|
)
|
|
|
|
|
|
|
(2,242
|
)
|
|
|
|
|
Separation from Cadbury on May 7, 2008 and issuance of
common stock upon distribution
|
|
|
253.7
|
|
|
|
3
|
|
|
|
3,158
|
|
|
|
|
|
|
|
(3,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, including tax benefit
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Net change in pension liability, net of tax benefit of $26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
|
(39
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
|
253.7
|
|
|
$
|
3
|
|
|
$
|
3,163
|
|
|
$
|
191
|
|
|
$
|
|
|
|
$
|
(27
|
)
|
|
$
|
3,330
|
|
|
$
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-5
DR PEPPER
SNAPPLE GROUP, INC.
|
|
1.
|
Formation
of the Company and Basis of Presentation
|
References in this Quarterly Report on
Form 10-Q
to we, our, us,
DPS or the Company refer to
Dr Pepper Snapple Group, Inc. and all entities included in
our unaudited condensed consolidated financial statements.
Cadbury plc and Cadbury Schweppes plc are hereafter collectively
referred to as Cadbury unless otherwise indicated.
Prior to ownership of Cadburys beverage business in the
United States, Canada, Mexico and the Caribbean (the
Americas Beverages business), the Company did not have any
operations. The Company conducts operations in the United
States, Canada, Mexico and parts of the Caribbean. The
Companys key brands include Dr Pepper, Snapple, 7UP,
Motts, Sunkist, Hawaiian Punch, A&W, Canada Dry,
Schweppes, Squirt, Clamato, Peñafiel, Mr & Mrs T,
and Margaritaville.
This
Form 10-Q
refers to some of DPS owned or licensed trademarks, trade
names and service marks, which are referred to as the
Companys brands. All of the product names included in this
Form 10-Q
are either DPS registered trademarks or those of the
Companys licensors.
Formation
of the Company and Separation from Cadbury
On May 7, 2008, Cadbury separated the Americas Beverages
business from its global confectionery business by contributing
the subsidiaries that operated its Americas Beverages business
to DPS. In return for the transfer of the Americas Beverages
business, DPS distributed its common stock to Cadbury plc
shareholders. As of the date of distribution, a total of
800 million shares of common stock, par value $0.01 per
share, and 15 million shares of preferred stock, all of
which shares of preferred stock are undesignated, were
authorized. On the date of distribution, 253.7 million
shares of common stock were issued and outstanding and no shares
of preferred stock were issued. On May 7, 2008, DPS became
an independent publicly-traded company listed on the New York
Stock Exchange under the symbol DPS. The Company
entered into a Separation and Distribution Agreement, Transition
Services Agreement, Tax Sharing and Indemnification Agreement
(Tax Indemnity Agreement) and Employee Matters
Agreement with Cadbury, each dated as of May 1, 2008.
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(U.S. GAAP) for interim financial information
and in accordance with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete consolidated
financial statements. In the opinion of management, all
adjustments, consisting principally of normal recurring
adjustments, considered necessary for a fair presentation have
been included. The preparation of financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual
results could differ from these estimates. These unaudited
condensed consolidated financial statements should be read in
conjunction with the Companys 2007 combined financial
statements and the notes thereto filed with the Companys
Registration Statement on Form 10, as amended.
Upon separation, effective May 7, 2008, DPS became an
independent company, which established a new consolidated
reporting structure. For the periods prior to May 7, 2008,
the condensed combined financial statements have been prepared
on a carve-out basis from Cadburys
consolidated financial statements using historical results of
operations, assets and liabilities attributable to
Cadburys Americas Beverages business and including
allocations of expenses from Cadbury. The historical
Cadburys Americas Beverages information is the
Companys predecessor financial information. The Company
eliminates from its financial results all intercompany
transactions between entities included in the combination and
the intercompany transactions with its equity method investees.
F-6
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The unaudited condensed consolidated financial statements may
not be indicative of the Companys future performance and
may not reflect what its consolidated results of operations,
financial position and cash flows would have been had the
Company operated as an independent company during all of the
periods presented. To the extent that an asset, liability,
revenue or expense is directly associated with the Company, it
is reflected in the accompanying condensed consolidated
financial statements.
Cadbury historically provided certain corporate functions to the
Company and costs associated with these functions have been
allocated to the Company. These functions included corporate
communications, regulatory, human resources and benefit
management, treasury, investor relations, corporate controller,
internal audit, Sarbanes Oxley compliance, information
technology, corporate and legal compliance, and community
affairs. The costs of such services were allocated to the
Company based on the most relevant allocation method to the
service provided, primarily based on relative percentage of
revenue or headcount. Management believes such allocations were
reasonable; however, they may not be indicative of the actual
expense that would have been incurred had the Company been
operating as an independent company for all of the periods
presented. The charges for these functions are included
primarily in selling, general, and administrative expenses in
the Condensed Consolidated Statements of Operations.
Prior to the May 7, 2008, separation, the Companys
total invested equity represented Cadburys interest in the
recorded net assets of the Company. The net investment balance
represented the cumulative net investment by Cadbury in the
Company through May 6, 2008, including any prior net income
or loss attributed to the Company. Certain transactions between
the Company and other related parties within the Cadbury group,
including allocated expenses, were also included in
Cadburys net investment.
Critical
Accounting Policies
The process of preparing DPS consolidated financial
statements in conformity with U.S. GAAP requires the use of
estimates and judgments that affect the reported amounts of
assets, liabilities, revenue, and expenses. These estimates and
judgments are based on historical experience, future
expectations and other factors and assumptions the Company
believes to be reasonable under the circumstances. The most
significant estimates and judgments are reviewed on an ongoing
basis and revised when necessary. Actual amounts may differ from
these estimates and judgments. The Company has identified the
following policies as critical accounting policies:
|
|
|
|
|
revenue recognition;
|
|
|
|
valuations of goodwill and other indefinite lived intangibles;
|
|
|
|
stock-based compensation;
|
|
|
|
pension and postretirement benefits; and
|
|
|
|
income taxes.
|
These accounting policies are discussed in greater detail in
DPS Registration Statement on Form 10, as filed with
the Securities and Exchange Commission on April 22, 2008,
in the audited Notes to the Combined Financial Statements as of
December 31, 2007.
New
Accounting Standards
In October 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active
(FSP 157-3).
FSP 157-3
clarifies the application of FASB Statement of Financial
Accounting Standards (SFAS) No. 157, Fair
Value Measurements (SFAS 157), in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
FSP 157-3
was effective for the Company on September 30, 2008, for
all financial assets and liabilities recognized
F-7
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or disclosed at fair value in its condensed consolidated
financial statements on a recurring basis. The adoption of this
provision did not have a material impact on the Companys
condensed consolidated financial statements.
In September 2008, FASB issued FASB Staff Position
No. 133-1
and
FIN 45-4,
Disclosures about Credit Derivatives and Certain Guarantees:
An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective
Date of FASB Statement No. 161
(FSP 133-1).
FSP 133-1
amends and enhances disclosure requirements for sellers of
credit derivatives and financial guarantees.
FSP 133-1
also clarifies the effective date of SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). The Company is
currently evaluating the effect, if any, that the adoption of
FSP 133-1
will have on its consolidated financial statements.
In May 2008, FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements for nongovernmental entities that are presented in
conformity with generally accepted accounting principles in the
United States. SFAS 162 will be effective 60 days
following the SECs approval. The Company does not expect
that this statement will result in a change in current practice.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the
useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142). This standard is
intended to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141(R)) and other GAAP.
FSP 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement
provisions of this standard will apply only to intangible assets
acquired after the effective date.
In March 2008, the FASB issued SFAS 161. SFAS 161
changes the disclosure requirements for derivative instruments
and hedging activities, requiring enhanced disclosures about how
and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended
(SFAS 133), and how derivative instruments
and related hedged items affect an entitys financial
position, financial performance and cash flows. SFAS 161 is
effective for fiscal years beginning after November 15,
2008. The Company will provide the required disclosures for all
its filings for periods subsequent to the effective date.
In December 2007, the FASB issued SFAS 141(R).
SFAS 141(R) will significantly change how business
acquisitions are accounted for and will impact financial
statements both on the acquisition date and in subsequent
periods. Some of the changes, such as the accounting for
contingent consideration, will introduce more volatility into
earnings. SFAS 141(R) is effective for the Company
beginning January 1, 2009, and the Company will apply
SFAS 141(R) prospectively to all business combinations
subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51 (SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to the controlling
and noncontrolling interests. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company
will apply SFAS 160 prospectively to all applicable
transactions subsequent to the effective date.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
Including an amendment to FASB Statement No. 115
(SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain
other items at fair value. Unrealized gains and losses on items
for
F-8
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which the fair value of option has been elected will be
recognized in earnings at each subsequent reporting date.
SFAS 159 was effective for the Company on January 1,
2008. The adoption of SFAS 159 did not have a material
impact on the Companys combined financial statements.
In September 2006, the FASB issued SFAS 157 which defines
fair value, establishes a framework for measuring fair value and
expands disclosure requirements about fair value measurements.
SFAS 157 is effective for the Company January 1, 2008.
However, in February 2008, the FASB released FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP
FAS 157-2),
which delayed the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The
adoption of SFAS 157 for the Companys financial
assets and liabilities did not have a material impact on its
consolidated financial statements. The Company does not believe
the adoption of SFAS 157 for its non-financial assets and
liabilities, effective January 1, 2009, will have a
material impact on its consolidated financial statements.
|
|
2.
|
Accounting
for the Separation from Cadbury
|
Settlement
of Related Party Balances
Upon the Companys separation from Cadbury, the Company
settled debt and other balances with Cadbury, eliminated
Cadburys net investment in the Company and purchased
certain assets from Cadbury related to DPS business. As of
September 30, 2008, the Company had receivable and payable
balances with Cadbury pursuant to the Separation and
Distribution Agreement, Transition Services Agreement, Tax
Indemnity Agreement, and Employee Matters Agreement. See
Note 7 for further information. The following debt and
other balances were settled with Cadbury upon separation (in
millions):
|
|
|
|
|
Related party receivable
|
|
$
|
11
|
|
Notes receivable from related parties
|
|
|
1,375
|
|
Related party payable
|
|
|
(70
|
)
|
Current portion of the long-term debt payable to related parties
|
|
|
(140
|
)
|
Long-term debt payable to related parties
|
|
|
(2,909
|
)
|
|
|
|
|
|
Net cash settlement of related party balances
|
|
$
|
(1,733
|
)
|
|
|
|
|
|
Items Impacting
the Statement of Operations
The following transactions related to the Companys
separation from Cadbury were included in the statement of
operations for the nine months ended September 30, 2008 (in
millions):
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008
|
|
|
Transaction costs and other one time separation costs(1)
|
|
$
|
29
|
|
Costs associated with the bridge loan facility(2)
|
|
|
24
|
|
Incremental tax expense related to separation, excluding
indemnified taxes
|
|
|
11
|
|
|
|
|
(1) |
|
DPS incurred transaction costs and other one time separation
costs of $29 million for the nine months ended
September 30, 2008. These costs are included in selling,
general and administrative expenses in the statement of
operations. The Company expects its results of operations for
the remainder of 2008 to include transaction costs and other one
time separation costs of approximately $6 million. |
|
(2) |
|
The Company incurred $24 million of costs for the nine
months ended September 30, 2008, associated with the
$1.7 billion bridge loan facility which was entered into to
reduce financing risks and facilitate Cadburys separation
of the Company. Financing fees of $21 million were expensed
when the bridge loan facility was terminated on April 30,
2008, and $5 million of interest expense were included as a
component of interest expense, partially offset by
$2 million in interest income while in escrow. |
F-9
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Items Impacting
Income Taxes
The unaudited condensed consolidated financial statements
present the taxes of the Companys stand alone business and
contain certain taxes transferred to DPS at separation in
accordance with the Tax Indemnity Agreement agreed between
Cadbury and DPS. This agreement provides for the transfer to DPS
of taxes related to an entity that was part of Cadburys
confectionery business and therefore not part of DPS
historical condensed consolidated financial statements. The
unaudited condensed consolidated financial statements also
reflect that the Tax Indemnity Agreement requires Cadbury to
indemnify DPS for these taxes. These taxes and the associated
indemnity may change over time as estimates of the amounts
change. Changes in estimates will be reflected when facts change
and those changes in estimate will be reflected in the
Companys statement of operations at the time of the
estimate change. In addition, pursuant to the terms of the Tax
Indemnity Agreement, if DPS breaches certain covenants or other
obligations or DPS is involved in certain
change-in-control
transactions, Cadbury may not be required to indemnify the
Company for any of these unrecognized tax benefits that are
subsequently realized.
See Note 8 for further information regarding the tax impact
of the separation.
Items Impacting
Equity
In connection with the Companys separation from Cadbury,
the following transactions were recorded as a component of
Cadburys net investment in DPS (in millions):
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
Distributions
|
|
|
Legal restructuring to purchase Canada operations from Cadbury
|
|
$
|
|
|
|
$
|
(894
|
)
|
Legal restructuring relating to Cadbury confectionery
operations, including debt repayment
|
|
|
|
|
|
|
(809
|
)
|
Legal restructuring relating to Mexico operations
|
|
|
|
|
|
|
(520
|
)
|
Contributions from parent
|
|
|
318
|
|
|
|
|
|
Tax reserve provided under FIN 48 as part of separation,
net of indemnity
|
|
|
|
|
|
|
(19
|
)
|
Other
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
284
|
|
|
$
|
(2,242
|
)
|
|
|
|
|
|
|
|
|
|
Prior to the May 7, 2008, separation date, the
Companys total invested equity represented Cadburys
interest in the recorded assets of DPS. In connection with the
distribution of DPS stock to Cadbury plc shareholders on
May 7, 2008, Cadburys total invested equity was
reclassified to reflect the post-separation capital structure of
$3 million par value of outstanding common stock and
contributed capital of $3,158 million.
F-10
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Supplemental
Cash Flow Information Regarding Non-Cash Investing and Financing
Activities
The following table represents the initial non-cash financing
and investing activities in connection with the Companys
separation from Cadbury (in millions):
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008
|
|
|
Transfer of legal entities to Cadbury for Canada operations
|
|
$
|
(165
|
)
|
Deferred tax asset setup for Canada operations
|
|
|
177
|
|
Liability to Cadbury related to Canada operations
|
|
|
(132
|
)
|
Transfer of legal entities to Cadbury for Mexico operations
|
|
|
(3
|
)
|
Tax reserve provided under FIN 48 as part of separation
|
|
|
(386
|
)
|
Tax indemnification by Cadbury
|
|
|
334
|
|
Transfers of pension obligation
|
|
|
(71
|
)
|
Settlement of operating liabilities due to Cadbury, net
|
|
|
75
|
|
Other tax liabilities related to separation
|
|
|
28
|
|
Settlement of related party note receivable from Cadbury
|
|
|
(7
|
)
|
|
|
|
|
|
Total
|
|
$
|
(150
|
)
|
|
|
|
|
|
Inventories as of September 30, 2008, and December 31,
2007, consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
95
|
|
|
$
|
110
|
|
Finished goods
|
|
|
282
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
Inventories at FIFO cost
|
|
|
377
|
|
|
|
355
|
|
Reduction to LIFO cost
|
|
|
(47
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
330
|
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the nine months
ended September 30, 2008, by reporting unit are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage
|
|
|
Finished
|
|
|
Bottling
|
|
|
Mexico and
|
|
|
|
|
|
|
Concentrates
|
|
|
Goods
|
|
|
Group
|
|
|
the Caribbean
|
|
|
Total
|
|
|
Balance as of December 31, 2007
|
|
$
|
1,731
|
|
|
$
|
1,220
|
|
|
$
|
195
|
|
|
$
|
37
|
|
|
$
|
3,183
|
|
Acquisitions(1)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Other changes
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
$
|
1,731
|
|
|
$
|
1,220
|
|
|
$
|
182
|
|
|
$
|
37
|
|
|
$
|
3,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company acquired Southeast-Atlantic Beverage Corporation
(SeaBev) on July 11, 2007. The Company
completed its fair value assessment of the assets acquired and
liabilities assumed of this acquisition during the first quarter
2008, resulting in a $1 million increase in the Bottling
Groups goodwill. During the second quarter of 2008, the
Company made a tax election related to the SeaBev acquisition
which resulted in a decrease of $9 million to the Bottling
Groups goodwill. |
F-11
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net carrying amounts of intangible assets other than
goodwill as of September 30, 2008, and December 31,
2007, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008
|
|
|
As of December 31, 2007
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands(1)
|
|
$
|
3,086
|
|
|
$
|
|
|
|
$
|
3,086
|
|
|
$
|
3,087
|
|
|
$
|
|
|
|
$
|
3,087
|
|
Bottler agreements
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
Distributor rights
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
29
|
|
|
|
(20
|
)
|
|
|
9
|
|
|
|
29
|
|
|
|
(17
|
)
|
|
|
12
|
|
Customer relationships
|
|
|
76
|
|
|
|
(29
|
)
|
|
|
47
|
|
|
|
76
|
|
|
|
(20
|
)
|
|
|
56
|
|
Bottler agreements
|
|
|
57
|
|
|
|
(27
|
)
|
|
|
30
|
|
|
|
57
|
|
|
|
(19
|
)
|
|
|
38
|
|
Distributor rights
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,673
|
|
|
$
|
(78
|
)
|
|
$
|
3,595
|
|
|
$
|
3,674
|
|
|
$
|
(57
|
)
|
|
$
|
3,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intangible brands with indefinite lives decreased between
December 31, 2007, and September 30, 2008, due to
changes in foreign currency. |
As of September 30, 2008, the weighted average useful lives
of intangible assets with finite lives were 9 years,
7 years, 8 years and 2 years for brands, customer
relationships, bottler agreements and distributor rights,
respectively. Amortization expense for intangible assets was
$21 million and $20 million for the nine months ended
September 30, 2008 and 2007, respectively.
Amortization expense of these intangible assets over the next
five years is expected to be the following (in millions):
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Amortization
|
|
Year
|
|
Expense
|
|
|
3 months ending December 31, 2008
|
|
$
|
7
|
|
2009
|
|
|
24
|
|
2010
|
|
|
24
|
|
2011
|
|
|
12
|
|
2012
|
|
|
6
|
|
The Company conducts impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company uses present value and other valuation techniques to
make this assessment. If the carrying amount of goodwill exceeds
its implied fair value or the carrying amount of an intangible
asset exceeds its fair value, an impairment loss is recognized
in an amount equal to that excess. For purposes of this test DPS
assigns the goodwill and indefinite lived intangible assets to
its reporting units, which it defines as its business segments.
F-12
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following
as of September 30, 2008, and December 31, 2007 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Trade accounts payable
|
|
$
|
296
|
|
|
$
|
257
|
|
Customer rebates
|
|
|
204
|
|
|
|
200
|
|
Accrued compensation
|
|
|
80
|
|
|
|
127
|
|
Insurance reserves
|
|
|
52
|
|
|
|
45
|
|
Third party interest accrual
|
|
|
50
|
|
|
|
|
|
Other current liabilities
|
|
|
180
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
862
|
|
|
$
|
812
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys long-term debt
obligations as of September 30, 2008, and December 31,
2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Senior unsecured notes
|
|
$
|
1,700
|
|
|
$
|
|
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
Senior unsecured term loan A facility
|
|
|
1,905
|
|
|
|
|
|
Debt payable to Cadbury(1)
|
|
|
|
|
|
|
3,019
|
|
Less current portion
|
|
|
(35
|
)
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,570
|
|
|
|
2,893
|
|
Long-term capital lease obligations
|
|
|
17
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
3,587
|
|
|
$
|
2,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In connection with the Companys separation from Cadbury on
May 7, 2008, all debt payable to Cadbury was repaid. |
On March 10, 2008, the Company entered into arrangements
with a group of lenders to provide an aggregate of
$4.4 billion in senior financing. The arrangements
consisted of a term loan A facility, a revolving credit facility
and a bridge loan facility.
On April 11, 2008, these arrangements were amended and
restated. The amended and restated arrangements consist of a
$2.7 billion senior unsecured credit agreement that
provided a $2.2 billion term loan A facility and a
$500 million revolving credit facility (collectively, the
senior unsecured credit facility) and a
364-day
bridge credit agreement that provided a $1.7 billion bridge
loan facility.
The following is a description of the senior unsecured credit
facility and the unsecured notes. The summaries of the senior
unsecured credit facility and the senior unsecured notes are
qualified in their entirety by the specific terms and provisions
of the senior unsecured credit agreement and the indenture
governing the senior unsecured notes, respectively, copies of
which are included as exhibits to Amendment No. 4 to the
Companys Registration Statement on Form 10 and the
Companys Current Report on
Form 8-K
filed on May 1, 2008.
F-13
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Senior
Unsecured Credit Facility
The Companys senior unsecured credit agreement provides
senior unsecured financing of up to $2.7 billion,
consisting of:
|
|
|
|
|
a senior unsecured term loan A facility in an aggregate
principal amount of $2.2 billion with a term of five
years; and
|
|
|
|
a revolving credit facility in an aggregate principal amount of
$500 million with a term of five years. Up to
$75 million of the revolving credit facility is available
for the issuance of letters of credit, of which $39 million
was utilized as of September 30, 2008.
|
During 2008, DPS borrowed $2.2 billion under the term loan
A facility. The Company made combined mandatory and optional
repayments toward the principal totaling $295 million for
the nine months ended September 30, 2008.
Borrowings under the senior unsecured credit facility bear
interest at a floating rate per annum based upon the London
interbank offered rate for dollars (LIBOR) or the
alternate base rate (ABR), in each case plus an
applicable margin which varies based upon the Companys
debt ratings, from 1.00% to 2.50%, in the case of LIBOR loans
and 0.00% to 1.50% in the case of ABR loans. The alternate base
rate means the greater of (a) JPMorgan Chase Banks
prime rate and (b) the federal funds effective rate plus
one half of 1%. Interest is payable on the last day of the
interest period, but not less than quarterly, in the case of any
LIBOR loan and on the last day of March, June, September and
December of each year in the case of any ABR loan. The average
interest rate for the nine months ended September 30, 2008,
was 4.81%. Interest expense was $58 million for the nine
months ended September 30, 2008, respectively, including
amortization of deferred financing costs of $7 million.
During the third quarter of 2008, the Company entered into
interest rate swaps to convert variable interest rates to fixed
rates. The swaps were effective September 30, 2008. The
notional amounts of the swaps are $500 million and
$1,200 million with durations of six months and
15 months, respectively. See Note 13 for further
information regarding derivatives.
An unused commitment fee is payable quarterly to the lenders on
the unused portion of the commitments in respect of the
revolving credit facility equal to 0.15% to 0.50% per annum,
depending upon the Companys debt ratings. The Company
incurred $1 million in unused commitment fees for the nine
months ended September 30, 2008.
The Company is required to pay annual amortization in equal
quarterly installments on the aggregate principal amount of the
term loan A equal to: (i) 10%, or $220 million, per
year for installments due in the first and second years
following the initial date of funding, (ii) 15%, or
$330 million, per year for installments due in the third
and fourth years following the initial date of funding, and
(iii) 50%, or $1.1 billion, for installments due in
the fifth year following the initial date of funding. Principal
amounts outstanding under the revolving credit facility are due
and payable in full at maturity.
All obligations under the senior unsecured credit facility are
guaranteed by substantially all of the Companys existing
and future direct and indirect domestic subsidiaries.
The senior unsecured credit facility contains customary negative
covenants that, among other things, restrict the Companys
ability to incur debt at subsidiaries that are not guarantors;
incur liens; merge or sell, transfer, lease or otherwise dispose
of all or substantially all assets; make investments, loans,
advances, guarantees and acquisitions; enter into transactions
with affiliates; and enter into agreements restricting its
ability to incur liens or the ability of subsidiaries to make
distributions. These covenants are subject to certain exceptions
described in the senior credit agreement. In addition, the
senior unsecured credit facility requires the Company to comply
with a maximum total leverage ratio covenant and a minimum
interest coverage ratio covenant, as defined in the senior
credit agreement. The senior unsecured credit facility also
contains certain usual and customary representations and
F-14
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
warranties, affirmative covenants and events of default. As of
September 30, 2008, the Company was in compliance with all
covenant requirements.
Senior
Unsecured Notes
During 2008, the Company completed the issuance of
$1.7 billion aggregate principal amount of senior unsecured
notes consisting of $250 million aggregate principal amount
of 6.12% senior notes due 2013, $1.2 billion aggregate
principal amount of 6.82% senior notes due 2018, and
$250 million aggregate principal amount of
7.45% senior notes due 2038. The weighted average interest
cost of the senior notes is 6.8%. Interest on the senior
unsecured notes is payable semi-annually on May 1 and November 1
and is subject to adjustment. Interest expense was
$49 million for the nine months ended September 30,
2008, including amortization of deferred financing costs of less
than $1 million.
The indenture governing the notes, among other things, limits
the Companys ability to incur indebtedness secured by
principal properties, to enter into certain sale and lease back
transactions and to enter into certain mergers or transfers of
substantially all of DPS assets. The notes are guaranteed
by substantially all of the Companys existing and future
direct and indirect domestic subsidiaries.
On May 7, 2008, upon the Companys separation from
Cadbury, the borrowings under the term loan A facility and the
net proceeds of the notes were released to DPS from collateral
accounts and escrow accounts. The Company used the funds to
settle with Cadbury related party debt and other balances,
eliminate Cadburys net investment in the Company, purchase
certain assets from Cadbury related to DPS business and
pay fees and expenses related to the Companys credit
facilities.
Bridge
Loan Facility
The Companys bridge credit agreement provided a senior
unsecured bridge loan facility in an aggregate principal amount
of $1.7 billion with a term of 364 days from the date
the bridge loan facility is funded.
On April 11, 2008, DPS borrowed $1.7 billion under the
bridge loan facility to reduce financing risks and facilitate
Cadburys separation of the Company. All of the proceeds
from the borrowings were placed into interest-bearing collateral
accounts. On April 30, 2008, borrowings under the bridge
loan facility were released from the collateral account
containing such funds and returned to the lenders and the
364-day
bridge loan facility was terminated. For the nine months ended
September 30, 2008, the Company incurred $24 million
of costs associated with the bridge loan facility. Financing
fees of $21 million, which were expensed when the bridge
loan facility was terminated, and $5 million of interest
expense were included as a component of interest expense. These
costs were partially offset as the Company earned
$2 million in interest income on the bridge loan while in
escrow.
Capital
Lease Obligations
Long-term capital lease obligations totaled $17 million and
$19 million as of September 30, 2008, and
December 31, 2007, respectively. Current obligations
related to the Companys capital leases were
$2 million as of September 30, 2008, and
December 31, 2007, and were included as a component of
accounts payable and accrued expenses.
F-15
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Other
Non-current Assets and Other Non-Current Liabilities
|
Other non-current assets consisted of the following as of
September 30, 2008, and December 31, 2007 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Long-term receivables from Cadbury
|
|
$
|
370
|
|
|
$
|
|
|
Deferred financing costs, net
|
|
|
70
|
|
|
|
|
|
Customer incentive programs
|
|
|
80
|
|
|
|
86
|
|
Other(1)
|
|
|
52
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
$
|
572
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in other non-current assets as of September 30,
2008, was $15 million of assets held for sale related to
two facilities that the Company expects to sell. |
Other non-current liabilities consisted of the following as of
September 30, 2008, and December 31, 2007 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Long-term payables due to Cadbury
|
|
$
|
126
|
|
|
$
|
|
|
Liabilities for unrecognized tax benefits
|
|
|
521
|
|
|
|
111
|
|
Long-term pension liability
|
|
|
70
|
|
|
|
13
|
|
Other
|
|
|
9
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
$
|
726
|
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
In connection with the Companys separation from Cadbury,
DPS entered into a Tax Indemnity Agreement with Cadbury, dated
May 1, 2008. Prior to the separation from Cadbury on
May 7, 2008, DPS was included in the consolidated tax
return of Cadburys Americas operations. The Companys
financial statements reflected a tax provision as if DPS filed
its own separate return. Subsequent to the separation, the
Company determines its quarterly provision for income taxes
using an estimated annual effective tax rate which is based on
the Companys annual income, statutory tax rates, tax
planning and the Tax Indemnity Agreement. Subsequent recognition
and measurements of tax positions taken in previous periods are
separately recognized in the period in which they occur.
F-16
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of income taxes computed at
the U.S. federal statutory tax rate to the income taxes
reported in the unaudited condensed consolidated statement of
operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal income tax of 35%
|
|
$
|
177
|
|
|
$
|
202
|
|
State income taxes, net
|
|
|
15
|
|
|
|
19
|
|
Impact of
non-U.S.
operations
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Other(1)
|
|
|
13
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
199
|
|
|
$
|
218
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.2
|
%
|
|
|
37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in other items is $7 million of tax expense the
Company recorded in the nine months ended September 30,
2008, for which Cadbury is obligated to indemnify DPS under the
Tax Indemnity Agreement as well as $11 million of
non-indemnified tax expense the Company recorded in the nine
months ended September 30, 2008, driven by separation
related transactions. |
The Companys net deferred tax liability decreased by
$216 million from December 31, 2007, driven
principally by separation related transactions. Specifically, in
association with the Companys separation from Cadbury, the
carrying amounts of certain of its Canadian assets were stepped
up in accordance with current Canadian law for tax purposes. A
deferred tax asset of $173 million was established
reflecting enacted Canadian tax legislation. The balance of this
deferred tax asset was $159 million as of
September 30, 2008, due to amortization of the intangible
asset and changes in the foreign exchange rate. DPS cash
tax benefit received from the amortization of the stepped up
assets will be remitted to Cadbury or one of its subsidiaries
under the Tax Indemnity Agreement. On this basis, a
$130 million payable by DPS to Cadbury was established
under long term liabilities to reflect the potential liability.
The balance of this payable was $124 million as of
September 30, 2008, due to changes in the foreign exchange
rate. However, anticipated legislation in Canada could result in
a future write down of the deferred tax asset which would be
partly offset by a write down of the liability due to Cadbury.
In accordance with FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement 109
(FIN 48), $521 million of unrecognized
tax benefits were included in other non-current liabilities as
of September 30, 2008. DPS holds $349 million (gross
unrecognized benefit of $374 million, less state income tax
offset of $25 million) of unrecognized tax benefits
established in connection with its separation from Cadbury.
Under the Tax Indemnity Agreement, Cadbury agreed to indemnify
DPS for this and other tax liabilities and, accordingly, the
Company has recorded a long-term receivable due from Cadbury as
a component of other non-current assets. The Tax Indemnity
Agreement is more fully described in the Companys
Registration Statement on Form 10 in the section titled
Our Relationship with Cadbury plc After the
Distribution Description of Various Separation and
Transition Arrangements Tax-Sharing and
Indemnification Agreement. These taxes and the associated
indemnity may change over time as estimates of the amounts
change. Changes in estimates will be reflected when facts change
and those changes in estimate will be reflected in the
Companys statement of operations at the time of the
estimate change. In addition, pursuant to the terms of the Tax
Indemnity Agreement, if DPS breaches certain covenants or other
obligations or DPS is involved in certain
change-in-control
transactions, Cadbury may not be required to indemnify the
Company for any of these unrecognized tax benefits that are
subsequently realized.
F-17
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company implements restructuring programs from time to time
and incurs costs that are designed to improve operating
effectiveness and lower costs. When the Company implements these
programs, it incurs various charges, including severance and
other employment related costs.
Restructuring charges incurred during the nine months ended
September 30, 2008 and 2007, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Organizational restructuring
|
|
$
|
19
|
|
|
$
|
|
|
Integration of the Bottling Group
|
|
|
6
|
|
|
|
15
|
|
Integration of technology facilities
|
|
|
3
|
|
|
|
4
|
|
Facility Closure
|
|
|
1
|
|
|
|
7
|
|
Other
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
31
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
The Company expects to incur approximately $12 million of
total additional pre-tax, non-recurring charges during the
remainder of 2008 with respect to the restructuring items listed
above. Details of the restructuring items follow.
Restructuring liabilities are included in accounts payable and
accrued expenses. Restructuring liabilities as of
September 30, 2008, and December 31, 2007, along with
charges to expense, cash payments and non-cash charges for the
nine months ended September 30, 2008, were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
External
|
|
|
Closure
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Consulting
|
|
|
Costs
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of December 31, 2007
|
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30
|
|
Charges to expense
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
|
|
15
|
|
|
|
31
|
|
Cash payments
|
|
|
(33
|
)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(9
|
)
|
|
|
(47
|
)
|
Non-cash items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Organizational
Restructuring
The Company initiated a restructuring program in the fourth
quarter of 2007 intended to create a more efficient organization
which resulted in the reduction of employees in the
Companys corporate, sales and supply chain functions. The
table below summarizes the charges for the nine months ended
September 30, 2008 and 2007, the cumulative costs to date,
and the anticipated future costs by operating segment (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs for the
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Cumulative
|
|
|
Anticipated
|
|
|
|
September 30,
|
|
|
Costs to
|
|
|
Future
|
|
|
|
2008
|
|
|
2007
|
|
|
Date
|
|
|
Costs
|
|
|
Beverage Concentrates
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
2
|
|
Finished Goods
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
Bottling Group
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Mexico and the Caribbean
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Corporate
|
|
|
7
|
|
|
|
|
|
|
|
12
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
51
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration
of the Bottling Group
In conjunction with the formation of the Bottling Group segment
in 2006, the Company began the integration of the Bottling Group
business, which included standardization of processes within the
Bottling Group as well as integration of the Bottling Group with
the other operations of the Company. The table below summarizes
the charges for the nine months ended September 30, 2008
and 2007, the cumulative costs to date, and the anticipated
future costs by operating segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs for the
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Cumulative
|
|
|
Anticipated
|
|
|
|
September 30,
|
|
|
Costs to
|
|
|
Future
|
|
|
|
2008
|
|
|
2007
|
|
|
Date
|
|
|
Costs
|
|
|
Bottling Group
|
|
$
|
4
|
|
|
$
|
9
|
|
|
$
|
21
|
|
|
$
|
5
|
|
Beverage Concentrates
|
|
|
2
|
|
|
|
6
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6
|
|
|
$
|
15
|
|
|
$
|
32
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration
of Technology Facilities
In 2007, the Company began a program to integrate its technology
facilities. Charges for the integration of technology facilities
were $3 million for the nine months ended
September 30, 2008, and $4 million for the nine months
ended September 30, 2007. The Company has incurred
$7 million to date and expects to incur $4 million
additional charges related to the integration of technology
facilities during the remainder of 2008 related to this program.
Facility
Closure
The Company closed a facility related to the Finished Goods
segments operations in 2007. Charges were $1 million
and $7 million for the nine months ended September 30,
2008 and 2007, respectively. The Company does not expect to
incur significant additional charges related to facility
closures during the remainder of 2008.
F-19
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Benefit Plans
|
The following table sets forth the components of pension and
other benefits cost for the nine months ended September 30,
2008 and 2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
Service cost
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
15
|
|
|
|
15
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
Recognition of actuarial gain/(loss)
|
|
|
3
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Curtailment
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
15
|
|
|
$
|
16
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated prior service cost, transitional obligation and
estimated net loss for the U.S. plans that will be
amortized from accumulated other comprehensive loss into
periodic benefit cost in 2008 is each less than $1 million.
In the third quarter of 2008, DPS Compensation Committee
approved the suspension of one of the Companys principal
defined benefit pension plans. Effective December 31, 2008,
participants in the plan will not earn additional benefits for
future services or salary increases. However, current
participants will be eligible to participate in DPS
defined contribution plan effective January 1, 2009.
Accordingly, the Company recorded a pension curtailment charge
of $2 million in the third quarter of 2008.
Effective January 1, 2008, the Company separated its
pension plans which historically contained participants of both
the Company and other Cadbury global companies. As a result, the
Company re-measured the projected benefit obligation of the
separated pension plans and recorded the assumed liabilities and
assets based on the number of employees associated with DPS. The
re-measurement resulted in an increase of approximately
$71 million to other non-current liabilities and a decrease
of approximately $66 million to accumulated other
comprehensive income (AOCI), a component of invested
equity.
The Company contributed $17 million to its pension plans
during the nine months ended September 30, 2008, and does
not expect to contribute additional amounts to these plans
during the remainder of 2008.
|
|
11.
|
Stock-Based
Compensation and Cash Incentive Plans
|
Stock-Based
Compensation
The components of stock-based compensation expense for the nine
months ended September 30, 2008 and 2007 are presented
below (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Plans sponsored by Cadbury
|
|
$
|
3
|
|
|
$
|
14
|
|
DPS stock options and restricted stock units
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
7
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
F-20
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prior to the Companys separation from Cadbury, certain of
its employees participated in stock-based compensation plans
sponsored by Cadbury. These plans provided employees with stock
or options to purchase stock in Cadbury. The expense incurred by
Cadbury for stock or stock options granted to DPS
employees has been reflected in the Companys Condensed
Consolidated Statements of Operations in selling, general, and
administrative expenses. The interests of the Companys
employees in certain Cadbury benefit plans were converted into
one of three Company plans which were approved by the
Companys sole stockholder on May 5, 2008. As a result
of this conversion, the participants in these three plans are
fully vested in and will receive shares of common stock of the
Company on designated future dates. The aggregate number of
shares that is to be distributed under these plans is
512,580 shares of the Companys common stock. Pursuant
to SFAS No. 123R, Share-Based Payment
(SFAS 123R), this conversion qualified as a
modification of an existing award and resulted in the
recognition of a one-time incremental stock-based compensation
expense of less than $1 million which was recorded during
the nine months ended September 30, 2008.
In connection with the separation from Cadbury, on May 5,
2008, Cadbury Schweppes Limited, the Companys sole
stockholder, approved (a) the Companys Omnibus Stock
Incentive Plan of 2008 (the Stock Plan) and
authorized up to 9 million shares of the Companys
common stock to be issued under the Stock Plan and (b) the
Companys Employee Stock Purchase Plan (ESPP)
and authorized up to 2,250,000 shares of the Companys
common stock to be issued under the ESPP. Subsequent to
May 7, 2008, the Compensation Committee has granted under
the Stock Plan (a) options to purchase shares of the
Companys common stock, which vest ratably over three years
commencing with the first anniversary date of the option grant,
and (b) restricted stock units (RSUs), with the
substantial portion of such restricted stock units vesting on
the third anniversary date of the grant, with each restricted
stock unit to be settled for one share of the Companys
common stock on the respective vesting date of the restricted
stock unit. The ESPP has not been implemented and no shares have
been issued under that plan.
The table below summarizes information about the stock options
and RSUs outstanding as of September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
|
Stock Options
|
|
|
Number outstanding
|
|
|
1,023,804
|
|
|
|
1,177,186
|
|
Weighted average exercise price per share
|
|
$
|
24.97
|
|
|
$
|
25.30
|
|
The Company accounts for stock-based awards under the provisions
of SFAS 123R, which requires measurement of compensation
cost for stock-based awards at fair value and recognition of
compensation cost over the service period, net of estimated
forfeitures. The fair value of restricted stock units is
determined based on the number of units granted and the grant
date fair value of common stock. The fair value of each stock
option is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model with the weighted
average assumptions as detailed in the table below. Because the
Company lacks a meaningful set of historical data upon which to
develop valuation assumptions, DPS has elected to develop
certain valuation assumptions based on information disclosed by
similarly-situated companies, including multi-national consumer
goods companies of similar market capitalization and large food
and beverage industry companies which have experienced an
initial public offering since June 2001.
|
|
|
|
|
Fair value of options at grant date
|
|
$
|
7.37
|
|
Risk free interest rate
|
|
|
3.27
|
%
|
Expected term of options
|
|
|
5.8 years
|
|
Dividend yield
|
|
|
|
%
|
Expected volatility
|
|
|
22.26
|
%
|
The strike price for the options and the value of the restricted
stock units granted were based on a share price of $25.36, which
was the volume weighted average price at which the
Companys shares traded on May 7, 2008, the first day
the Companys shares were publicly-traded.
F-21
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
Incentive Plans
On July 22, 2008, DPS Compensation Committee approved
a change in the Cash Incentive Plan for the six months ended
December 31, 2008, so that awards will be based on
performance against the measures of gross profit (weighted at
40%) and net income (weighted at 60%). The Compensation
Committee determined that these performance measures were a more
appropriate measure of the Companys performance. Cash
Incentive Plan performance measures for the six months ending
June 30, 2008, remained unchanged, namely, underlying
operating profit (weighted to 60%) and net sales (weighted to
40%).
Basic earnings per share (EPS) is computed by
dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the
assumed conversion of all dilutive securities. The following
table sets forth the computation of basic EPS utilizing the net
income for the respective period and the Companys basic
shares outstanding (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
359
|
|
Weighted average common shares outstanding(1)
|
|
|
254.0
|
|
|
|
253.7
|
|
Earnings per common share basic
|
|
$
|
1.21
|
|
|
$
|
1.42
|
|
The following table presents the computation of diluted EPS
(dollars in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
309
|
|
|
$
|
359
|
|
Weighted average common shares outstanding(1)
|
|
|
254.0
|
|
|
|
253.7
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common stock
equivalents
|
|
|
254.0
|
|
|
|
253.7
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted
|
|
$
|
1.21
|
|
|
$
|
1.42
|
|
|
|
|
(1) |
|
For all periods prior to May 7, 2008, the date DPS
distributed the common stock of DPS to Cadbury plc shareholders,
the same number of shares is being used for diluted EPS as for
basic EPS as no common stock of DPS was previously outstanding
and no DPS equity awards were outstanding for the prior periods.
Subsequent to May 7, 2008, the number of basic shares
includes the 512,580 shares related to former Cadbury
benefit plans converted to DPS shares on a daily volume weighted
average. See Note 11 for information regarding the
Companys stock-based compensation plans. |
|
(2) |
|
Anti-dilutive weighted average options totaling 0.7 million
shares were excluded from the diluted weighted average shares
outstanding for the nine months ended September 30, 2008. |
F-22
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
DPS mitigates the exposure to volatility in the floating
interest rate on borrowings under its senior unsecured credit
facility through the use of interest rate swaps that effectively
convert variable interest rates to fixed rates. The intent of
entering into the interest rate swaps is to protect the
Companys overall profitability from adverse interest rate
changes. During the third quarter of 2008, the Company entered
into interest rate swaps. The swaps were effective
September 30, 2008. The notional amounts of the swaps are
$500 million and $1,200 million with durations of six
months and 15 months, respectively.
The Company accounts for qualifying interest rate swaps as cash
flow hedges utilizing SFAS 133. Interest rate swaps entered
into that meet established accounting criteria are formally
designated as cash flow hedges. DPS assesses hedge effectiveness
and measures hedge ineffectiveness at least quarterly throughout
the designated period. The effective portion of the gain or loss
on the interest rate swaps is recorded, net of applicable taxes,
in AOCI, a component of Stockholders Equity in the
Condensed Consolidated Balance Sheets. When net income is
affected by the variability of the underlying cash flow, the
applicable offsetting amount of the gain or loss from the
interest rate swaps that is deferred in AOCI will be released to
net income and will be reported as a component of interest
expense in the Consolidated Statements of Operations. As of
September 30, 2008, less than $1 million was recorded
in AOCI related to interest rate swaps. During the nine months
ended September 30, 2008, no amounts were reclassified from
AOCI to net income. Changes in the fair value of the interest
rate swaps that do not effectively offset changes in the fair
value of the underlying hedged item throughout the designated
hedge period (ineffectiveness) are recorded in net
income each period. For the nine months ended September 30,
2008, there was no hedge ineffectiveness recognized in net
income. As of September 30, 2008, the estimated net amount
of the existing gains or losses expected to be reclassified into
earnings within the next 12 months was less than
$1 million.
Additionally, DPS mitigates the exposure to volatility in the
prices of certain commodities the Company uses in its production
process through the use of futures contracts and supplier
pricing agreements. The intent of contracts and agreements is to
protect the Companys operating margins and overall
profitability from adverse price changes. The Company enters
into futures contracts that economically hedge certain of its
risks, although hedge accounting may not apply. In these cases,
there exists a natural hedging relationship in which changes in
the fair value of the instruments act as an economic offset to
changes in the fair value of the underlying item(s). Changes in
the fair value of these instruments are recorded in net income
throughout the term of the derivative instrument and are
reported in the same line item of the Consolidated Statements of
Operations as the hedged transaction.
For more information on the valuation of these derivative
instruments, see Note 14.
Effective January 1, 2008, the Company adopted
SFAS 157, which defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the
measurement date. SFAS 157 provides a framework for
measuring fair value and establishes a three-level hierarchy for
fair value measurements based upon the transparency of inputs to
the valuation of an asset or liability. The three-level
hierarchy for disclosure of fair value measurements is as
follows:
Level 1 Quoted market prices in active
markets for identical assets or liabilities.
Level 2 Observable inputs such as quoted
prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in
markets that are not active; and model-derived valuations in
which all significant inputs and significant value drivers are
observable in active markets.
Level 3 Valuations with one or more
unobservable significant inputs that reflect the reporting
entitys own assumptions.
F-23
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FSP
FAS 157-2
delayed the effective date for all nonfinancial assets and
liabilities until January 1, 2009, except those that are
recognized or disclosed at fair value in the financial
statements on a recurring basis. The following table presents
the fair value hierarchy for those assets and liabilities
measured at fair value on a recurring basis as of
September 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Commodity futures
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Commitments
and Contingencies
|
Legal
Matters
The Company is occasionally subject to litigation or other legal
proceedings. Set forth below is a description of the
Companys significant pending legal matters. Although the
estimated range of loss, if any, for the pending legal matters
described below cannot be estimated at this time, the Company
does not believe that the outcome of these, or any other,
pending legal matters, individually or collectively, will have a
material adverse effect on the business or financial condition
of the Company although such matters may have a material adverse
effect on the Companys results of operations or cash flows
in a particular period.
Snapple
Distributor Litigation
In 2004, one of the Companys subsidiaries, Snapple
Beverage Corp., and several affiliated entities of Snapple
Beverage Corp., including Snapple Distributors Inc., were sued
in United States District Court, Southern District of New York,
by 57 area route distributors for alleged price discrimination,
breach of contract, retaliation, tortious interference and
breach of the implied duty of good faith and fair dealings
arising out of their respective area route distributor
agreements. Each plaintiff sought damages in excess of
$225 million. The plaintiffs initially filed the case as a
class action but withdrew their class certification motion. They
proceeded as individual plaintiffs but the cases were
consolidated for discovery and procedural purposes. On
September 14, 2007, the court granted the Companys
motion for summary judgment, dismissing the plaintiffs
federal claims of price discrimination and dismissing, without
prejudice, the plaintiffs remaining claims under state
law. The plaintiffs filed an appeal of the decision and both
parties have filed appellate briefs and are awaiting the
courts decision. Also, the plaintiffs may decide to
re-file the state law claims in state court. The Company
believes it has meritorious defenses with respect to the appeal
and will defend itself vigorously. However, there is no
assurance that the outcome of the appeal, or any trial, if
claims are refiled, will be in the Companys favor.
Snapple
Litigation Labeling Claims
Holk
and Weiner
In 2007, Snapple Beverage Corp. was sued by Stacy Holk, in New
Jersey Superior Court, Monmouth County. The Holk case was filed
as a class action. Subsequent to filing, the Holk case was
removed to the United States District Court, District of New
Jersey. Holk alleges that Snapples labeling of certain of
its drinks is misleading
and/or
deceptive and seeks unspecified damages on behalf of the class,
including enjoining Snapple from various labeling practices,
disgorging profits, reimbursing of monies paid for product and
treble damages. Snapple filed a motion to dismiss the Holk case
on a variety of grounds. On June 12, 2008, the district
court granted Snapples Motion to Dismiss and the Holk case
was dismissed. The plaintiff has filed an appeal of the order
dismissing the case.
F-24
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2007 the attorneys in the Holk case filed a new action in New
York on behalf of plaintiff, Evan Weiner, with substantially the
same allegations and seeking the same damages as in the Holk
case. The Company has filed a motion to dismiss the Weiner case
on a variety of grounds. The Weiner case is currently stayed
pending the outcome of the Holk case.
The Company believes it has meritorious defenses to the claims
asserted in the Holk and Weiner cases and will defend itself
vigorously. However, there is no assurance that the outcome of
either case will be favorable to the Company.
Ivey
In May 2008, a class action lawsuit was filed in the Superior
Court for the State of California, County of Los Angeles, by Ray
Ivey against Snapple Beverage Corp. and other affiliates. The
plaintiff alleged that Snapples labeling of its lemonade
juice drink violates Californias Unfair Competition Law
and Consumer Legal Remedies Act and constitutes fraud under
California statutes. The case has been settled. DPS paid a
nominal amount and the plaintiff dismissed his action with
prejudice to refiling.
Nicolas
Steele v. Seven Up/RC Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of Southern
California, Inc.
California Wage Audit
In 2007, one of the Companys subsidiaries, Seven Up/RC
Bottling Company Inc., was sued by Nicolas Steele, and in a
separate action by Robert Jones, in each case in Superior Court
in the State of California (Orange County), alleging that its
subsidiary failed to provide meal and rest periods and itemized
wage statements in accordance with applicable California wage
and hour law. The cases have been filed as class actions. The
classes, which have not yet been certified, consist of employees
who have held a merchandiser or delivery driver position in
California in the past three years. The potential class size
could be substantially higher due to the number of individuals
who have held these positions over the three year period. On
behalf of the classes, the plaintiffs claim lost wages, waiting
time penalties and other penalties for each violation of the
statute. The Company believes it has meritorious defenses to the
claims asserted and will defend itself vigorously. However,
there is no assurance that the outcome of this matter will be in
its favor.
The Company has been requested to conduct an audit of its meal
and rest periods for all non-exempt employees in California at
the direction of the California Department of Labor. At this
time, the Company has declined to conduct such an audit until
there is judicial clarification of the intent of the statute.
The Company cannot predict the outcome of such an audit.
Environmental,
Health and Safety Matters
The Company operates many manufacturing, bottling and
distribution facilities. In these and other aspects of the
Companys business, it is subject to a variety of federal,
state and local environment, health and safety laws and
regulations. The Company maintains environmental, health and
safety policies and a quality, environmental, health and safety
program designed to ensure compliance with applicable laws and
regulations. However, the nature of the Companys business
exposes it to the risk of claims with respect to environmental,
health and safety matters, and there can be no assurance that
material costs or liabilities will not be incurred in connection
with such claims. However, the Company is not currently named as
a party in any judicial or administrative proceeding relating to
environmental, health and safety matters which would materially
affect its operations.
Compliance
Matters
The Company is currently undergoing an unclaimed property audit
for the years 1981 through 2008 and spanning nine states and
seven of the Companys entities within the Bottling Group.
The audit is expected to be
F-25
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completed during 2009 and the audit findings will be delivered
upon completion. The Company does not currently have sufficient
information from the audit results to estimate liability that
will result from this audit.
Due to the integrated nature of DPS business model, the
Company manages its business to maximize profitability for the
Company as a whole. While the Company was a subsidiary of
Cadbury, it historically maintained its books and records,
managed its business and reported its results based on
International Financial Reporting Standards (IFRS).
DPS segment information has been prepared and presented on
the basis which management uses to assess the performance of the
Companys segments, which is principally in accordance with
IFRS. In addition, the Companys current segment reporting
structure is largely the result of acquiring and combining
various portions of its business over the past several years. As
a result, profitability trends in individual segments may not be
consistent with the profitability of the company as a whole or
comparable to DPS competitors.
The Company presents segment information in accordance with
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which established
reporting and disclosure standards for an enterprises
operating segments. Operating segments are defined as components
of an enterprise that are businesses, for which separate
financial information is available, and for which the financial
information is regularly reviewed by the Company leadership team.
As of September 30, 2008, the Companys operating
structure consisted of the following four operating segments:
|
|
|
|
|
The Beverage Concentrates segment reflects sales from the
manufacturer of concentrates and syrup of the Companys
brands in the United States and Canada. Most of the brands in
this segment are carbonated soft drinks brands.
|
|
|
|
The Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
non-carbonated beverages brands.
|
|
|
|
The Bottling Group segment reflects sales from the manufacture,
bottling
and/or
distribution of finished beverages, including sales of the
Companys own brands and third party owned brands.
|
|
|
|
The Mexico and the Caribbean segment reflects sales from the
manufacture, bottling
and/or
distribution of both concentrates and finished beverages in
those geographies.
|
The Company has significant intersegment transactions. For
example, the Bottling Group segment purchases concentrates at an
arms length price from the Beverage Concentrates segment.
In addition, the Bottling Group segment purchases finished
beverages from the Finished Goods segment and the Finished Goods
segment purchases finished beverages from the Bottling Group
segment. These sales are eliminated in preparing the
Companys consolidated results of operations. Intersegment
transactions are included in segments net sales results.
The Company incurs selling, general and administrative expenses
in each of its segments. In the Companys segment
reporting, the selling, general and administrative expenses of
the Bottling Group, and Mexico and the Caribbean segments relate
primarily to those segments. However, as a result of the
Companys historical segment reporting policies, certain
combined selling activities that support the Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between those two segments. The Company
also incurs certain centralized functions and corporate costs
that support its entire business, which have not been allocated
to its respective segments but rather have been allocated to the
Beverage Concentrates segment.
Segment results are based on management reports, which are
prepared in accordance with International Financial Reporting
Standards. Net sales and underlying operating profit (loss)
(UOP) are the significant financial measures used to
measure the operating performance of the Companys
operating segments.
F-26
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UOP represents a non-GAAP measure of income from operations and
is defined as income from operations before restructuring costs,
non-trading items, interest, amortization and impairment of
intangibles. To reconcile the segments total UOP to the
Companys total income from operations on a U.S. GAAP
basis, adjustments are primarily required for:
(1) restructuring costs, (2) non-cash compensation
charges on stock option awards, (3) amortization and
impairment of intangibles and (4) incremental pension
costs. Depreciation expense is included in the operating
segments. In addition, adjustments are required for unallocated
general and administrative expenses and other items. To
reconcile UOP to the line item income before provision for
income taxes and equity in earnings of unconsolidated
subsidiaries as reported on a U.S. GAAP basis, additional
adjustments are required, primarily for interest expense,
interest income, and other expense (income).
Information about the Companys operations by operating
segment for the nine months ended September 30, 2008 and
2007 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007(2)
|
|
|
Segment Results Net Sales
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,001
|
|
|
$
|
1,004
|
|
Finished Goods
|
|
|
1,254
|
|
|
|
1,174
|
|
Bottling Group
|
|
|
2,360
|
|
|
|
2,388
|
|
Mexico and the Caribbean
|
|
|
324
|
|
|
|
313
|
|
Intersegment eliminations and impact of foreign currency(1)
|
|
|
(570
|
)
|
|
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,369
|
|
|
$
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment and Bottling
Group segment sales to Beverage Concentrates and Finished Goods.
These sales are detailed below. Intersegment sales are
eliminated in the unaudited Condensed Consolidated Statement of
Operations. The impact of foreign currency totaled
$18 million and $2 million for the nine months ended
September 30, 2008 and 2007, respectively. |
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007(2)
|
|
|
Beverage Concentrates
|
|
$
|
(294
|
)
|
|
$
|
(281
|
)
|
Finished Goods
|
|
|
(236
|
)
|
|
|
(217
|
)
|
Bottling Group
|
|
|
(58
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Total intersegment sales
|
|
$
|
(588
|
)
|
|
$
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Intersegment revenue eliminations in the Bottling Group and
Finished Goods segments have been reclassified from revenues to
intersegment elimination and impact of foreign currency. |
F-27
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Segment Results UOP, Adjustments and Interest
Expense
|
|
|
|
|
|
|
|
|
Beverage Concentrates UOP
|
|
$
|
552
|
|
|
$
|
541
|
|
Finished Goods UOP(1)
|
|
|
197
|
|
|
|
159
|
|
Bottling Group UOP(1)
|
|
|
(23
|
)
|
|
|
60
|
|
Mexico and the Caribbean UOP
|
|
|
77
|
|
|
|
75
|
|
LIFO inventory adjustment
|
|
|
(17
|
)
|
|
|
(7
|
)
|
Intersegment eliminations and impact of foreign currency
|
|
|
(10
|
)
|
|
|
(2
|
)
|
Adjustments(2)
|
|
|
(108
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
668
|
|
|
|
731
|
|
Interest expense, net
|
|
|
(169
|
)
|
|
|
(157
|
)
|
Other expense
|
|
|
8
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in
earnings of unconsolidated subsidiaries as reported
|
|
$
|
507
|
|
|
$
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
UOP for the nine months ended September 30, 2007, for the
Bottling Group and Finished Goods segment has been recast to
reallocate $43 million of intersegment profit allocations
to conform to the change in 2008 management reporting of segment
UOP. The allocations for the full year 2007 totaled
$54 million. |
|
(2) |
|
Adjustments consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Restructuring costs
|
|
$
|
(31
|
)
|
|
$
|
(36
|
)
|
Transaction costs and other one time separation costs
|
|
|
(29
|
)
|
|
|
|
|
Unallocated general and administrative expenses
|
|
|
(24
|
)
|
|
|
(30
|
)
|
Stock-based compensation expense
|
|
|
(7
|
)
|
|
|
(14
|
)
|
Amortization expense related to intangible assets
|
|
|
(21
|
)
|
|
|
(20
|
)
|
Incremental pension costs
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Gain on disposal of property and intangible assets, net
|
|
|
3
|
|
|
|
|
|
Other
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(108
|
)
|
|
$
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Related
Party Transactions
|
Separation
from Cadbury
Upon the Companys separation from Cadbury, the Company
settled outstanding receivable, debt and payable balances with
Cadbury except for amounts due under the Separation and
Distribution Agreement, Transition Services Agreement, Tax
Indemnity Agreement, and Employee Matters Agreement. Post
separation, there were no expenses allocated to DPS from
Cadbury. See Note 2 for information on the accounting for
the separation from Cadbury.
F-28
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Allocated
Expenses
Cadbury allocated certain costs to the Company, including costs
for certain corporate functions provided for the Company by
Cadbury. These allocations were based on the most relevant
allocation method for the services provided. To the extent
expenses were paid by Cadbury on behalf of the Company, they
were allocated based upon the direct costs incurred. Where
specific identification of expenses was not practicable, the
costs of such services were allocated based upon the most
relevant allocation method to the services provided, primarily
either as a percentage of net sales or headcount of the Company.
The Company was allocated $6 million and $113 million
for the nine months ended September 30, 2008 and 2007,
respectively. Beginning January 1, 2008, the Company
directly incurred and recognized a significant portion of these
costs, thereby reducing the amounts subject to allocation
through the methods described above.
Cash
Management
The Companys cash was historically available for use and
was regularly swept by Cadbury operations in the United States
at its discretion. Cadbury also funded the Companys
operating and investing activities as needed. Transfers of cash,
both to and from Cadburys cash management system, were
reflected as a component of Cadburys net investment in the
Companys Consolidated Balance Sheets. Post separation, the
Company has funded its liquidity needs from cash flow from
operations.
Receivables
The Company held a note receivable balance with wholly-owned
subsidiaries of Cadbury with outstanding principal balances of
$1,527 million as of December 31, 2007. The Company
recorded $19 million and $37 million of interest
income for the nine months ended September 30, 2008 and
2007, respectively.
The Company had other related party receivables of
$66 million as of December 31, 2007, which primarily
related to taxes, accrued interest receivable from the notes
with wholly owned subsidiaries of Cadbury and other operating
activities.
Debt
and Payables
Prior to separation, the Company had a variety of debt
agreements with other wholly-owned subsidiaries of Cadbury that
were unrelated to the Companys business. As of
December 31, 2007, outstanding debt totaled
$3,019 million with $126 million recorded in current
portion of long-term debt payable to related parties.
The related party payable balance of $175 million as of
December 31, 2007, represented non-interest bearing payable
balances with companies owned by Cadbury, related party accrued
interest payable associated with interest bearing notes and
related party payables for sales of goods and services with
companies owned by Cadbury.
The Company recorded interest expense of $67 million and
$172 million for the nine months ended September 30,
2008 and 2007, respectively, related to interest bearing related
party debt.
|
|
18.
|
Guarantor
and Non-Guarantor Financial Information
|
The Companys 6.12% senior notes due 2013,
6.82% senior notes due 2018 and 7.45% senior notes due
2038 (the notes) are fully and unconditionally
guaranteed by substantially all of the Companys existing
and future direct and indirect domestic subsidiaries (except two
immaterial subsidiaries associated with the Companys
charitable foundations) (the guarantors), as defined
in the indenture governing the notes. The guarantors are
wholly-owned either directly or indirectly by the Company and
jointly and severally guarantee the Companys obligations
under the notes. None of the Companys subsidiaries
organized outside of the United States guarantee the notes.
F-29
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following schedules present the guarantor and non-guarantor
information as of and for the nine months ended
September 30, 2008 and 2007. The consolidating schedules
are provided in accordance with the reporting requirements for
guarantor subsidiaries.
On May 7, 2008, Cadbury plc transferred its Americas
Beverages business to Dr Pepper Snapple Group, Inc., which
became an independent publicly-traded company. Prior to the
transfer, Dr Pepper Snapple Group, Inc. did not have any
operations. Accordingly, activity for Dr Pepper Snapple Group,
Inc (the parent) is reflected in the consolidating
statements from May 7, 2008 forward.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
|
|
for the Nine Months Ended September 30, 2008
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,918
|
|
|
$
|
463
|
|
|
$
|
(12
|
)
|
|
$
|
4,369
|
|
Cost of sales
|
|
|
|
|
|
|
1,827
|
|
|
|
188
|
|
|
|
(12
|
)
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,091
|
|
|
|
275
|
|
|
|
|
|
|
|
2,366
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,436
|
|
|
|
150
|
|
|
|
|
|
|
|
1,586
|
|
Depreciation and amortization
|
|
|
|
|
|
|
77
|
|
|
|
7
|
|
|
|
|
|
|
|
84
|
|
Restructuring costs
|
|
|
|
|
|
|
29
|
|
|
|
2
|
|
|
|
|
|
|
|
31
|
|
Gain on disposal of property and intangible assets, net
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
550
|
|
|
|
118
|
|
|
|
|
|
|
|
668
|
|
Interest expense
|
|
|
133
|
|
|
|
225
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
199
|
|
Interest income
|
|
|
(84
|
)
|
|
|
(98
|
)
|
|
|
(7
|
)
|
|
|
159
|
|
|
|
(30
|
)
|
Other (income) expense
|
|
|
|
|
|
|
(10
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of subsidiaries
|
|
|
(49
|
)
|
|
|
433
|
|
|
|
123
|
|
|
|
|
|
|
|
507
|
|
Provision for income taxes
|
|
|
(19
|
)
|
|
|
178
|
|
|
|
40
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of subsidiaries
|
|
|
(30
|
)
|
|
|
255
|
|
|
|
83
|
|
|
|
|
|
|
|
308
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
221
|
|
|
|
58
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
191
|
|
|
$
|
313
|
|
|
$
|
84
|
|
|
$
|
(279
|
)
|
|
$
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
|
|
for the Nine Months Ended September 30, 2007
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,932
|
|
|
$
|
423
|
|
|
$
|
(8
|
)
|
|
$
|
4,347
|
|
Cost of sales
|
|
|
|
|
|
|
1,814
|
|
|
|
178
|
|
|
|
(8
|
)
|
|
|
1,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,118
|
|
|
|
245
|
|
|
|
|
|
|
|
2,363
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,387
|
|
|
|
140
|
|
|
|
|
|
|
|
1,527
|
|
Depreciation and amortization
|
|
|
|
|
|
|
64
|
|
|
|
5
|
|
|
|
|
|
|
|
69
|
|
Restructuring cost
|
|
|
|
|
|
|
27
|
|
|
|
9
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
640
|
|
|
|
91
|
|
|
|
|
|
|
|
731
|
|
Interest expense
|
|
|
|
|
|
|
167
|
|
|
|
28
|
|
|
|
|
|
|
|
195
|
|
Interest income
|
|
|
|
|
|
|
(29
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(38
|
)
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of subsidiaries
|
|
|
|
|
|
|
502
|
|
|
|
74
|
|
|
|
|
|
|
|
576
|
|
Provision for income taxes
|
|
|
|
|
|
|
196
|
|
|
|
22
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of subsidiaries
|
|
|
|
|
|
|
306
|
|
|
|
52
|
|
|
|
|
|
|
|
358
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
|
|
|
$
|
310
|
|
|
$
|
53
|
|
|
$
|
(4
|
)
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
As of September 30, 2008
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
140
|
|
|
$
|
99
|
|
|
$
|
|
|
|
$
|
239
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $0, $13, $3 and $16, respectively)
|
|
|
|
|
|
|
461
|
|
|
|
60
|
|
|
|
|
|
|
|
521
|
|
Other
|
|
|
|
|
|
|
66
|
|
|
|
2
|
|
|
|
|
|
|
|
68
|
|
Related party receivable
|
|
|
30
|
|
|
|
459
|
|
|
|
7
|
|
|
|
(496
|
)
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
302
|
|
|
|
28
|
|
|
|
|
|
|
|
330
|
|
Deferred tax assets
|
|
|
|
|
|
|
64
|
|
|
|
4
|
|
|
|
|
|
|
|
68
|
|
Prepaid and other current assets
|
|
|
19
|
|
|
|
89
|
|
|
|
4
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
49
|
|
|
|
1,581
|
|
|
|
204
|
|
|
|
(496
|
)
|
|
|
1,338
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
882
|
|
|
|
63
|
|
|
|
|
|
|
|
945
|
|
Investments in consolidated subsidiaries
|
|
|
3,487
|
|
|
|
446
|
|
|
|
|
|
|
|
(3,933
|
)
|
|
|
|
|
Investments in unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Goodwill
|
|
|
|
|
|
|
3,142
|
|
|
|
28
|
|
|
|
|
|
|
|
3,170
|
|
Other intangible assets, net
|
|
|
|
|
|
|
3,505
|
|
|
|
90
|
|
|
|
|
|
|
|
3,595
|
|
Long-term receivable, related parties
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
(3,938
|
)
|
|
|
|
|
Other non-current assets
|
|
|
70
|
|
|
|
495
|
|
|
|
7
|
|
|
|
|
|
|
|
572
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
30
|
|
|
|
159
|
|
|
|
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,544
|
|
|
$
|
10,081
|
|
|
$
|
564
|
|
|
$
|
(8,367
|
)
|
|
$
|
9,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
56
|
|
|
$
|
744
|
|
|
$
|
62
|
|
|
$
|
|
|
|
$
|
862
|
|
Related party payable
|
|
|
436
|
|
|
|
36
|
|
|
|
24
|
|
|
|
(496
|
)
|
|
|
|
|
Current portion of long-term debt payable to third parties
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
527
|
|
|
|
780
|
|
|
|
92
|
|
|
|
(496
|
)
|
|
|
903
|
|
Long-term debt payable to third parties
|
|
|
3,570
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
3,587
|
|
Long-term debt payable to related parties
|
|
|
|
|
|
|
3,938
|
|
|
|
|
|
|
|
(3,938
|
)
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
1,256
|
|
|
|
20
|
|
|
|
|
|
|
|
1,276
|
|
Other non-current liabilities
|
|
|
117
|
|
|
|
603
|
|
|
|
6
|
|
|
|
|
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,214
|
|
|
|
6,594
|
|
|
|
118
|
|
|
|
(4,434
|
)
|
|
|
6,492
|
|
Total equity
|
|
|
3,330
|
|
|
|
3,487
|
|
|
|
446
|
|
|
|
(3,933
|
)
|
|
|
3,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
7,544
|
|
|
$
|
10,081
|
|
|
$
|
564
|
|
|
$
|
(8,367
|
)
|
|
$
|
9,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
As of December 31, 2007
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
67
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $0, $16, $4, $0 and $20,
respectively)
|
|
|
|
|
|
|
464
|
|
|
|
74
|
|
|
|
|
|
|
|
538
|
|
Other
|
|
|
|
|
|
|
58
|
|
|
|
1
|
|
|
|
|
|
|
|
59
|
|
Related party receivable
|
|
|
|
|
|
|
61
|
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
66
|
|
Note receivable from related parties
|
|
|
|
|
|
|
1,317
|
|
|
|
210
|
|
|
|
|
|
|
|
1,527
|
|
Inventories
|
|
|
|
|
|
|
296
|
|
|
|
29
|
|
|
|
|
|
|
|
325
|
|
Deferred tax assets
|
|
|
|
|
|
|
71
|
|
|
|
10
|
|
|
|
|
|
|
|
81
|
|
Prepaid and other current assets
|
|
|
|
|
|
|
72
|
|
|
|
4
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
2,367
|
|
|
|
376
|
|
|
|
(4
|
)
|
|
|
2,739
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
796
|
|
|
|
72
|
|
|
|
|
|
|
|
868
|
|
Investments in consolidated subsidiaries
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
Investments in unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Goodwill
|
|
|
|
|
|
|
3,156
|
|
|
|
27
|
|
|
|
|
|
|
|
3,183
|
|
Other intangible assets, net
|
|
|
|
|
|
|
3,526
|
|
|
|
91
|
|
|
|
|
|
|
|
3,617
|
|
Other non-current assets
|
|
|
|
|
|
|
98
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
100
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
10,032
|
|
|
$
|
590
|
|
|
$
|
(94
|
)
|
|
$
|
10,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
|
|
|
$
|
748
|
|
|
$
|
64
|
|
|
$
|
|
|
|
$
|
812
|
|
Related party payable
|
|
|
|
|
|
|
143
|
|
|
|
36
|
|
|
|
(4
|
)
|
|
|
175
|
|
Current portion of long-term debt payable to related parties
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Income taxes payable
|
|
|
|
|
|
|
15
|
|
|
|
7
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
1,032
|
|
|
|
107
|
|
|
|
(4
|
)
|
|
|
1,135
|
|
Long-term debt payable to third parties
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Long-term debt payable to related parties
|
|
|
|
|
|
|
2,893
|
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
1,289
|
|
|
|
35
|
|
|
|
|
|
|
|
1,324
|
|
Other non-current liabilities
|
|
|
|
|
|
|
126
|
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
5,359
|
|
|
|
153
|
|
|
|
(5
|
)
|
|
|
5,507
|
|
Total equity
|
|
|
|
|
|
|
4,673
|
|
|
|
437
|
|
|
|
(89
|
)
|
|
|
5,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
|
|
|
$
|
10,032
|
|
|
$
|
590
|
|
|
$
|
(94
|
)
|
|
$
|
10,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
for the Nine Months Ended September 30, 2008
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
(47
|
)
|
|
$
|
460
|
|
|
$
|
110
|
|
|
$
|
|
|
|
$
|
523
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(196
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(203
|
)
|
Issuances of notes receivable, net
|
|
|
(3,888
|
)
|
|
|
(598
|
)
|
|
|
(27
|
)
|
|
|
4,348
|
|
|
|
(165
|
)
|
Proceeds from repayments of notes receivable, net
|
|
|
|
|
|
|
1,488
|
|
|
|
76
|
|
|
|
(24
|
)
|
|
|
1,540
|
|
Other, net
|
|
|
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(3,888
|
)
|
|
|
693
|
|
|
|
46
|
|
|
|
4,324
|
|
|
|
1,175
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt related to separation
|
|
|
|
|
|
|
1,615
|
|
|
|
|
|
|
|
|
|
|
|
1,615
|
|
Proceeds from issuance of long-term debt related to guarantor/
non-guarantor
|
|
|
436
|
|
|
|
3,888
|
|
|
|
24
|
|
|
|
(4,348
|
)
|
|
|
|
|
Proceeds from senior unsecured credit facility
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
Proceeds from senior unsecured notes
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700
|
|
Proceeds from bridge loan facility
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700
|
|
Repayment of long-term debt related to separation
|
|
|
|
|
|
|
(4,653
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(4,664
|
)
|
Repayment of long-term debt related to guarantor/non-guarantor
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
24
|
|
|
|
|
|
Repayment of senior unsecured credit facility
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(295
|
)
|
Repayment of bridge loan facility
|
|
|
(1,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Deferred financing charges paid
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106
|
)
|
Cash distributions to Cadbury
|
|
|
|
|
|
|
(1,989
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
(2,065
|
)
|
Change in the Cadburys net investment
|
|
|
|
|
|
|
100
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
94
|
|
Other, net
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
3,935
|
|
|
|
(1,041
|
)
|
|
|
(93
|
)
|
|
|
(4,324
|
)
|
|
|
(1,523
|
)
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
|
|
|
|
112
|
|
|
|
63
|
|
|
|
|
|
|
|
175
|
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
28
|
|
|
|
39
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
140
|
|
|
$
|
99
|
|
|
$
|
|
|
|
$
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
for the Nine Months Ended September 30, 2007
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
593
|
|
|
$
|
113
|
|
|
$
|
|
|
|
$
|
706
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
Purchases of investments and intangibles
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(113
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(123
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Group transfer of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of notes receivable, net
|
|
|
|
|
|
|
(1,421
|
)
|
|
|
(408
|
)
|
|
|
|
|
|
|
(1,829
|
)
|
Proceeds from repayments of notes receivable, net
|
|
|
|
|
|
|
448
|
|
|
|
77
|
|
|
|
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(1,110
|
)
|
|
|
(340
|
)
|
|
|
|
|
|
|
(1,450
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
2,803
|
|
|
|
|
|
|
|
|
|
|
|
2,803
|
|
Repayment long-term debt
|
|
|
|
|
|
|
(2,937
|
)
|
|
|
(295
|
)
|
|
|
|
|
|
|
(3,232
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Change in the parents net investment
|
|
|
|
|
|
|
647
|
|
|
|
520
|
|
|
|
|
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
517
|
|
|
|
225
|
|
|
|
|
|
|
|
742
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
16
|
|
|
|
19
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Restatement
of Unaudited Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 2007
|
Prior to the issuance of the Companys audited combined
financial statements as of and for the year ended
December 31, 2007, the Company determined that the
unaudited condensed combined statements of cash flows for the
nine months ended September 30, 2007, needed to be restated
to eliminate previously reported cash flows of non-cash tax
reclassifications. As a result, net cash provided by operating
activities and net cash used in financing activities decreased
by $51 million in the interim period. The Companys
combined financial statements for the year ended
December 31, 2007, issued with the Registration Statement
on Form 10 (effective April 22, 2008) appropriately
reported the non-cash tax reclassifications.
F-35
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The impact of the cash flow restatement for the nine months
ended September 30, 2007 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported in the
|
|
|
|
|
|
|
|
|
|
Form 10 Filed
|
|
|
|
|
|
As
|
|
|
|
February 12, 2007
|
|
|
Adjustment
|
|
|
Restated
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
$
|
(36
|
)
|
|
$
|
39
|
|
|
$
|
3
|
|
Other non-current liabilities
|
|
$
|
71
|
|
|
$
|
(90
|
)
|
|
$
|
(19
|
)
|
Net cash provided by operating activities
|
|
$
|
757
|
|
|
$
|
(51
|
)
|
|
$
|
706
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cadburys net investment
|
|
$
|
1,305
|
|
|
$
|
51
|
|
|
$
|
1,356
|
|
Net cash used in financing activities
|
|
$
|
691
|
|
|
$
|
51
|
|
|
$
|
742
|
|
In a letter dated October 10, 2008, the Company received
formal notification from Hansen Natural Corporation
(Hansen), terminating DPS agreements to
distribute Monster Energy as well as Hansens other
beverage brands in certain markets in the United States
effective November 10, 2008. For the nine months ended
September 30, 2008, DPS generated approximately
$170 million and approximately $30 million in revenue
and operating profits, respectively, from sales of Hansen brands
to third parties in the United States. The Company expects to
write off approximately $3 million of intangible assets and
is negotiating the settlement with Hansen under the terms of the
contract.
On November 12, 2008, the Company amended the Guaranty
Agreement dated May 7, 2008, between certain of DPS
subsidiaries and JPMorgan Chase Bank, N.A., as administrative
agent (Amendment No. 1). Amendment No. 1
was executed principally for the purpose of conforming the
guarantor entities and guaranteed obligations under the Guaranty
to those originally contemplated when entering into the Guaranty
under the Credit Agreement.
F-36
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Cadbury Schweppes plc and the Board
of Directors of Dr Pepper Snapple Group, Inc.:
We have audited the accompanying combined balance sheets of Dr
Pepper Snapple Group, Inc., formerly CSAB Inc., (the
Company) as of December 31, 2007 and 2006, and
the related combined statements of operations, cash flows and
changes in invested equity for the fiscal years ended
December 31, 2007, December 31, 2006 and
January 1, 2006. These combined financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards as established by the Auditing Standards
Board (United States) and in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such combined financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2007 and 2006, and the results
of its operations and its cash flows for the fiscal years ended
December 31, 2007, December 31, 2006 and
January 1, 2006 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1, the combined financial statements
of the Company include allocation of certain general corporate
overhead costs from Cadbury Schweppes plc. These costs may not
be reflective of the actual level of costs which would have been
incurred had the Company operated as a separate entity apart
from Cadbury Schweppes plc.
As discussed in Note 2 and Note 9 to the combined
financial statements, the Company changed its method of
accounting for stock based employee compensation as of
January 3, 2005 and changed its method of accounting for
uncertainties in income taxes as of January 1, 2007,
respectively.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 20, 2008 (April 14, 2008 as to paragraph 2
and 3 in Note 18 and November 24, 2008 as to
Note 15 and Note 17)
F-37
DR PEPPER
SNAPPLE GROUP, INC.
As of
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67
|
|
|
$
|
35
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $20 and $14, respectively)
|
|
|
538
|
|
|
|
562
|
|
Other
|
|
|
59
|
|
|
|
18
|
|
Related party receivable
|
|
|
66
|
|
|
|
5
|
|
Note receivable from related parties
|
|
|
1,527
|
|
|
|
579
|
|
Inventories
|
|
|
325
|
|
|
|
300
|
|
Deferred tax assets
|
|
|
81
|
|
|
|
61
|
|
Prepaid and other current assets
|
|
|
76
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,739
|
|
|
|
1,632
|
|
Property, plant and equipment, net
|
|
|
868
|
|
|
|
755
|
|
Investments in unconsolidated subsidiaries
|
|
|
13
|
|
|
|
12
|
|
Goodwill
|
|
|
3,183
|
|
|
|
3,180
|
|
Other intangible assets, net
|
|
|
3,617
|
|
|
|
3,651
|
|
Other non-current assets
|
|
|
100
|
|
|
|
107
|
|
Non-current deferred tax assets
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
812
|
|
|
$
|
788
|
|
Related party payable
|
|
|
175
|
|
|
|
183
|
|
Current portion of long-term debt payable to related parties
|
|
|
126
|
|
|
|
708
|
|
Income taxes payable
|
|
|
22
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,135
|
|
|
|
1,691
|
|
Long-term debt payable to third parties
|
|
|
19
|
|
|
|
543
|
|
Long-term debt payable to related parties
|
|
|
2,893
|
|
|
|
2,541
|
|
Deferred tax liabilities
|
|
|
1,324
|
|
|
|
1,292
|
|
Other non-current liabilities
|
|
|
136
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,507
|
|
|
|
6,096
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Cadburys net investment
|
|
|
5,001
|
|
|
|
3,249
|
|
Accumulated other comprehensive (loss) income
|
|
|
20
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
2,085
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
1,179
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
Gain on disposal of property and intangible assets, net
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
Other (income) expense
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
Provision for income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-39
DR PEPPER
SNAPPLE GROUP, INC.
For the
Years Ended December 31, 2007, and 2006 and January 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
Impairment of assets
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
Employee stock-based expense
|
|
|
21
|
|
|
|
17
|
|
|
|
22
|
|
Excess tax benefit on stock based compensation expense
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Deferred income taxes
|
|
|
55
|
|
|
|
14
|
|
|
|
56
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Other, net
|
|
|
|
|
|
|
(6
|
)
|
|
|
8
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in trade accounts receivable
|
|
|
32
|
|
|
|
(42
|
)
|
|
|
8
|
|
(Increase) decrease in related party receivable
|
|
|
(57
|
)
|
|
|
(2
|
)
|
|
|
14
|
|
(Increase) decrease in other accounts receivable
|
|
|
(38
|
)
|
|
|
46
|
|
|
|
(40
|
)
|
(Increase) decrease in inventories
|
|
|
(14
|
)
|
|
|
13
|
|
|
|
18
|
|
(Increase) decrease in prepaid and other current assets
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
(29
|
)
|
Increase in other non-current assets
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
(19
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(5
|
)
|
|
|
(104
|
)
|
|
|
34
|
|
Increase in related party payables
|
|
|
12
|
|
|
|
13
|
|
|
|
17
|
|
Increase in income taxes payable
|
|
|
10
|
|
|
|
2
|
|
|
|
1
|
|
(Decrease) increase in other non-current liabilities
|
|
|
(10
|
)
|
|
|
8
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
603
|
|
|
|
581
|
|
|
|
583
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
(30
|
)
|
|
|
(435
|
)
|
|
|
|
|
Purchase of investments and intangible assets
|
|
|
(2
|
)
|
|
|
(53
|
)
|
|
|
(35
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
98
|
|
|
|
53
|
|
|
|
36
|
|
Purchases of property, plant and equipment
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
Proceeds from disposals, of property, plant and equipment
|
|
|
6
|
|
|
|
16
|
|
|
|
5
|
|
Repayment of related party notes receivables
|
|
|
1,008
|
|
|
|
166
|
|
|
|
680
|
|
Issuances of related party notes receivables
|
|
|
(1,937
|
)
|
|
|
(91
|
)
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of related party long-term debt
|
|
|
2,845
|
|
|
|
2,086
|
|
|
|
124
|
|
Repayment of related party long-term debt
|
|
|
(3,455
|
)
|
|
|
(2,056
|
)
|
|
|
(279
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
Cash distributions to Cadbury
|
|
|
(213
|
)
|
|
|
(80
|
)
|
|
|
(381
|
)
|
Change in Cadburys net investment
|
|
|
1,334
|
|
|
|
(23
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
31
|
|
|
|
7
|
|
|
|
51
|
|
Currency translation
|
|
|
1
|
|
|
|
|
|
|
|
(42
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
35
|
|
|
|
28
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers of property, plant, and equipment to Cadbury
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
14
|
|
Transfers of operating assets and liabilities to Cadbury
|
|
|
22
|
|
|
|
16
|
|
|
|
22
|
|
Conversion of debt to equity contribution
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Reduction in long-term debt from Cadbury net investment
|
|
|
263
|
|
|
|
383
|
|
|
|
|
|
Cadbury or related entities acquisition payments reflected
through Cadburys net investment
|
|
|
17
|
|
|
|
23
|
|
|
|
27
|
|
Issuance of note payable related to acquisition
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Assumption of debt related to acquisition payments by Cadbury
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Transfer of related party receivable to Cadbury
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Liabilities expected to be reimbursed by Cadbury
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Reclassifications for tax transactions
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
257
|
|
|
$
|
204
|
|
|
$
|
165
|
|
Income taxes paid
|
|
|
34
|
|
|
|
14
|
|
|
|
14
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-40
DR PEPPER
SNAPPLE GROUP, INC.
For the
Years Ended December 31, 2007, and 2006 and January 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Cadburys Net
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Investment
|
|
|
Income (Loss)
|
|
|
Total Equity
|
|
|
Income
|
|
|
|
(In millions)
|
|
|
Balance as of January 2, 2005
|
|
$
|
2,116
|
|
|
$
|
(9
|
)
|
|
$
|
2,107
|
|
|
|
|
|
Net income
|
|
|
477
|
|
|
|
|
|
|
|
477
|
|
|
$
|
477
|
|
Contributions from Cadbury
|
|
|
204
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
Distributions to Cadbury
|
|
|
(381
|
)
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2006
|
|
|
2,416
|
|
|
|
10
|
|
|
|
2,426
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
510
|
|
|
|
|
|
|
|
510
|
|
|
$
|
510
|
|
Contributions from Cadbury
|
|
|
403
|
|
|
|
|
|
|
|
403
|
|
|
|
|
|
Distributions to Cadbury
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
Adoption of FAS 158
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
3,249
|
|
|
|
1
|
|
|
|
3,250
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
497
|
|
|
|
|
|
|
|
497
|
|
|
|
497
|
|
Contributions from Cadbury
|
|
|
1,484
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
Distributions to Cadbury
|
|
|
(213
|
)
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
Adoption of FIN 48
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
5,001
|
|
|
$
|
20
|
|
|
$
|
5,021
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-41
DR PEPPER
SNAPPLE GROUP, INC.
|
|
1.
|
Background
and Basis of Presentation
|
Background
Dr Pepper Snapple Group, Inc. (formerly known as CSAB, Inc.)
(the Company) is a wholly-owned subsidiary of
Cadbury Schweppes plc (Cadbury Schweppes) that was
incorporated as a Delaware corporation on October 24, 2007
to own Cadbury Schweppes Americas Beverages business. This
business will be transferred to the Company in connection with
the separation of the Company from Cadbury Schweppes through the
distribution of all its outstanding common shares to Cadbury
Schweppes shareholders. The initial capitalization was two
dollars. Prior to its ownership of Cadbury Schweppes
Americas Beverages business, the Company did not have any
operations. The Company conducts operations in the United
States, Canada, Mexico and parts of the Caribbean.
The Companys key brands include Dr Pepper, Snapple, 7UP,
Motts, Sunkist, Hawaiian Punch, A&W, Canada Dry,
Schweppes, Squirt, Clamato, Peñafiel, Mr & Mrs T,
and Margaritaville.
Basis
of Presentation
The accompanying combined financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America
(U.S. GAAP).
The combined financial statements have been prepared on a
carve-out basis from Cadbury Schweppes
consolidated financial statements using the historical results
of operations, assets and liabilities attributable to Cadbury
Schweppes Americas Beverages business and include
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverage information is our
predecessor financial information. The Company eliminates from
its financial results all intercompany transactions between
entities included in the combination and the intercompany
transactions with its equity method investees.
The combined financial statements may not be indicative of the
Companys future performance and do not necessarily reflect
what its combined results of operations, financial position and
cash flows would have been had the Company operated as an
independent company during the periods presented. To the extent
that an asset, liability, revenue or expense is directly
associated with the Company, it is reflected in the accompanying
combined financial statements.
Cadbury Schweppes currently provides certain corporate functions
to the Company and costs associated with these functions have
been allocated to the Company. These functions include corporate
communications, regulatory, human resources and benefit
management, treasury, investor relations, corporate controller,
internal audit, Sarbanes Oxley compliance, information
technology, corporate and legal compliance, and community
affairs. The costs of such services have been allocated to the
Company based on the most relevant allocation method to the
service provided, primarily based on relative percentage of
revenue or headcount. Management believes such allocations are
reasonable; however, they may not be indicative of the actual
expense that would have been incurred had the Company been
operating as an independent company for the periods presented.
The charges for these functions are included primarily in
selling, general and administrative expenses in the
Combined Statements of Operations.
The total invested equity represents Cadbury Schweppes
interest in the recorded net assets of the Company. The net
investment balance represents the cumulative net investment by
Cadbury Schweppes in the Company through that date, including
any prior net income or loss or other comprehensive income or
loss attributed to the Company. Certain transactions between the
Company and other related parties within the Cadbury Schweppes
group, including allocated expenses, are also included in
Cadbury Schweppes net investment.
The fiscal years presented are the year ended December 31,
2007, which is referred to as 2007, the year ended
December 31, 2006, which is referred to as
2006, and the 52-week period ended January 1,
2006, which is referred to as 2005. Effective 2006,
the Companys fiscal year ends on December 31 of each year.
Prior to 2006, the Companys fiscal year end date
represented the Sunday closest to December 31 of each year.
F-42
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Significant
Accounting Policies
|
Use of
Estimates
The process of preparing financial statements in conformity with
U.S. GAAP requires the use of estimates and judgments that
affect the reported amount of assets, liabilities, revenue and
expenses. These estimates and judgments are based on historical
experience, future expectations and other factors and
assumptions the Company believes to be reasonable under the
circumstances. These estimates and judgments are reviewed on an
ongoing basis and are revised when necessary. Actual amounts may
differ from these estimates. The Companys most significant
estimates and judgments include those relating to: revenue
recognition, income taxes, pension and postretirement benefit
obligations, stock based compensation and valuations of goodwill
and other intangibles. Changes in estimates are recorded in the
period of change.
Revenue
Recognition
The Company recognizes sales revenue when all of the following
have occurred: (1) delivery, (2) persuasive evidence
of an agreement exists, (3) pricing is fixed or
determinable and (4) collection is reasonably assured.
Delivery is not considered to have occurred until the title and
the risk of loss passes to the customer according to the terms
of the contract between the Company and the customer. The timing
of revenue recognition is largely dependent on contract terms.
For sales to other customers that are designated in the contract
as
free-on-board
destination, revenue is recognized when the product is delivered
to and accepted at the customers delivery site.
In addition, the Company offers a variety of incentives and
discounts to bottlers, customers and consumers through various
programs to support the distribution of its products. These
incentives and discounts include cash discounts, price
allowances, volume based rebates, product placement fees and
other financial support for items such as trade promotions,
displays, new products, consumer incentives and advertising
assistance. These incentives and discounts, collectively
referred to as trade spend, are reflected as a reduction of
gross sales to arrive at net sales. Trade spend for 2007 and
2006 includes the effect of the Companys bottling
acquisitions (see Note 3) where the amounts of such
spend are larger than those related to other parts of its
business. The aggregate deductions from gross sales recorded by
the Company in relation to these programs were approximately
$3,159 million, $2,440 million, and $928 million
in 2007, 2006 and 2005, respectively. Net sales are also
reported net of sales taxes and other similar taxes.
Transportation
and Warehousing Costs
The Company incurred $736 million, $582 million and
$292 million of transportation and warehousing costs in
2007, 2006 and 2005, respectively. These amounts, which
primarily relate to shipping and handling costs, are included in
selling, general and administrative expenses.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and investments in
short-term, highly liquid securities, with original maturities
of three months or less.
Concentration
of Credit Risk
Financial instruments which subject the Company to potential
credit risk consist of its cash and cash equivalents and
accounts receivable. The Company places its cash and cash
equivalents with high credit quality financial institutions.
Deposits with these financial institutions may exceed the amount
of insurance provided; however, these deposits typically are
redeemable upon demand and, therefore, the Company believes the
financial risks associated with these financial instruments are
minimal.
The Company performs ongoing credit evaluations of its
customers, and generally does not require collateral on its
accounts receivable. The Company estimates the need for
allowances for potential credit losses based on
F-43
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
historical collection activity and the facts and circumstances
relevant to specific customers and records a provision for
uncollectible accounts when collection is uncertain. The Company
has not experienced significant credit related losses to date.
No single customer accounted for 10% or more of the
Companys trade accounts receivable for any period
presented.
The principal raw materials the Company uses in the business are
aluminum cans and ends, glass bottles, PET bottles and caps,
paperboard packaging, high fructose corn syrup and other
sweeteners, juice, fruit, electricity, fuel and water. Some raw
materials the Company uses are available from only a few
suppliers. If these suppliers are unable or unwilling to meet
requirements, the Company could suffer shortages or substantial
cost increases.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. Past-due status is based on
contractual terms on a
customer-by-customer
basis. The Company determines the required allowance using
information such as its customer credit history, industry and
market segment information, economic trends and conditions,
credit reports and customer financial condition. The estimates
can be affected by changes in the industry, customer credit
issues or customer bankruptcies. Account balances are charged
off against the allowance when it is determined that the
receivable will not be recovered.
Activity in the allowance for doubtful accounts was as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of the year
|
|
$
|
14
|
|
|
$
|
10
|
|
|
$
|
12
|
|
Net charge to costs and expenses
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
Acquisition of subsidiaries
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Write-offs
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
20
|
|
|
$
|
14
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined for U.S. inventories substantially by
the last-in,
first-out (LIFO) valuation method and for
non-U.S. inventories
by the
first-in,
first-out (FIFO) valuation method. Inventories
include raw materials,
work-in-process,
finished goods, packing materials, advertising materials, spare
parts and other supplies. The costs of finished goods
inventories include raw materials, direct labor and indirect
production and overhead costs. Reserves for excess and obsolete
inventories are based on an assessment of slow-moving and
obsolete inventories, determined by historical usage and demand.
Excess and obsolete inventory reserves were $17 million and
$7 million as of December 31, 2007 and 2006,
respectively.
Income
Taxes
Income taxes are computed and reported on a separate return
basis and accounted for using the asset and liability approach
under Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes
(SFAS 109). This method involves determining
the temporary differences between combined assets and
liabilities recognized for financial reporting and the
corresponding combined amounts recognized for tax purposes and
computing the tax-related carryforwards at the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The resulting amounts are deferred tax assets or liabilities and
the net changes represent the deferred tax expense or benefit
for the year. The total of taxes currently payable per the tax
return and the deferred tax expense or benefit represents the
income tax expense or benefit for the year for financial
reporting purposes.
F-44
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Company periodically assesses the likelihood of realizing
its deferred tax assets based on the amount of deferred tax
assets that the Company believes is more likely than not to be
realized. The Company bases its judgment of the recoverability
of its deferred tax asset, which includes U.S. federal and,
to a lesser degree, state and foreign net operating loss, or
NOL, carryforwards, primarily on historical earnings, its
estimate of current and expected future earnings, prudent and
feasible tax planning strategies, and current and future
ownership changes.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and amortization, plus capitalized
interest on borrowings during the actual construction period of
major capital projects. Significant improvements which
substantially extend the useful lives of assets are capitalized.
The costs of major rebuilds and replacements of plant and
equipment are capitalized, and expenditures for repairs and
maintenance which do not improve or extend the life of the
assets are expensed as incurred. When property, plant and
equipment is sold or retired, the costs and the related
accumulated depreciation are removed from the accounts, and the
net gains or losses are recorded in gain on disposal of
property and intangible assets. Leasehold improvements are
amortized over the shorter of the estimated useful life of the
assets or the lease term.
For financial reporting purposes, depreciation is computed on
the straight-line method over the estimated useful asset lives
as follows:
|
|
|
|
|
Asset
|
|
Useful Life
|
|
|
Buildings and improvements
|
|
|
25 to 40 years
|
|
Machinery and equipment
|
|
|
5 to 14 years
|
|
Vehicles
|
|
|
5 to 8 years
|
|
Vending machines
|
|
|
5 to 7 years
|
|
Computer software
|
|
|
3 to 8 years
|
|
Goodwill
and Other Indefinite Lived Intangible Assets
The majority of the Companys intangible asset balances are
made up of goodwill and brands which the Company has determined
to have indefinite useful lives. In arriving at the conclusion
that a brand has an indefinite useful life, management reviews
factors such as size, diversification and market share of each
brand. Management expects to acquire, hold and support brands
for an indefinite period through consumer marketing and
promotional support. The Company also considers factors such as
our ability to continue to protect the legal rights that arise
from these brand names indefinitely or the absence of any
regulatory, economic or competitive factors that could truncate
the life of the brand name. If the criteria are not met to
assign an indefinite life, the brand is amortized over its
expected useful life.
The Company conducts impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company uses present value and other valuation techniques to
make this assessment. If the carrying amount of an intangible
asset exceeds its fair value, an impairment loss is recognized
in an amount equal to that excess.
Impairment tests for goodwill include comparing the fair value
of the respective reporting units, which are the Companys
segments, with their carrying amount, including goodwill.
Goodwill is evaluated using a two-step impairment test at the
reporting unit level. The first step compares the carrying
amount of a reporting unit, including goodwill, with its fair
value. If the carrying amount of a reporting unit exceeds its
fair value, a second step is completed to determine the amount
of goodwill impairment loss to record. In the second step, an
implied fair value of the reporting units goodwill is
determined by allocating the fair value of the reporting unit to
all of the assets and liabilities other than goodwill. The
amount of impairment loss is equal to the excess of the carrying
amount of the goodwill over the implied fair value of that
goodwill.
F-45
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Definite
Lived Intangible Assets
Definite lived intangible assets are those assets deemed by the
Company to have determinable finite useful lives. Identifiable
intangible assets with finite lives are amortized on a
straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
Intangible Asset
|
|
Useful Life
|
|
|
Brands
|
|
|
5 to 15 years
|
|
Bottler agreements and distribution rights
|
|
|
2 to 16 years
|
|
Customer relationships and contracts
|
|
|
5 to 10 years
|
|
Other
Assets
The Company provides support to certain customers to cover
various programs and initiatives to increase net sales. Costs of
these programs and initiatives are recorded in prepaid
expenses and other current assets and other
non-current assets. These costs include contributions to
customers or vendors for cold drink equipment used to market and
sell the Companys products.
The long-term portion of the costs for these programs is
recorded in other non-current assets and subsequently amortized
over the period to be directly benefited. These costs amounted
to $86 million and $100 million, net of accumulated
amortization, for 2007 and 2006, respectively. The amounts of
these incentives are amortized based upon a methodology
consistent with the Companys contractual rights under
these arrangements. The amortization charge for the cost of
contributions to customers or vendors for cold drink equipment
was $9 million, $16 million and $17 million for
2007, 2006 and 2005, respectively, and was recorded in
selling, general and administrative expenses in the
Combined Statements of Operations. The amortization charge for
the cost of other programs and incentives was $10 million,
$10 million and $11 million for 2007, 2006 and 2005,
respectively, and was recorded as a deduction from gross sales.
Research
and Development
Research and development costs are expensed when incurred and
amounted to $24 million, $24 million and
$21 million for 2007, 2006 and 2005, respectively. These
expenses are recorded in selling, general and
administrative expenses in the Combined Statements of
Operations.
Advertising
Expense
Advertising costs are expensed when incurred and amounted to
approximately $387 million, $374 million and
$377 million for 2007, 2006 and 2005, respectively. These
expenses are recorded in selling, general and
administrative expenses in the Combined Statements of
Operations.
Restructuring
Costs
The Company periodically records facility closing and
reorganization charges when a facility for closure or other
reorganization opportunity has been identified, a closure plan
has been developed and the affected employees notified, all in
accordance with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146).
Foreign
Currency Translation
The functional currency of the Companys operations outside
the U.S. is the local currency of the country where the
operations are located. The balance sheets of operations outside
the U.S. are translated into U.S. Dollars at the end
of year rates. The results of operations for the fiscal year are
translated into U.S. Dollars at an annual average rate,
calculated using month end exchange rates.
F-46
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table sets forth exchange rate information for the
periods and currencies indicated:
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Yearly
|
|
Mexican Peso to U.S. Dollar Exchange Rate
|
|
End
|
|
|
Average
|
|
|
2007
|
|
|
10.91
|
|
|
|
10.91
|
|
2006
|
|
|
10.79
|
|
|
|
10.86
|
|
2005
|
|
|
10.64
|
|
|
|
10.88
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Yearly
|
|
Canadian Dollar to U.S. Dollar Exchange Rate
|
|
End
|
|
|
Average
|
|
|
2007
|
|
|
1.00
|
|
|
|
1.07
|
|
2006
|
|
|
1.17
|
|
|
|
1.13
|
|
2005
|
|
|
1.17
|
|
|
|
1.21
|
|
Differences on exchange arising from the translation of opening
balances sheets of these entities to the rate ruling at the end
of the financial year are recognized in accumulated other
comprehensive income. The exchange differences arising
from the translation of foreign results from the average rate to
the closing rate are also recognized in accumulated other
comprehensive income. Such translation differences are
recognized as income or expense in the period in which the
Company disposes of the operations.
Transactions in foreign currencies are recorded at the
approximate rate of exchange at the transaction date. Assets and
liabilities resulting from these transactions are translated at
the rate of exchange in effect at the balance sheet date. All
such differences are recorded in results of operations and
amounted to less than $1 million, $5 million and
$2 million in 2007, 2006 and 2005, respectively.
Fair
Value of Financial Instruments
Pursuant to SFAS No. 107, Disclosure about Fair Value
of Financial Instruments (SFAS 107), the
Company is required to disclose an estimate of the fair value of
its financial instruments as of December 31, 2007 and 2006.
SFAS 107 defines the fair value of financial instruments as
the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying amounts reflected in the Combined Balance Sheets
for cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value due to the
short-term nature of their maturities.
The Companys long-term debt was subject to variable and
fixed interest rates that approximated market rates in 2007,
2006 and 2005. As a result, the Company believes the carrying
value of long-term debt approximates fair value for these
periods.
The carrying amount of the Companys outstanding
foreign-currency swaps is equivalent to fair value as of the
respective dates in the Combined Balance Sheets.
Stock-Based
Compensation
On January 3, 2005, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based
Payment (SFAS 123(R)). SFAS 123(R)
requires the recognition of compensation expense in the Combined
Statement of Operations related to the fair value of employee
share-based awards. The Company selected the modified
prospective method of transition; accordingly, prior periods
have not been restated. Upon adoption of SFAS 123(R), for
awards which are classified as liabilities, the Company was
required to reclassify the Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,
(APB 25) historical compensation cost from equity to
liability and to recognize the difference between this and the
fair value liability through the statement of operations.
F-47
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Under SFAS 123(R), the Company recognizes the cost of all
unvested employee stock options on a straight-line attribution
basis over their respective vesting periods, net of estimated
forfeitures. In addition, the Company has certain employee share
plans that contain inflation indexed earnings growth performance
conditions. SFAS 123(R) requires plans with such
performance criteria to be accounted for under the liability
method. The liability method, as set out in SFAS 123(R),
requires a liability be recorded on the balance sheet until
awards have vested. Also, in calculating the income statement
charge for share awards under the liability method as set out in
SFAS 123(R), the fair value of each award must be
remeasured at each reporting date until vesting.
The stock-based compensation plans in which the Companys
employees participate are described further in Note 14.
Pension
and Postretirement Benefits
The Company has several pension and postretirement plans
covering employees who satisfy age and length of service
requirements. There are nine stand-alone and five multi-employer
pension plans and five stand-alone and one multi-employer
postretirement plans. Depending on the plan, pension and
postretirement benefits are based on a combination of factors,
which may include salary, age and years of service. One of the
nine stand-alone plans is an unfunded pension plan that provides
supplemental pension benefits to certain senior executives, and
is accounted for as a defined contribution plan.
Pension expense has been determined in accordance with the
principles of SFAS No. 87, Employers Accounting
for Pensions which requires use of the projected unit
credit method for financial reporting. The Company adopted
the provisions of SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans An amendment of Financial Accounting Standards
Board Statements No. 87, 88, 106, and 132(R)
(SFAS 158) related to recognizing the funded
status of a benefit plan and the disclosure requirements on
December 31, 2006. The Company has elected to defer the
change of measurement date as permitted by SFAS 158 until
December 31, 2008. The Companys policy is to fund
pension plans in accordance with the requirements of the
Employee Retirement Income Security Act. Employee benefit plan
obligations and expenses included in the Combined Financial
Statements are determined from actuarial analyses based on plan
assumptions, employee demographic data, years of service,
compensation, benefits and claims paid and employer
contributions.
Cadbury Schweppes sponsors the five multi-employer pension plans
in which the Companys employees participate, and therefore
the Company accounts for these as defined contribution plans.
The expense related to the postretirement plans has been
determined in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions (SFAS 106). As stated in
SFAS 106, the Company accrues the cost of these benefits
during the years that employees render service to us.
New
Accounting Standards
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141(R)), which amends the principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.
SFAS 141(R) is effective for its Company on January 1,
2009, and the Company will apply SFAS 141(R) prospectively
to all business combinations subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51 (SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
F-48
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
noncontrolling interests. SFAS 160 is effective for fiscal
years beginning after December 15, 2008. The Company will
apply SFAS 160 prospectively to all applicable transactions
subsequent to the effective date.
In June 2007, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 06-11
Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards
(EITF 06-11),
which requires entities to record tax benefits on dividends or
dividend equivalents that are charged to retained earnings for
certain share-based awards to additional paid-in capital. In a
share-based payment arrangement, employees may receive dividends
or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, and
share options until the exercise date. Generally, the payment of
such dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional
paid-in capital should be included in the pool of excess tax
benefits available to absorb tax deficiencies on share-based
payment awards.
EITF 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those years. The Company
believes the adoption of
EITF 06-11
will not have a material impact on its combined financial
statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
including an amendment to FASB Statement No. 115
(SFAS 159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value. Unrealized gains and losses on items for
which the fair value option has been elected will be recognized
in earnings at each subsequent reporting date. SFAS 159 is
effective for the Company January 1, 2008. The Company does
not plan to apply SFAS 159 to any of its existing financial
assets or liabilities and believes that the adoption of
SFAS 159 would not have a material impact on its financial
statements.
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value and expands disclosure requirements about fair value
measurements. SFAS 157 is effective for the Company
January 1, 2008. A one-year deferral is in effect for
nonfinancial assets and nonfinancial liabilities that are
measured on a nonrecurring basis. The Company believes that the
adoption of SFAS 157 will not have a material impact on its
financial statements.
On May 2, 2006, the Company acquired approximately 55% of
the outstanding shares of Dr Pepper/Seven Up Bottling Group,
Inc. (DPSUBG), which, combined with the
Companys pre-existing 45% ownership, resulted in the
Companys full ownership of DPSUBG. DPSUBGs principal
operations are the bottling and distribution of beverages
produced by the Companys Beverage Concentrates and
Finished Goods segments, and certain beverages produced by third
parties, all in North America. The Company acquired DPSUBG to
strengthen the route-to-market of its North American beverage
business.
The purchase price for the approximately 55% of DPSUBG the
Company did not previously own was approximately
$370 million, which consisted of $347 million cash
paid by the Company and $23 million in related expenses
paid by Cadbury Schweppes. The full purchase price was funded
through related party debt with the subsidiaries of Cadbury
Schweppes.
F-49
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The acquisition was accounted for as a purchase under
SFAS No. 141 Business Combinations. The following
table summarizes the allocation of the purchase price to
approximately 55% of DPSUBGs assets and liabilities (in
millions):
|
|
|
|
|
|
|
At May 2,
|
|
|
|
2006
|
|
|
Current assets
|
|
$
|
182
|
|
Investments
|
|
|
1
|
|
Property, plant and equipment
|
|
|
190
|
|
Intangible assets
|
|
|
410
|
|
|
|
|
|
|
Total assets acquired
|
|
|
783
|
|
|
|
|
|
|
Current liabilities
|
|
|
184
|
|
Long-term debt
|
|
|
358
|
|
Deferred tax liabilities
|
|
|
146
|
|
Other liabilities
|
|
|
131
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
819
|
|
|
|
|
|
|
Net liabilities assumed
|
|
|
(36
|
)
|
Cash acquired
|
|
|
10
|
|
Goodwill
|
|
|
396
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
370
|
|
|
|
|
|
|
Included within the allocation of the purchase price in the
table above are $410 million of intangible assets which
includes indefinite lived Company-related bottler agreements of
$282 million, $70 million of customer relationships
and contracts and $48 million of non-Company-related
bottler agreements being amortized over five to 10 years;
and other intangible assets of $10 million being amortized
over 10 years.
The results of DPSUBG have been included in the individual line
items within the Combined Statement of Operations from
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for by the equity method. Refer to
Note 7.
The following unaudited pro forma summary presents the results
of operations as if the acquisition of DPSUBG had occurred at
the beginning of each fiscal year (in millions). The pro forma
information may not be indicative of future performance.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
5,443
|
|
|
$
|
5,019
|
|
Net income before cumulative effect of change in accounting
principle
|
|
$
|
500
|
|
|
$
|
457
|
|
Net income
|
|
$
|
500
|
|
|
$
|
447
|
|
The Company also acquired All American Bottling Company
(AABC) for $58 million on June 9, 2006,
Seven Up Bottling Company of San Francisco
(Easley) for $51 million on August 7, 2006
and Southeast-Atlantic Beverage Corporation (SeaBev)
for $53 million on July 11, 2007. Goodwill of
$20 million and identifiable intangible assets of
$63 million were recorded. These acquisitions further
strengthen the route-to-market of the Companys North
American beverage business.
The goodwill associated with these transactions has been
assigned to the Bottling Group, Beverage Concentrates and
Finished Goods segments. The amounts assigned to these segments
were $195 million, $322 million and $233 million,
respectively. The goodwill represents benefits of the
acquisitions that are in addition to the fair
F-50
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
value of the net assets acquired and the anticipated increased
profitability arising from the future revenue and cost synergies
arising from the combination. None of the goodwill is deductible
for tax purposes.
Supplemental
schedule of noncash investing activities:
In conjunction with the acquisitions of SeaBev, DPSUBG, AABC and
Easley, the following liabilities were assumed (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
SeaBev
|
|
|
DPSUBG
|
|
|
AABC
|
|
|
Easley
|
|
|
Fair value of assets acquired
|
|
$
|
76
|
(1)
|
|
$
|
1,189
|
|
|
$
|
64
|
|
|
$
|
99
|
|
Cash consideration paid by the Company
|
|
|
|
|
|
|
(347
|
)
|
|
|
(58
|
)
|
|
|
(51
|
)
|
Cash expenses paid by Cadbury Schweppes
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
76
|
|
|
$
|
819
|
|
|
$
|
6
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cash purchase price was paid by Cadbury Schweppes and increased
related party debt balance accordingly. |
Inventories consist of the following as of December 31,
2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
110
|
|
|
$
|
105
|
|
Work in process
|
|
|
|
|
|
|
5
|
|
Finished goods
|
|
|
245
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Inventories at FIFO cost
|
|
|
355
|
|
|
|
324
|
|
Reduction to LIFO cost
|
|
|
(30
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
325
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
Percent of inventory accounted for by:
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
92
|
%
|
|
|
91
|
%
|
FIFO
|
|
|
8
|
%
|
|
|
9
|
%
|
|
|
5.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following
as of December 31, 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Trade accounts payable
|
|
$
|
257
|
|
|
$
|
256
|
|
Customer rebates
|
|
|
200
|
|
|
|
184
|
|
Accrued compensation
|
|
|
127
|
|
|
|
96
|
|
Other current liabilities
|
|
|
228
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
812
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
F-51
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property,
Plant and Equipment
|
Net property, plant and equipment consisted of the following as
of December 31, 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
90
|
|
|
$
|
79
|
|
Buildings and improvements
|
|
|
284
|
|
|
|
265
|
|
Machinery and equipment
|
|
|
570
|
|
|
|
472
|
|
Vending machines
|
|
|
282
|
|
|
|
258
|
|
Software
|
|
|
125
|
|
|
|
105
|
|
Construction-in-progress
|
|
|
120
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
1,471
|
|
|
|
1,254
|
|
Less: accumulated depreciation and amortization
|
|
|
(603
|
)
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
868
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, the amount reflected in
building and improvements and machinery and
equipment at cost included $23 million and
$1 million of assets under capital lease, respectively. As
of December 31, 2007 and 2006, the net book value of assets
under capital lease was $22 million and $23 million,
respectively.
Depreciation expense amounted to $120 million,
$94 million and $48 million in 2007, 2006 and 2005,
respectively.
Capitalized interest was $6 million, $3 million and
$1 million during 2007, 2006 and 2005, respectively.
|
|
7.
|
Investments
in Unconsolidated Subsidiaries
|
The Company has investments in 50% owned Mexican joint ventures
accounted for under the equity method of accounting. The
carrying value of the investments was $13 million and
$12 million as of December 31, 2007 and 2006,
respectively.
Dr
Pepper/Seven Up Bottling Group
In 2005, Cadbury Schweppes purchased approximately 5% of DPSUBG,
increasing its investment to approximately 45%. On May 2,
2006, the Company purchased the remaining 55% of DPSUBG. As a
result DPSUBG became a fully-owned subsidiary and its results
were combined from that date forward. Refer to Note 3. As
of May 1, 2006 and as of January 1, 2006, the Company
owned approximately 45% of DPSUBG. As of January 2, 2005,
the investment in DPSUBG was approximately 40%. The following
schedules summarize DPSUBGs reported financial information
(in millions):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Current assets
|
|
$
|
418
|
|
Noncurrent assets
|
|
|
1,557
|
|
|
|
|
|
|
Total assets
|
|
|
1,975
|
|
Current liabilities
|
|
|
368
|
|
Noncurrent liabilities
|
|
|
1,081
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,449
|
|
Shareowners equity
|
|
|
526
|
|
|
|
|
|
|
Total liabilities and shareowners equity
|
|
$
|
1,975
|
|
|
|
|
|
|
Company equity investment
|
|
$
|
235
|
|
|
|
|
|
|
F-52
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
For the Year
|
|
|
|
2006 to
|
|
|
Ended
|
|
|
|
May 1, 2006
|
|
|
December 31, 2005
|
|
|
Net sales
|
|
$
|
708
|
|
|
$
|
2,042
|
|
Cost of goods sold
|
|
|
469
|
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
$
|
239
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
32
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of the goodwill for the fiscal
years ended December 31, 2007 and 2006 by reporting unit
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage
|
|
|
Finished
|
|
|
Bottling
|
|
|
Mexico and
|
|
|
|
|
|
|
Concentrates
|
|
|
Goods
|
|
|
Group
|
|
|
the Caribbean
|
|
|
Total
|
|
|
Balance as of January 1, 2006
|
|
$
|
1,415
|
|
|
$
|
989
|
|
|
$
|
2
|
|
|
$
|
38
|
|
|
$
|
2,444
|
|
Acquisitions
|
|
|
322
|
|
|
|
233
|
|
|
|
186
|
|
|
|
|
|
|
|
741
|
|
Changes due to currency
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
188
|
|
|
$
|
37
|
|
|
$
|
3,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Changes due to currency
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
1,731
|
|
|
$
|
1,220
|
|
|
$
|
195
|
|
|
$
|
37
|
|
|
$
|
3,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of the
Companys intangible assets other than goodwill as of
December 31, 2007 and December 31, 2006 are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
Acquisitions,
|
|
|
Changes
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
(Disposals) &
|
|
|
Due to
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2007
|
|
(Years)
|
|
|
Amount
|
|
|
(Write-offs)
|
|
|
Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
3,096
|
|
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
3,087
|
|
|
$
|
|
|
|
$
|
3,087
|
|
Bottler agreements
|
|
|
|
|
|
|
392
|
|
|
|
6
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
Distributor rights
|
|
|
|
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
9
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
(17
|
)
|
|
|
12
|
|
Customer relationships
|
|
|
7
|
|
|
|
73
|
|
|
|
3
|
|
|
|
|
|
|
|
76
|
|
|
|
(20
|
)
|
|
|
56
|
|
Bottler agreements
|
|
|
7
|
|
|
|
64
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
57
|
|
|
|
(19
|
)
|
|
|
38
|
|
Distributor rights
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,678
|
|
|
$
|
(5
|
)
|
|
$
|
1
|
|
|
$
|
3,674
|
|
|
$
|
(57
|
)
|
|
$
|
3,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
Acquisitions,
|
|
|
Changes
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
(Disposals) &
|
|
|
Due to
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2006
|
|
(Years)
|
|
|
Amount
|
|
|
(Write-offs)
|
|
|
Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
2,929
|
|
|
$
|
168
|
|
|
$
|
(1
|
)
|
|
$
|
3,096
|
|
|
|
|
|
|
$
|
3,096
|
|
Bottler agreements
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
Distributor rights
|
|
|
|
|
|
|
7
|
|
|
|
17
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
8
|
|
|
|
19
|
|
|
|
10
|
|
|
|
|
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
17
|
|
Customer relationships
|
|
|
7
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
(8
|
)
|
|
|
65
|
|
Bottler agreements
|
|
|
7
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
(7
|
)
|
|
|
57
|
|
Distributor rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension assets
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,957
|
|
|
$
|
722
|
|
|
$
|
(1
|
)
|
|
$
|
3,678
|
|
|
$
|
(27
|
)
|
|
$
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets was $30 million,
$19 million and $3 million in 2007, 2006 and 2005,
respectively. No impairment expense was recognized in 2006 and
2005. Amortization expense of these intangible assets over the
next five years is expected to be the following:
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Amortization
|
|
Year
|
|
Expense
|
|
|
2008
|
|
$
|
28
|
|
2009
|
|
|
24
|
|
2010
|
|
|
24
|
|
2011
|
|
|
12
|
|
2012
|
|
|
6
|
|
In 2007, the Company recorded impairment charges of
approximately $6 million, primarily related to the
Accelerade brand. The Accelerade brand is a component of the
Companys Finished Goods operating segment. The fair values
were determined using discounted cash flow analyses. Because the
fair values were less than the carrying values of the assets,
the Company recorded impairment charges to reduce the carrying
values of the assets to their respective fair values. These
impairment charges were recorded in impairment of
intangible assets in the Combined Statement of Operations.
In 2007, following the termination of the Companys
distribution agreements for glacéau products, it received a
payment of approximately $92 million. The Company
recognized a net gain of $71 million after the write-off of
associated assets.
In 2006, the Company sold the Slush Puppie business and certain
related assets, which included certain brands with net book
value of $14 million, to the ICEE Company for
$23 million. The Company also sold the Grandmas
Molasses brand and certain related assets, which had a net book
value of $0 million to B&G Foods for $30 million.
In 2005, the Company sold the Holland House brand, which had a
net book value of $0 million, for $36 million to
Mizkan Americas, Inc.
These financial statements reflect a tax provision as if the
Company filed its own separate tax return. The Company, however,
is included in the consolidated federal income tax return of
Cadbury Schweppes Americas, Inc. and subsidiaries.
F-54
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Income before income taxes and cumulative effect of change in
accounting policy was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
$
|
650
|
|
|
$
|
698
|
|
|
$
|
706
|
|
Non-U.S.
|
|
|
169
|
|
|
|
110
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
819
|
|
|
$
|
808
|
|
|
$
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes attributable to continuing
operations has the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
199
|
|
|
$
|
220
|
|
|
$
|
176
|
|
State
|
|
|
33
|
|
|
|
40
|
|
|
|
32
|
|
Non-U.S.
|
|
|
41
|
|
|
|
23
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
273
|
|
|
|
283
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
29
|
|
|
|
10
|
|
|
|
44
|
|
State
|
|
|
4
|
|
|
|
7
|
|
|
|
26
|
|
Non-U.S.
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
49
|
|
|
|
15
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, 2006 and 2005, the reported amount of income tax
expense is different from the amount of income tax expense that
would result from applying the federal statutory rate due
principally to state taxes, tax reserves and the deduction for
domestic production activity.
The following is a reconciliation of income taxes computed at
the U.S. federal statutory tax rate to the income taxes
reported in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal income tax at 35%
|
|
$
|
287
|
|
|
$
|
283
|
|
|
$
|
283
|
|
State income taxes, net
|
|
|
26
|
|
|
|
28
|
|
|
|
30
|
|
Impact of
non-U.S.
operations
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
7
|
|
Other
|
|
|
11
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.3
|
%
|
|
|
36.9
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences giving rise to deferred
income tax assets and liabilities were:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
$
|
6
|
|
|
$
|
10
|
|
Compensation accruals
|
|
|
25
|
|
|
|
26
|
|
Inventory
|
|
|
19
|
|
|
|
10
|
|
Net operating loss and credit carryforwards
|
|
|
5
|
|
|
|
9
|
|
Accrued liabilities
|
|
|
47
|
|
|
|
40
|
|
Other
|
|
|
69
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(124
|
)
|
|
|
(104
|
)
|
Intangible assets
|
|
|
(1,269
|
)
|
|
|
(1,234
|
)
|
Other
|
|
|
(13
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,406
|
)
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(1,235
|
)
|
|
$
|
(1,222
|
)
|
|
|
|
|
|
|
|
|
|
The major temporary differences that give rise to the net
deferred tax liabilities are intangible assets and fixed asset
depreciation. The Company has approximately $56 million of
U.S. state and foreign net operating loss carryforwards as
of December 31, 2007. Of this total, $52 million are
state net operating losses. Net operating losses generated in
the U.S. state jurisdictions, if unused, will expire from
2008 to 2027. The
non-U.S. net
operating loss carryforwards of $4 million will expire from
2008 to 2016. No valuation allowance has been provided on
deferred tax assets as management believes it is more likely
than not that the deferred income tax assets will be fully
recoverable.
The Company files income tax returns in various
U.S. federal, state and local jurisdictions. The Company
also files income tax returns in various foreign jurisdictions,
principally in Canada, Mexico and the United Kingdom. The
U.S. and most state and local income tax returns for years
prior to 2003 are considered closed to examination by applicable
tax authorities. Federal income tax returns for 2004 and 2005
are currently under examination by the Internal Revenue Service.
Certain Canadian tax returns remain open for audit from 2001 and
forward, while the Mexican returns are open for tax years 2002
and forward.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which is an interpretation of
SFAS 109. The Company has adopted the provisions of
FIN 48 effective January 1, 2007, as required.
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
Under FIN 48, the Company is required to determine whether
a tax position is more likely than not to be sustained upon
examination by tax authorities assuming that the relevant taxing
authorities have full knowledge of all relevant information. The
tax benefits related to uncertain tax positions to be recorded
in the financial statements should represent the maximum benefit
that has a greater than fifty percent likelihood of being
realized. Changes in judgment can occur between initial
recognition through settlement or ultimate derecognition based
upon changes in facts, circumstances and information available
at each reporting date.
F-56
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The cumulative effect of adopting FIN 48 was a
$16 million increase in tax reserves and a corresponding
decrease to opening retained earnings at January 1, 2007.
Upon adoption, the Companys amount of gross unrecognized
tax benefit at January 1, 2007 was $70 million.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
Amount
|
|
|
Unrecognized tax benefits:
|
|
|
|
|
Amount at adoption of FIN 48
|
|
$
|
70
|
|
Tax positions taken in prior periods:
|
|
|
|
|
Gross increases
|
|
|
11
|
|
Gross decreases
|
|
|
(9
|
)
|
Tax positions taken in current period:
|
|
|
|
|
Gross increases
|
|
|
30
|
|
Gross decreases
|
|
|
|
|
Settlements with taxing authorities cash paid
|
|
|
(4
|
)
|
Lapse of applicable statute of limitations
|
|
|
|
|
|
|
|
|
|
Amount as of December 31, 2007
|
|
$
|
98
|
|
|
|
|
|
|
The gross balance of unrecognized tax benefits of
$98 million excluded $23 million of offsetting tax
benefits. The net unrecognized tax benefits of $75 million
includes $60 million that, if recognized, would benefit the
effective income tax rate. It is reasonably possible that the
effective tax rate will be impacted by the resolution of some
matters audited by various taxing authorities within the next
twelve months, but a reasonable estimate of such impact cannot
be made at this time.
The Company accrues interest and penalties on its uncertain tax
positions as a component of its provision for income taxes. The
amount of interest the Company accrued for uncertain tax
positions during 2007 was $3 million. There was also a
reduction of interest and penalties of $5 million related
to changes in estimates and payments during 2007. At
December 31, 2007, the Company had a total of
$14 million accrued for interest and penalties for its
uncertain tax positions.
|
|
10.
|
Long-term
Obligations
|
Debt
Payable to Related Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans payable to related parties, with various fixed and
floating interest rates(a)
|
|
$
|
3,019
|
|
|
$
|
3,249
|
|
Less Current portion
|
|
|
(126
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to related parties
|
|
$
|
2,893
|
|
|
$
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Debt agreements with related parties are as follows: |
Cadbury
Ireland Limited (CIL)
Total principal owed to CIL was $40 million for both 2007
and 2006, respectively. The debt bears interest at a floating
rate based on
3-month
LIBOR. Actual rates were 5.31% and 5.36% at December 31,
2007 and 2006, respectively. The outstanding principal balance
is payable on demand and is included in current portion of
long-
F-57
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
term debt. The Company recorded $2 million,
$2 million and $1 million of interest expense related
to the debt for 2007, 2006 and 2005, respectively.
Cadbury
Schweppes Finance plc, (CSFPLC)
The Company has a variety of debt agreements with CSFPLC with
maturity dates ranging from May 2008 to May 2011. These
agreements had a combined outstanding principal balance of
$511 million and $2,937 million as of
December 31, 2007 and 2006, respectively. As of
December 31, 2007 and 2006, $511 million and
$2,387 million of the debt was based upon a floating rate
ranging between LIBOR plus 1.5% to LIBOR plus 2.5%. The
remaining principal balance of $550 million as of
December 31, 2006 had a stated fixed rate ranging from
5.76% to 5.95%. The Company recorded $65 million,
$175 million and $99 million of interest expense
related to these notes for 2007, 2006 and 2005, respectively.
Cadbury
Schweppes Overseas Limited (CSOL)
Total principal owed to CSOL was $0 million and
$22 million as of December 31, 2007 and 2006,
respectively. The Company settled the note in November 2007. The
debt bore interest at a floating rate based on Mexican LIBOR
plus 1.5%. The actual interest rate was 9.89% at
December 31, 2006. The Company recorded $2 million,
$15 million and $40 million of interest expense
related to the note for 2007, 2006 and 2005, respectively.
Cadbury
Adams Canada, Inc. (CACI)
Total principal owed to CACI was $0 million and
$15 million as of December 31, 2007 and 2006,
respectively and is payable on demand. The debt bore interest at
a floating rate based on 1 month Canadian LIBOR. The actual
rate was 4.26% at December 31, 2006. The Company recorded
$2 million of interest expense related to the debt for 2007
and less than $1 million for both 2006 and 2005.
Cadbury
Schweppes Americas Holding BV (CSAHBV)
The Company has a variety of debt agreements with CSAHBV with
maturity dates ranging from 2009 to 2017. These agreements had a
combined outstanding principal balance of $2,468 million as
of December 31, 2007 and bear interest at a floating rate
ranging between
6-month USD
LIBOR plus 0.75% to
6-month USD
LIBOR plus 1.75%. The Company recorded $149 million of
interest expense related to these notes for 2007.
Cadbury
Schweppes Treasury America (CSTA)
Total principal owed to CSTA was $0 million and
$235 million as of December 31, 2007 and 2006,
respectively. The note carried a stated rate of 7.25% per annum.
The note was purchased by an entity within the Company on
May 23, 2007. The Company recorded $7 million and
$11 million of interest expense related to these notes for
2007 and 2006, respectively.
F-58
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Debt
Payable to Third Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .325%, due April 2008, payable in
Canadian Dollars)(2)
|
|
$
|
|
|
|
$
|
114
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .45%, due April 2010, payable in Canadian
Dollars)(2)
|
|
|
|
|
|
|
129
|
|
Bonds payable, 4.90% fixed interest rate. Interest payments due
semiannually. Principal due December 2008. Payable in Canadian
Dollars(3)
|
|
|
|
|
|
|
278
|
|
Capital leases
|
|
|
21
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21
|
|
|
|
545
|
|
Less current installments
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to third parties
|
|
$
|
19
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
CDOR is the average of the annual rates for Canadian Dollar
bankers acceptances having the specified term and face
amount of the banks named in Schedule 1 of the Canadian
Bank Act. |
|
(2) |
|
On August 29, 2007, the Company transferred the notes
payable to bank obligations of $281 million to a subsidiary
of Cadbury Schweppes, with no potential for future recourse
against the Company. |
|
(3) |
|
On August 31, 2007, the Company paid off the outstanding
balance of bonds payable. |
Long-Term
Debt Maturities
Long-term debt maturities, excluding capital leases, for the
next five years are as follows (in millions):
|
|
|
|
|
Year
|
|
|
|
|
2008
|
|
$
|
126
|
|
2009
|
|
|
494
|
|
2010
|
|
|
|
|
2011
|
|
|
425
|
|
2012
|
|
|
740
|
|
Thereafter
|
|
|
1,234
|
|
|
|
|
|
|
|
|
$
|
3,019
|
|
|
|
|
|
|
Lines
of Credit
As of December 31, 2007, the Company had available credit
lines totaling $45 million. The Company had letters of
credit totaling $9 million outstanding under its existing
credit line facilities. Accordingly, the Companys maximum
borrowing base under these facilities was $36 million. The
Company also had additional unused letters of credit totaling
$23 million for its Bottling Group operations that were not
related to any existing credit facilities.
Lease
Commitments
The Company has leases for certain facilities and equipment
which expire at various dates through 2020. Operating lease
expense was $46 million, $39 million and
$21 million in 2007, 2006 and 2005, respectively, and was
not offset by any sublease rental income. Future minimum lease
payments under capital and operating leases
F-59
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
with initial or remaining noncancellable lease terms in excess
of one year as of December 31, 2007 are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
Year
|
|
Leases
|
|
|
Leases
|
|
|
2008
|
|
$
|
72
|
|
|
$
|
5
|
|
2009
|
|
|
53
|
|
|
|
5
|
|
2010
|
|
|
45
|
|
|
|
5
|
|
2011
|
|
|
36
|
|
|
|
4
|
|
2012
|
|
|
29
|
|
|
|
4
|
|
Thereafter
|
|
|
46
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
281
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest at rates ranging from 6.5% to 12.6%
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
The future minimum lease commitments for leases that have been
expensed as part of restructuring provisions in earlier years
are not included in the above table. Of the $21 million
above, $19 million is included in long-term capital
lease obligations, and $2 million is included in
accounts payable and accrued expenses.
|
|
11.
|
Commitments
and Contingencies
|
Legal
Matters
The Company is occasionally subject to litigation or other legal
proceedings. Set forth below is a description of the
Companys significant pending legal matters and one
recently settled legal matter. Although the estimated range of
loss, if any, for the pending legal matters described below
cannot be estimated at this time, the Company does not believe
that the outcome of these, or any other, pending legal matters,
individually or collectively, will have a material adverse
effect on the business or financial condition of the Company
although such matters may have a materially adverse effect on
the Companys results of operations in a particular period.
Snapple
Distributor Litigation
In 2004, one of the Companys subsidiaries, Snapple
Beverage Corp., and several affiliated entities of Snapple
Beverage Corp., including Snapple Distributors, Inc., were sued
in United States District Court, Southern District of New York,
by 57 area route distributors for alleged price discrimination,
breach of contract, retaliation, tortious interference and
breach of the implied duty of good faith and fair dealing
arising out of their respective area route distributor
agreements. Each plaintiff sought damages in excess of
$225 million. The plaintiffs initially filed the case as a
class action but withdrew their class certification motion. They
are proceeding as individual plaintiffs but the cases have been
consolidated for discovery and procedural purposes. On
September 14, 2007, the court granted the Companys
motion for summary judgment, dismissing the plaintiffs
federal claims of price discrimination and dismissing, without
prejudice, the plaintiffs remaining claims under state
law. The plaintiffs have filed an appeal of the decision and may
decide to re-file the state law claims in state court. The
Company believes it has meritorious defenses with respect to the
appeal and will defend itself vigorously. However, there is no
assurance that the outcome of the appeal, or any trial, if
claims are refiled, will be in the Companys favor.
Holk &
Weiner Snapple Litigation
In 2007, Snapple Beverage Corp. was sued by Stacy Holk, in New
Jersey Superior Court, Monmouth County, and by Hernant Mehta in
the U.S. District Court, Southern District of New York. The
plaintiffs filed the case as a class action. The plaintiffs
allege that Snapples labeling of certain of its drinks is
misleading
and/or
deceptive. The
F-60
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
plaintiffs seek unspecified damages on behalf of the class,
including enjoining Snapple from various labeling practices,
disgorging profits, reimbursing of monies paid for product and
treble damages. The Mehta case in New York has since been
dropped by the plaintiff. However, the attorneys in the Holk,
New Jersey case and a new plaintiff, Evan Weiner, have since
filed a new action in New York substantially similar to the New
Jersey action. In each case, the Company has filed motions to
dismiss the plaintiffs claims on a variety of grounds. The
Company believes it has meritorious defenses to the claims
asserted and will defend itself vigorously. However, there is no
assurance that the outcome of the Companys motions or at
trial will be in its favor.
Nicolas
Steele v. Seven Up/RC Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of Southern
California, Inc.
California Wage Audit
In 2007, one of the Companys subsidiaries, Seven Up/RC
Bottling Company Inc., was sued by Nicolas Steele, and in a
separate action by Robert Jones, in each case in Superior Court
in the State of California (Orange County), alleging that its
subsidiary failed to provide meal and rest periods and itemized
wage statements in accordance with applicable California wage
and hour law. The cases have been filed as class actions. The
classes, which have not yet been certified, consist of all
employees of one of the Companys subsidiaries who have
held a merchandiser or delivery driver position in southern
California in the past three years. The potential class size
could be substantially higher, due to the number of individuals
who have held these positions over the three year period. On
behalf of the classes, the plaintiffs claim lost wages, waiting
time penalties and other penalties for each violation of the
statute. The Company believes it has meritorious defenses to the
claims asserted and will defend itself vigorously. However,
there is no assurance that the outcome of this matter will be in
its favor.
The Company has been requested to conduct an audit of its meal
and rest periods for all non-exempt employees in California at
the direction of the California Department of Labor. At this
time, the Company has declined to conduct such an audit until
there is judicial clarification of the intent of the statute.
The Company cannot predict the outcome of such an audit.
Dr
Pepper Bottling Company of Texas, Inc. Shareholder
Litigation
On June 1, 2007, the Company settled a lawsuit brought in
1999 by certain stockholders of Dr Pepper Bottling Company of
Texas, Inc. for $47 million, which included
$15 million of interest. The lawsuit was assumed as part of
the DPSUBG acquisition (see Note 3) and was fully
reserved as of December 31, 2006.
Environmental,
Health and Safety Matters
The Company operates many manufacturing, bottling and
distribution facilities. In these and other aspects of the
Companys business, it is subject to a variety of federal,
state and local environment, health and safety laws and
regulations. The Company maintains environmental, health and
safety policies and a quality, environmental, health and safety
program designed to ensure compliance with applicable laws and
regulations. However, the nature of the Companys business
exposes it to the risk of claims with respect to environmental,
health and safety matters, and there can be no assurance that
material costs or liabilities will not be incurred in connection
with such claims. However, the Company is not currently named as
a party in any judicial or administrative proceeding relating to
environmental, health and safety matters which would materially
affect its operations.
F-61
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beverage Concentrates
|
|
$
|
24
|
|
|
$
|
5
|
|
|
$
|
1
|
|
Finished Goods
|
|
|
20
|
|
|
|
3
|
|
|
|
3
|
|
Bottling Group
|
|
|
16
|
|
|
|
8
|
|
|
|
|
|
Mexico and Caribbean
|
|
|
7
|
|
|
|
3
|
|
|
|
1
|
|
Corporate
|
|
|
9
|
|
|
|
8
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring Costs
|
|
$
|
76
|
|
|
$
|
27
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company implements restructuring programs from time to time
and incurs costs that are designed to improve operating
effectiveness and lower costs. These programs have included
closure of manufacturing plants, reductions in force,
integration of back office operations and outsourcing of certain
transactional activities. When the Company implements these
programs, it incurs various charges, including severance and
other employment-related costs.
The charges recorded during 2007 are primarily related to the
following:
|
|
|
|
|
Organizational restructuring announced on October 10, 2007.
As of December 31, 2007, this restructuring, which was
intended to create a more efficient organization, resulted in
the reduction of approximately 450 employees in the
Companys corporate, sales and supply chain functions and
included approximately 98 employees in Plano, Texas,
131 employees in Rye Brook, New York and 54 employees
in Aspers, Pennsylvania, with the balance occurring at a number
of sites located in the United States, Canada and Mexico. The
restructuring also includes the closure of two manufacturing
facilities in Denver, Colorado (closed in December
2007) and Waterloo, New York (due to close in March 2008).
The employee reductions and facilities closures are expected to
be completed by June 2008. As a result of this restructuring,
the Company recognized a charge of $32 million in 2007.
|
|
|
|
Continued integration of the Bottling Group, which was initiated
in 2006, resulted in charges of $21 million.
|
|
|
|
Integration of technology facilities initiated in 2007.
|
|
|
|
Closure of the St. Catharines facility initiated in 2007.
|
The charges recorded during 2006 are primarily related to the
following:
|
|
|
|
|
Integration of the Bottling Group initiated in 2006; and
|
|
|
|
Outsourcing initiatives of the Companys back office
operations service center and a reorganization of the
Companys IT operations initiated in 2006.
|
The charges recorded during 2005 are primarily related to the
following:
|
|
|
|
|
Implementation of additional phases of the Companys back
office operations service center initiated in 2004; and
|
|
|
|
Closure of the North Brunswick plant initiated in 2004.
|
The Company expects to incur approximately $42 million of
total pre-tax, non-recurring charges in 2008 with respect to the
restructuring items discussed above.
F-62
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring liabilities along with charges to expense, cash
payment and non-cash charges were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Asset
|
|
|
External
|
|
|
Closure
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Write-off
|
|
|
Consulting
|
|
|
Costs
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of December 31, 2005
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
7
|
|
2005 Charges to expense
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
2005 Cash payments
|
|
|
(7
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Due to/from Cadbury Schweppes
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2006
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Charges to expense
|
|
|
9
|
|
|
|
3
|
|
|
|
9
|
|
|
|
1
|
|
|
|
5
|
|
|
|
27
|
|
Cash payments
|
|
|
(7
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(26
|
)
|
Non-cash items
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Charges to expense
|
|
|
47
|
|
|
|
3
|
|
|
|
10
|
|
|
|
5
|
|
|
|
11
|
|
|
|
76
|
|
Cash payments
|
|
|
(22
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
(12
|
)
|
|
|
(52
|
)
|
Non-cash items
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liabilities are included in accounts payable
and accrued expenses.
Restructuring charges recorded by each operating segment were as
follows:
Beverage
Concentrates
Beverage Concentrates recorded restructuring costs of
$24 million, $5 million and $1 million in 2007,
2006 and 2005, respectively. During 2007, the costs primarily
related to the organizational restructuring. There were also
additional costs related to various other cost reduction and
efficiency initiatives. The cost reduction and efficiency
initiatives primarily related to the alignment of management
information systems, the consolidation of the back office
operations from the acquired businesses, the elimination of
duplicate employees, and employee relocations. The Beverage
Concentrates segment expects to incur additional charges related
to these restructuring plans of approximately $15 million
over the next year.
During 2006 and 2005, the charges mainly related to the
integration of the Bottling Group with existing businesses of
American Beverages.
Finished
Goods
Finished Goods recorded restructuring costs of $20 million,
$3 million and $3 million in 2007, 2006 and 2005,
respectively. During 2007, the costs primarily related to the
organizational restructuring in a number of sites located in the
United States and Canada. The Finished Goods segment expects to
incur additional charges related to this restructuring plan of
approximately $11 million over the next year.
During 2006, the costs primarily related to the integration of
the Bottling Group. During 2005, the charges mainly related to
the integration of Finished Goods into the existing business of
Americas Beverages. These respective activities were completed
in 2007.
F-63
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Bottling
Group
Bottling Group recorded restructuring costs of $16 million
and $8 million in 2007 and 2006, respectively, primarily
related to the integration of the Bottling Group as discussed
above. Bottling Group expects to incur additional costs related
to their restructuring plan of approximately $13 million
over the next year.
Mexico
and the Caribbean
Mexico and the Caribbean recorded restructuring costs of
$7 million, $3 million and $1 million in 2007,
2006 and 2005, respectively. The costs primarily related to
restructuring actions initiated in 2003 to outsource the
activities of Mexico and the Caribbeans warehousing and
distribution processes. During 2007, there were also costs
related to the organizational restructuring in a number of sites
located in Mexico. The cumulative amount related to the
reduction in force incurred to date is $1 million. The
Company expects to incur additional costs related to this
restructuring plan of approximately $2 million over the
next year.
Corporate
The Company recorded corporate restructuring costs of
$9 million, $8 million and $5 million in 2007,
2006 and 2005, respectively. During 2007, the costs primarily
related to the organizational restructuring. The Company has
incurred cumulative costs of $3 million to date and expects
to incur additional costs related to this restructuring plan of
approximately $1 million over the next year.
During 2006, the costs primarily related to restructuring
actions initiated in 2006, and the human resource outsourcing
program that was initiated in 2005. No further costs are
expected to be incurred by the Company in respect of these
programs. During 2005, the charges mainly related to the
outsourcing of human resources activities in Latin America and
the global outsourcing of shared business services that were
both initiated in 2005. The human resource outsourcing program
was complete in 2005.
|
|
13.
|
Employee
Benefit Plans
|
Pension
and Postretirement Plans
The Company has nine stand-alone non-contributory defined
benefit plans each with a measurement date of September 30.
To participate in the defined benefit plans, employees must have
been employed by the Company for at least one year.
The Company has five stand-alone postretirement health care
plans, which provide benefits to a defined group of employees at
the discretion of the Company. These postretirement benefits are
limited to eligible expenses and are subject to deductibles,
co-payment provisions, and lifetime maximum amounts on coverage.
Employee benefit plan obligations and expenses included in the
combined financial statements are determined from actuarial
analyses based on plan assumptions; employee demographic data,
including years of service and compensation; benefits and claims
paid; and employer contributions. These funds are funded as
benefits are paid, and therefore do not have an investment
strategy or targeted allocations for plan assets.
Cadbury Schweppes sponsors five defined benefit plans and one
postretirement health care plan in which employees of the
Company participate. Expenses related to these plans were
determined by specifically identifying the costs for the
Companys participants.
SFAS 158 requires that beginning in 2008, assumptions used
to measure the Companys annual pension and postretirement
medical expenses be determined as of the balance sheet date and
all plan assets and liabilities be reported as of that date. For
fiscal years ending December 31, 2007 and prior, the
majority of the Companys pension and other postretirement
plans used a September 30 measurement date and all plan assets
and obligations were generally reported as of that date.
F-64
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
U.S.
Plans
The following table summarizes the components of net periodic
benefit cost for the U.S. defined benefit plans recognized
in the Combined Statements of Operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Curtailments/settlements
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the U.S. postretirement
plans was less than $0.5 million for 2007, 2006 and 2005.
The estimated prior service cost and estimated net loss for the
U.S. plans that will be amortized from accumulated other
comprehensive loss into periodic benefit cost in 2008 is each
less than $0.5 million.
The following table summarizes the projected benefit obligation
for U.S. plans as of December 31, 2007 and 2006 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
As of beginning of year
|
|
$
|
58
|
|
|
$
|
21
|
|
|
$
|
6
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Acquired in business combinations
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
2
|
|
Actuarial gain/(loss)
|
|
|
(4
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Curtailments/settlements
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
46
|
|
|
$
|
58
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
46
|
|
|
$
|
57
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal assumptions related to the U.S. defined
benefit plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average discount rate
|
|
|
5.90
|
%
|
|
|
5.72
|
%
|
|
|
5.50
|
%
|
|
|
5.90
|
%
|
|
|
5.90
|
%
|
|
|
5.50
|
%
|
Expected long-term rate of return on assets
|
|
|
7.30
|
%
|
|
|
7.53
|
%
|
|
|
7.30
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
F-65
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table is a reconciliation of the U.S. defined
benefit pension plans assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As of beginning of year
|
|
$
|
56
|
|
|
$
|
19
|
|
Actual return of plan assets
|
|
|
7
|
|
|
|
2
|
|
Employer contribution
|
|
|
2
|
|
|
|
2
|
|
Acquired in business combinations
|
|
|
|
|
|
|
34
|
|
Actuarial gain/loss
|
|
|
|
|
|
|
1
|
|
Benefits paid
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Special termination benefits
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
53
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the U.S. post-retirement plans were
$1 million in 2007 and less than $0.5 million in 2006.
The expected long-term rate of return on U.S. pension fund
assets held by the Companys pension trusts was determined
based on several factors, including input from pension
investment consultants and projected long-term returns of broad
equity and bond indices. The plans historical returns were
also considered. The expected long-term rate of return on the
assets in the plans was based on an asset allocation assumption
of about 60% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 40% with fixed income
managers, with an expected long-term rate of return of about
5.5%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
The asset allocation for the U.S. defined benefit pension
plans for December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
60
|
%
|
Fixed income
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys funded status
for the U.S. plans as of December 31, 2007 and 2006
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(46
|
)
|
|
$
|
(58
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
Plan assets at fair value
|
|
|
53
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
7
|
|
|
$
|
(2
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
F-66
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes amounts recognized in the balance
sheets related to the U.S. plans as of December 31,
2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Non-current liabilities
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in
accumulated other comprehensive income for the
U.S. plans as of December 31, 2007 and 2006 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Net (gains) losses
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive (income) loss
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
10
|
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
6
|
|
Accumulated benefit obligation
|
|
|
10
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
9
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
The following table summarizes the expected cash activity for
the U.S. defined benefit plans and postretirement benefit
plans in the future (in millions):
|
|
|
|
|
|
|
|
|
Year
|
|
2007
|
|
|
2006
|
|
|
Company contributions 2008
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
$
|
|
|
|
$
|
|
|
2008
|
|
|
2
|
|
|
|
1
|
|
2009
|
|
|
2
|
|
|
|
1
|
|
2010
|
|
|
2
|
|
|
|
1
|
|
2011
|
|
|
2
|
|
|
|
1
|
|
2012
|
|
|
2
|
|
|
|
1
|
|
2013 2017
|
|
|
15
|
|
|
|
2
|
|
F-67
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
For measuring the expected postretirement benefit obligation for
the U.S. plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2007
|
|
9%
|
2008 2015
|
|
0.5% reduction each year to an
ultimate rate of 5% in 2015
|
The effect of a 1% increase or decrease in health care trend
rates on the U.S. postretirement benefit plans would change
the benefit obligation at the end of the year and the service
cost plus interest cost by less than $0.5 million.
Foreign
Plans
The following table summarizes the components of net periodic
benefit cost related to foreign defined benefit plans recognized
in the Combined Statements of Operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the foreign postretirement
plans was less than $0.5 million for 2007, 2006 and 2005.
The estimated prior service cost and estimated net loss for the
foreign plans that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost in 2008 are
each less than $0.5 million.
The following table summarizes the projected benefit obligation
for foreign plans as of December 31, 2007 and 2006 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
As of beginning of year
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Exchange adjustments
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain/(loss)
|
|
|
(2
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
Benefits paid
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
20
|
|
|
$
|
18
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The principal assumptions related to the foreign defined benefit
plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average discount rate
|
|
|
6.06
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
|
|
5.25
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
Expected long-term rate of return on assets
|
|
|
7.56
|
%
|
|
|
7.61
|
%
|
|
|
7.74
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
3.81
|
%
|
|
|
4.13
|
%
|
|
|
4.27
|
%
|
|
|
3.50
|
%
|
|
|
4.50
|
%
|
|
|
5.00
|
%
|
The following table is a reconciliation of the foreign defined
benefit pension plans assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As of beginning of year
|
|
$
|
16
|
|
|
$
|
14
|
|
Actual return of plan assets
|
|
|
|
|
|
|
2
|
|
Employer contribution
|
|
|
1
|
|
|
|
1
|
|
Exchange adjustments
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
17
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the foreign postretirement plans were less
than $0.5 million for 2007 and 2006.
The expected long-term rate of return on foreign pension fund
assets held by the Companys pension trusts was determined
based on several factors, including input from pension
investment consultants and projected long-term returns of broad
equity and bond indices. The plans historical returns were
also considered. The expected long-term rate of return on the
assets in the plans was based on an asset allocation assumption
of about 44% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 56% with fixed income
managers, with an expected long-term rate of return of about
5.9%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
The asset allocation for the foreign defined benefit pension
plans as of December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
44
|
%
|
|
|
43
|
%
|
Fixed income
|
|
|
56
|
%
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys funded status
for the foreign plans as of December 31, 2007 and 2006 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
Plan assets at fair value
|
|
|
17
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
F-69
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes amounts recognized in the
Combined Balance Sheets related to the foreign plans as of
December 31, 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Non-current liabilities
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Accumulated other comprehensive (income) loss
|
|
|
5
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in accumulated
other comprehensive (income) loss for the foreign defined
benefit plans as of December 31, 2007 and 2006 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Net (gains) losses
|
|
|
5
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive (income) loss
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
3
|
|
|
$
|
2
|
|
Accumulated benefit obligation
|
|
|
17
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
13
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
The following table summarizes the expected cash activity for
the foreign defined benefit plans and postretirement benefit
plans in the future (in millions):
|
|
|
|
|
|
|
|
|
Year
|
|
2007
|
|
|
2006
|
|
|
Company contributions 2008
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
$
|
1
|
|
|
$
|
|
|
2008
|
|
|
1
|
|
|
|
|
|
2009
|
|
|
1
|
|
|
|
|
|
2010
|
|
|
1
|
|
|
|
|
|
2011
|
|
|
1
|
|
|
|
|
|
2012
|
|
|
1
|
|
|
|
|
|
2013 2017
|
|
|
6
|
|
|
|
1
|
|
F-70
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
For measuring the expected postretirement benefit obligation for
the foreign plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2007
|
|
9%
|
2008 2015
|
|
0.5% reduction each year to an
ultimate rate of 5% in 2015
|
The effect of a 1% increase or decrease in health care trend
rates on the foreign postretirement benefit plans would change
the benefit obligation at the end of the year and the service
cost plus interest cost by less than $0.5 million.
Multi-employer
Plans
The following table summarizes the components of net periodic
benefit cost related to the U.S. multi-employer plans
recognized in the Combined Statements of Operations (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
17
|
|
|
|
15
|
|
|
|
14
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Recognition of actuarial gain
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
22
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each individual component and total periodic benefit cost for
the foreign multi-employer plans were less than
$0.5 million for all periods presented in the Combined
Statement of Operations.
The contributions paid into the U.S. and foreign
multi-employer plans on the Companys behalf by Cadbury
Schweppes were $30 million, $30 million and
$34 million for 2007, 2006 and 2005, respectively.
Savings
Incentive Plan
The Company sponsors a 401(k) Retirement Plan that covers
substantially all employees who meet certain eligibility
requirements. This plan permits both pretax and after-tax
contributions, which are subject to limitations imposed by
Internal Revenue Service regulations. The Company matches
employees contributions up to specified levels. The
Companys contributions to this plan were approximately
$12 million in 2007 and $6 million in 2006 and 2005.
The Companys contributions for 2008 are estimated to be
approximately $14 million.
|
|
14.
|
Stock-Based
Compensation Plan
|
Certain of the Companys employees participate in
stock-based compensation plans sponsored by Cadbury Schweppes.
These plans provide employees with stock or options to purchase
stock in Cadbury Schweppes. Given that the Companys
employees directly benefit from participation in these plans,
the expense incurred by Cadbury Schweppes for options granted to
its employees has been reflected in the Companys Combined
Statements of Operations in selling, general, and
administrative expenses. Stock-based compensation expense
was $21 million ($13 million net of tax),
$17 million ($10 million net of tax) and
$22 million ($13 million net of tax) in 2007, 2006 and
2005, respectively.
Prior to January 2, 2005, the Company applied APB 25 and
related interpretations when accounting for its stock-based
compensation plan. Under APB 25, compensation expense was
determined as the difference between
F-71
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
the market price and exercise price of the share-based award.
For fixed plans, compensation expense was determined on the date
of grant. For variable plans, compensation expense was measured
at each balance sheet date until the award became vested.
Stock-based compensation expense for 2007, 2006 and 2005 has
been determined based on SFAS 123(R), which the Company
adopted effective, January 3, 2005. SFAS 123(R)
requires the recognition of compensation expense in the Combined
Statements of Operations related to the fair value of employee
share-based awards. SFAS 123(R) revised SFAS 123 and
supersedes APB 25. The Company selected the modified prospective
method of transition; accordingly, prior periods have not been
restated. Upon adoption of SFAS 123(R), for awards which
were classified as liabilities, the Company was required to
reclassify the APB 25 historical compensation cost from equity
to liability and to recognize the difference between this and
the fair value liability through the current year statement of
operations. The cumulative effect of the change in accounting
policy for 2005 is recognized as a decrease in net income of
$10 million net of tax ($16 million gross) in the
Companys Combined Statements of Operations, as a separate
line item cumulative effect of change in accounting
policy.
Since January 2, 2005, the Company has recognized the cost
of all unvested employee stock-based compensation plans on a
straight-line attribution basis over their respective vesting
periods, net of estimated forfeitures. Certain of the
Companys employee share plans contain inflation indexed
earnings growth performance conditions. SFAS 123(R)
requires plans with such performance criteria to be accounted
for under the liability method. The liability method, as set out
in SFAS 123(R), requires a liability be recorded on the
balance sheet whereas no liability is required for employee
share awards accounted for under the equity method. In addition,
in calculating the income statement charge for share awards
under the liability method, the fair value of each award must be
re-measured at each reporting date until vesting whereas the
equity method requires the charge be calculated with reference
to the grant date fair value. This charge is calculated by
estimating the number of awards expected to vest for each plan
which is adjusted over the vesting period. This charge includes
an allocation of stock-based compensation costs incurred by
Cadbury Schweppes but which related to employees of the Company.
The outstanding value of options recognized by the equity method
has been reflected in Cadbury Schweppes net
investment in total invested equity, while the
options utilizing the liability method are reflected in
accounts payable and accrued expenses for the
current portion and other non-current liabilities
for the non-current portion. The Company did not receive cash in
any year, as a result of option exercises under share-based
payment arrangements. Actual tax benefits realized for the tax
deductions from option exercises were $10 million,
$5 million and $7 million for 2007, 2006 and 2005,
respectively. As of December 31, 2007, there was
$6 million of total unrecognized before-tax compensation
cost related to nonvested stock-based compensation arrangements.
That cost is expected to be recognized over a weighted-average
period of 1.7 years. The total intrinsic value of options
exercised during the year was $24 million, $13 million
and $17 million for 2007, 2006 and 2005, respectively. An
expense is recognized for the fair value at the date of grant of
the estimated number of shares that will be awarded to settle
the awards over the vesting period of each scheme.
The Company presents the tax benefits of deductions from the
exercise of stock options as financing cash inflows in the
Combined Statements of Cash Flows.
Awards under the plans are settled by Cadbury Schweppes, through
either repurchases of publicly available shares, or awards under
the Bonus Share Retention Plan (BSRP) and the Long
Term Incentive Plan (LTIP) will normally be
satisfied by the transfer of shares to participants by the
trustees of the Cadbury Schweppes Employee Trust (the
Employee Trust). The Employee Trust is a general
discretionary trust whose beneficiaries include employees and
former employees of Cadbury Schweppes and their dependents.
The Company has a number of share option plans that are
available to certain senior executives, including the LTIP and
BSRP, and the Discretionary Share Option Plans
(DSOP), full details of which are included below.
F-72
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Long
Term Incentive Plan
Approximately 15 senior executives of the Company have been
granted a conditional award of shares under the LTIP. This award
recognizes the significant contribution they make to shareowner
value and is designed to incentivize them to strive for
sustainable long-term performance. In 2007, awards for the
2007-2009
performance cycles were made to senior executives. Participants
accumulate dividend equivalent payments both on the conditional
share awards (which will only be paid to the extent that the
performance targets are achieved) and during the deferral
period. This part of the award is calculated as follows: number
of shares vested multiplied by aggregate of dividends paid in
the performance period divided by the share price on the vesting
date. The current LTIP has been in place since 1997. In 2004,
the Compensation Committee of Cadbury Schweppes (the
Committee) made a number of changes to the LTIP, and the
table below sets forth its key features. As explained below,
from 2006, performance ranges for the growth in Underlying
Earnings per Share (UEPS) are expressed in absolute
rather than post-inflation terms.
|
|
|
|
|
|
|
Awards Made Prior to 2004
|
|
Awards Made for 2004 Forward
|
|
Face value of conditional share award made
|
|
50%-80% of base salary
|
|
50%-120% of base salary (2004 and 2005). 80%-160% of base
salary (2006 forward).
|
Performance conditions
|
|
Award is based on Total Stockholder Return (TSR)
relative to the Comparator Group with a UEPS hurdle.
|
|
Half of the award is based on growth in UEPS over the three year
performance period. The other half of the award is based on TSR
relative to the Comparator Group.
|
UEPS vesting requirement(1)
|
|
For the award to vest at all, UEPS must have grown by at least
the rate of inflation as measured by the Retail Price Index plus
2% per annum (over three years).
|
|
The extent to which some, all or none of the award vest depends
upon annual compound growth in aggregate UEPS over the
performance period:
|
|
|
|
|
30% of this half of the award will vest
if the absolute compound annual growth rate achieved is 6% or
more.
|
|
|
|
|
100% of this half of the award will vest
if the absolute compound annual growth rate achieved is 10% or
more.
|
|
|
|
|
Between 6% and 10%, the award will vest
proportionately.
|
TSR vesting requirement(1)
|
|
The extent to which some, all or none of the award vests depends
on our TSR relative to the Comparator Group:
|
|
The extent to which some, all or none of the award vests depends
upon our TSR relative to the Comparator Group:
|
|
|
The minimum award of 50% of the shares
conditionally granted will vest at the 50th percentile
ranking.
|
|
30% of this half of the award will vest
at the 50th percentile ranking from 2006.
|
|
|
100% of the award will vest at the
80th percentile ranking or above.
|
|
100% of this half of the award will vest
at the 80th percentile ranking or above.
|
F-73
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
Awards Made Prior to 2004
|
|
Awards Made for 2004 Forward
|
|
|
|
Between the 50th and
80th percentiles, the award will vest proportionately.
|
|
Between the 50th and
80th percentiles, the award will vest proportionately.
|
Re-tests
|
|
If the TSR performance criteria is not satisfied in the initial
three year performance period, the award will be deferred on an
annual basis for up to three years until the performance is
achieved over the extended period (i.e., either four, five or
six years). If the award does not vest after six years, then it
will lapse.
|
|
There are no re-tests and the award will lapse if the minimum
requirements are not met in the initial three year performance
period.
|
Comparator Group
|
|
A weighting of 75% is applied to the UKT companies in the
Comparator Group, and 25% to the non-UK based companies.
|
|
The Comparator Group has been simplified and amended to include
companies more relevant to the Company, and there will be no
weighting as between UK and non-UK companies.
|
|
|
|
(1) |
|
For cycles beginning in 2004 and 2005, threshold vesting was 40%
of the award, and performance ranges for the growth in UEPS was
expressed in post-inflation terms. |
The TSR measure is a widely accepted and understood benchmark of
a companys performance. It is measured according to the
return index calculated by Thomson Financial on the basis that a
companys dividends are invested in the shares of that
company. The return is the percentage increase in each
companys index over the performance period. UEPS is a key
indicator of corporate performance. It is measured on an
absolute basis (real prior to 2006 after allowing for
inflation). Sustained performance is therefore required over the
performance cycle as each year counts in the calculation.
F-74
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following companies were selected as comparator companies
(the Comparator Group) to reflect the global nature
of Cadbury Schweppes business:
|
|
|
|
|
|
|
Non-UK-Based
|
|
Head Office
|
UK-Based Companies
|
|
Companies
|
|
Location
|
|
Allied Domecq #
|
|
Campbell Soup
|
|
US
|
Associated British Foods
|
|
Coca-Cola
|
|
US
|
Diageo
|
|
Coca-Cola Enterprises
|
|
US
|
Northern Foods
|
|
Colgate-Palmolive
|
|
US
|
Reckitt Benckiser
|
|
ConAgra
|
|
US
|
Scottish & Newcastle
|
|
CSM
|
|
Netherlands
|
Tate & Lyle
|
|
Danone
|
|
France
|
Unilever
|
|
General Mills
|
|
US
|
|
|
Heinz
|
|
US
|
|
|
Hershey
|
|
US
|
|
|
Kellogg
|
|
US
|
|
|
Kraft Foods
|
|
US
|
|
|
Lindt & Sprungli
|
|
Switzerland
|
|
|
Nestlé
|
|
Switzerland
|
|
|
Pepsi Bottling Group
|
|
US
|
|
|
PepsiCo
|
|
US
|
|
|
Pernod Ricard
|
|
France
|
|
|
Procter & Gamble
|
|
US
|
|
|
Sara Lee
|
|
US
|
|
|
Wrigley
|
|
US
|
|
|
|
# |
|
indicates a company dropped from the Comparator Group in 2005
due to it no longer being a publicly quoted company |
Awards under the LTIP (both before and after 2004) will
vest in full following a change in control in Cadbury Schweppes,
but only to the extent that performance targets have been met at
the time of the change in control unless Cadbury Schweppes
decides that the awards would have vested to a greater or lesser
extent had the performance targets been measured over the normal
period.
The maximum number of shares issued under this plan, to all
Cadbury Schweppes employees, was 3 million in each of 2007,
2006 and 2005. Awards made under this plan are classified as
either equity, for those with TSR vesting conditions, or
liabilities, for those with UEPS vesting conditions. The expense
recognized by the Company in respect of these awards was
$1 million, $1 million and $2 million in 2007,
2006 and 2005, respectively.
Bonus
Share Retention Plan
The BSRP enables participants to invest all or part of their
Annual Incentive Plan (AIP) award in Cadbury
Schweppes shares (Deferred Shares) and earn a
Cadbury Schweppes match of additional shares after three years.
During the three year period, the shares are held in trust. If a
participant leaves Cadbury Schweppes during the three-year
period, they forfeit some of the additional shares, and in
certain cases, it is possible that all of the Deferred Shares
and the additional shares may be forfeited.
The number of matching shares that will be provided for grants
from 2006 is as follows:
|
|
|
Absolute Compound Annual Growth in
|
|
|
Aggregate Underlying Economic Profit
|
|
Percentage of Matching Shares
|
(UEP) Over the Three Year
|
|
Awarded at the End of the
|
Deferral Period Equivalent to:
|
|
Period
|
|
Below 4%
|
|
40% (Threshold)
|
4%
|
|
40%
|
8%
|
|
70%
|
12% or more
|
|
100% (Maximum)
|
F-75
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
There is a straight line sliding scale between those
percentages. UEP is measured on an aggregate absolute growth
basis, the levels of growth required to achieve the highest
levels of share match being demanding. For awards made before
2006, UEP performance was measured on a real basis, with a
stepped vesting scale between the threshold and maximum. Awards
under the BSRP will vest in full following a change in control
in Cadbury Schweppes but only to the extent that performance
targets have been met at the time of the change in control
unless Cadbury Schweppes decides that the awards would have
vested to a greater or lesser extent had the performance targets
been measured over the normal period. The
2005-2007
and
2006-2008
cycles are currently expected to result in around two-thirds of
the matching shares available being awarded. Actual vesting will
depend upon performance over the full vesting period.
The BSRP is available to a group of senior executives of the
Company. The maximum number of shares issued to employees under
this plan was 3 million in each of 2007, 2006 and 2005. The
fair value of the shares under the plan is based on the market
price of the Cadbury Schweppes ordinary shares on the date of
the award. Where the awards do not attract dividends during the
vesting period, the market price is reduced by the present value
of the dividends expected to be paid during the expected life of
the awards. Awards under this plan in 2005 are classified as
liabilities. Awards made in 2006 are classified as equity due to
changes in the nature of the plan. The expense recognized by the
Company in respect of these awards was $3 million,
$3 million and $2 million in 2007, 2006 and 2005,
respectively.
Discretionary
Share Option Plans (DSOP)
No option grants were made to Executive Directors in 2007 or
2006 as discretionary share options were removed as part of the
Cadbury Schweppes remuneration program. No rights to
subscribe for shares or debentures of any Cadbury Schweppes
company were granted to or exercised by any member of any of the
Directors immediate families during 2007. All existing
discretionary share option plans which apply to Executive
Directors use the following criteria:
|
|
|
|
|
|
|
Annual Grants Made
|
|
Annual Grants Made
|
|
|
Prior to May 21,
|
|
After May 21,
|
|
|
2004
|
|
2004
|
|
Market value of option grant made to Executive Directors
|
|
Customary grant was 300% of base salary and the maximum was 400%
of base salary.
|
|
Maximum of 200% of base salary. From 2006 onwards, no such
grants are made other than in exceptional circumstances.
|
Performance condition
|
|
Exercise is subject to UEPS growth of at least the rate of
inflation plus 2% per annum over three years.
|
|
Exercise is subject to real compound annual growth in UEPS of 4%
for half the award to vest and 6% real growth for the entire
award to vest over three years, measured by comparison to the
UEPS in the year immediately preceding grant.
|
Re-tests
|
|
If required, re-testing has been on an annual basis on a rolling
three-year base for the life of the option.
|
|
If the performance condition is not met within the first three
years, the option will be retested in year five with actual UEPS
growth in year five measured in relation to the original base
year.
|
DSOP resulted in expense recognized by the Company of
$8 million, $10 million and $17 million in 2007,
2006 and 2005, respectively. The DSOP consisted of the following
three plans:
(i) A Share Option Plan for directors, senior executives
and senior managers was approved by stockholders in May 1994.
Options were granted prior to July 15, 2004 and are
normally exercisable within a period of seven years commencing
three years from the date of grant, subject to the satisfaction
of certain performance criteria.
F-76
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
(ii) A Share Option Plan for eligible executives
(previously called the Cadbury Schweppes Share Option Plan 1994,
as amended at the 2004 Annual General Meeting (AGM)
held on May 21, 2004). Options were granted after
July 15, 2004, and are normally exercisable up to the
10th anniversary of grant, subject to the satisfaction of
certain performance criteria.
(iii) The Cadbury Schweppes (New Issue) Share Option Plan
2004 was established by the Directors, under the authority given
by stockholders in May 2004. Eligible executives are granted
options to subscribe for new shares only. Subject to the
satisfaction of certain performance criteria, options are
normally exercisable up to the 10th anniversary of grant.
There are performance requirements for the exercising of
options. The plans are accounted for as liabilities until
vested, then as equity until exercised or lapsed.
Other
Share Plans
Cadbury Schweppes has an International Share Award Plan
(ISAP) which is used to reward exceptional
performance of employees. Following the decision to cease
granting discretionary options other than in exceptional
circumstances, the ISAP is now used to grant conditional awards
to employees, who previously received discretionary options.
Awards under this plan are classified as liabilities until
vested.
Share
Award Fair Values
The fair value is measured using the valuation technique that is
considered to be the most appropriate to value each class of
award; these include Binomial models, Black-Scholes
calculations, and Monte Carlo simulations. These valuations take
into account factors such as nontransferability, exercise
restrictions and behavioral considerations. Key assumptions are
detailed below:
|
|
|
|
|
|
|
|
|
2007
|
|
|
BSRP
|
|
LTIP
|
|
ISAP
|
|
Expected volatility
|
|
N/A
|
|
15%
|
|
N/A
|
Expected life
|
|
3 years
|
|
3 years
|
|
1-3 years
|
Risk-free rate
|
|
5.5%
|
|
N/A
|
|
4.9%-5.8%
|
Expected dividend yield
|
|
2.5%
|
|
2.5%
|
|
2.5%-3.0%
|
Fair value per award (% of share price at date of grant)
|
|
185.5%
|
|
92.8% UEPS
|
|
91.8%-99.3%
|
|
|
|
|
45.1% TSR
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
40%
|
|
70%
|
|
100%
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
BSRP
|
|
LTIP
|
|
ISAP
|
|
Expected volatility
|
|
N/A
|
|
18%
|
|
N/A
|
Expected life
|
|
3 years
|
|
3 years
|
|
1-3 years
|
Risk-free rate
|
|
4.5%
|
|
N/A
|
|
4.2%-4.9%
|
Expected dividend yield
|
|
2.5%
|
|
2.5%
|
|
2.3%-2.5%
|
Fair value per award (% of share price at date of grant)
|
|
185.2%(1)
|
|
92.8% UEPS
|
|
93.0%-99.3%
|
|
|
|
|
46% TSR
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
40%
|
|
70%
|
|
N/A
|
F-77
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
BSRP
|
|
LTIP
|
|
DSOP
|
|
ISAP
|
|
Expected volatility
|
|
N/A
|
|
22%
|
|
22%
|
|
N/A
|
Expected life
|
|
3 years
|
|
3 years
|
|
(2)
|
|
1-3 years
|
Risk-free rate
|
|
4.5%
|
|
N/A
|
|
4.80%
|
|
4.3%
|
Expected dividend yield
|
|
2.5%
|
|
3.0%
|
|
3.0%
|
|
2.3%-2.5%
|
Fair value per award (% of share price at date of grant)
|
|
185.3%(1)
|
|
91.4% UEPS
|
|
23.0%
|
|
93.0%-97.8%
|
|
|
|
|
49.6% TSR
|
|
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
9%
|
|
|
Expectations of meeting performance criteria
|
|
40%
|
|
50%
|
|
100%
|
|
N/A
|
|
|
|
(1) |
|
Fair value of BSRP includes 100% of the matching shares
available. |
|
(2) |
|
The fair value calculation of a discretionary share option uses
an expected life to the point of expected exercise. This is
determined through analysis of historical evidenced exercise
patterns of option holders. |
Expected volatility was determined by calculating the historical
volatility of the Companys share price over the previous
three years. The expected life used in the model has been
adjusted, based on managements best estimate, for the
effects of nontransferability, exercise restrictions and
behavioral considerations. The risk-free rates used reflect the
implied yield on zero coupon bonds issued in the UK, with
periods which match the expected term of the awards valued. The
expected dividend yield is estimated using the historical
dividend yield of Cadbury Schweppes.
A summary of the status of the Companys non-vested shares,
in relation to the BSRP, LTIP and ISAP as of December 31,
2007, and changes during the year ended December 31, 2007,
is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
|
(000)
|
|
|
Fair Value
|
|
|
Non-vested as of December 31, 2006
|
|
|
2,388
|
|
|
$
|
6.61
|
|
Granted
|
|
|
743
|
|
|
|
4.62
|
|
Vested
|
|
|
(828
|
)
|
|
|
6.06
|
|
Forfeitures
|
|
|
(417
|
)
|
|
|
5.75
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2007
|
|
|
1,886
|
|
|
|
6.26
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of shares vested during the year
was $5 million in 2007 and $1 million in each of 2006
and 2005. The total vested share units at December 31, 2007
were 237,447 with a weighted average grant date fair value of
$6.31.
F-78
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
A summary of option activity during 2007, in relation to the
DSOP, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
(000)
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding at the beginning of the year
|
|
|
22,669
|
|
|
$
|
8.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,006
|
)
|
|
$
|
8.37
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(146
|
)
|
|
$
|
9.76
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
735
|
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
17,252
|
|
|
$
|
9.00
|
|
|
|
5.3
|
|
|
$
|
58,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
13,502
|
|
|
$
|
8.58
|
|
|
|
4.8
|
|
|
$
|
51,588
|
|
The Company presents segment information in accordance with
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which established
reporting and disclosure standards for an enterprises
operating segments. Operating segments are defined as components
of an enterprise that are businesses, for which separate
financial information is available, and for which the financial
information is regularly reviewed by the Company leadership team
and the chief operating decision maker.
Segment results are based on management reports, which are
prepared in accordance with International Financial Reporting
Standards. Net sales and underlying operating profit
(UOP) are the significant financial measures used to
measure the operating performance of the Companys
operating segments. UOP is defined as income from operations
before restructuring costs, non-trading items, interest,
amortization and impairment of intangibles.
As of December 31, 2007, the Companys operating
structure consisted of the following four operating segments:
|
|
|
|
|
The Beverage Concentrates segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
|
|
|
|
The Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
NCB brands.
|
|
|
|
The Bottling Group segment reflects sales from the manufacture,
bottling
and/or
distribution of finished beverages, including sales of the
Companys own brands and third-party owned brands.
|
|
|
|
The Mexico and Caribbean segment reflects sales from the
manufacture, bottling
and/or
distribution of both concentrates and finished beverages in
those geographies.
|
Prior to December 31, 2007, the Companys operating
structure consisted of five operating segments. The five
segments include Beverage Concentrates, Finished Goods, Bottling
Group, Snapple Distributors, and Mexico and Caribbean. The
previously reported Snapple Distributors segments is now
reported under the Bottling Group segment. Financial information
for all periods presented is reported under the current
operating structure consisting of four reportable segments.
The Companys current segment reporting structure is
largely the result of acquiring and combining various portions
of our business over the past several years. Although the
Company continues to report its segments separately, due to the
integrated nature of its business model, it manages its business
to maximize profitability for the Company as a whole. As a
result, profitability trends in individual segments may not be
consistent with the profitability of the Company or comparable
to its competitors.
F-79
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Company has significant intersegment transactions. For
example, the Bottling Group segment purchases concentrates from
the Beverage Concentrates segment. In addition, the Bottling
Group segment purchases finished beverages from the Finished
Goods segment. These sales are eliminated in preparing the
Companys combined results of operations. Intersegment
transactions are included in segments net sales results for all
periods presented.
The Company incurs selling, general and administrative expenses
in each of its segments. In the Companys segment
reporting, the selling, general and administrative expenses of
the Bottling Group, and Mexico and the Caribbean segments relate
primarily to those segments. However, as a result of the
Companys historical segment reporting policies, certain
combined selling activities that support the Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between these two segments. The Company
also incurs certain centralized finance and corporate costs that
support its entire business, which have not been directly
allocated to its respective segments but rather have been
allocated primarily to the Beverage Concentrates segment.
Information about the Companys operations by operating
segment for 2007, 2006 and 2005 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net Sales*
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
Finished Goods
|
|
|
1,562
|
|
|
|
1,516
|
|
|
|
1,516
|
|
Bottling Group
|
|
|
3,143
|
|
|
|
2,001
|
|
|
|
241
|
|
Mexico and the Caribbean
|
|
|
418
|
|
|
|
408
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
6,465
|
|
|
|
5,255
|
|
|
|
3,415
|
|
Adjustments and eliminations
|
|
|
(717
|
)
|
|
|
(520
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales as Reported
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Intersegment revenue eliminations from the Bottling Group and
Finished Goods segments were reclassified from revenues to
adjustments and eliminations. Prior year balances have been
recast to reflect these changes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
UOP
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
657
|
|
Finished Goods(1)
|
|
|
221
|
|
|
|
228
|
|
|
|
220
|
|
Bottling Group(1)
|
|
|
76
|
|
|
|
74
|
|
|
|
(11
|
)
|
Mexico and the Caribbean
|
|
|
100
|
|
|
|
102
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
1,128
|
|
|
|
1,114
|
|
|
|
962
|
|
Corporate and other
|
|
|
(36
|
)
|
|
|
(10
|
)
|
|
|
14
|
|
Adjustments and eliminations
|
|
|
(275
|
)
|
|
|
(299
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy as reported
|
|
$
|
817
|
|
|
$
|
805
|
|
|
$
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
UOP for the Bottling Group and Finished Goods segments have been
recast to reallocate intersegment profit allocations to conform
to the change in 2008 management reporting of segment UOP. The
allocations totaled $54 million, $56 million ands
$55 million for 2007, 2006 and 2005, respectively. |
F-80
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
12
|
|
Finished Goods
|
|
|
23
|
|
|
|
21
|
|
|
|
22
|
|
Bottling Group
|
|
|
79
|
|
|
|
51
|
|
|
|
5
|
|
Mexico and the Caribbean
|
|
|
9
|
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
123
|
|
|
|
94
|
|
|
|
49
|
|
Corporate and other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Adjustments and eliminations
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation as reported
|
|
$
|
120
|
|
|
$
|
94
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
84
|
|
|
$
|
81
|
|
Finished Goods
|
|
|
135
|
|
|
|
131
|
|
Bottling Group
|
|
|
579
|
|
|
|
476
|
|
Mexico and the Caribbean
|
|
|
61
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
859
|
|
|
|
750
|
|
Corporate and other
|
|
|
19
|
|
|
|
23
|
|
Adjustments and eliminations
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net as reported
|
|
|
868
|
|
|
|
755
|
|
Current assets as reported
|
|
|
2,739
|
|
|
|
1,632
|
|
All other non-current assets as reported
|
|
|
6,921
|
|
|
|
6,959
|
|
|
|
|
|
|
|
|
|
|
Total assets as reported
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Segment Information
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment. These sales
amounted to $726 million in 2007 and are eliminated in the
Combined Statement of Operations.
UOP represents a measure of income from operations. To reconcile
the segments total UOP to the Companys total income
from operations on a U.S. GAAP basis, adjustments are
primarily required for: (1) restructuring costs,
(2) non-cash compensation charges on stock option awards,
(3) amortization and impairment of intangibles and
(4) incremental pension costs. In addition, adjustments are
required for total company corporate costs and other items. To
reconcile UOP to the line item income before provision for
income taxes, equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy as
reported on a U.S. GAAP basis, additional adjustments are
required, primarily for interest expense, interest income and
other expense (income).
F-81
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Geographic
Data
The Company utilizes separate legal entities for transactions
with customers outside of the United States. Information about
the Companys operations by geographic region for 2007,
2006 and 2005 is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,122
|
|
|
$
|
4,151
|
|
|
$
|
2,675
|
|
International
|
|
|
626
|
|
|
|
584
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Property, plant and equipment net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
796
|
|
|
$
|
681
|
|
International
|
|
|
72
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
$
|
868
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
Major
Customers
In 2007, Wal-Mart Stores, Inc. was the Companys only
customer which accounted for 10% or more of total net sales,
with $588 million of net sales for the year. These sales
were reported primarily in the Finished Goods and Bottling Group
segments, contributing 16% and 10% of the segments net
sales, respectively. No customers contributed 10% or more of
total net sales in 2006 or 2005.
|
|
16.
|
Related
Party Transactions
|
Allocated
Expenses
Cadbury Schweppes has allocated certain costs to the Company,
including costs in respect of certain corporate functions
provided for us by Cadbury Schweppes. These allocations have
been based on the most relevant allocation method for the
services provided. To the extent expenses have been paid by
Cadbury Schweppes on behalf of the Company, they have been
allocated based upon the direct costs incurred. Where specific
identification of expenses has not been practicable, the costs
of such services has been allocated based upon the most relevant
allocation method to the services provided, primarily either as
a percentage of net sales or headcount of the Company. The
Company was allocated $161 million, $142 million and
$115 million of costs in 2007, 2006 and 2005, respectively.
Cash
Management
Cadbury Schweppes uses a centralized approach to cash management
and financing of operations. The Companys cash is
available for use and is regularly swept by Cadbury Schweppes
operations in the United States at its discretion. Cadbury
Schweppes also funds the Companys operating and investing
activities as needed. Transfers of cash, both to and from
Cadbury Schweppes cash management system, are reflected as
a component of Cadbury Schweppes net
investment in the Companys Combined Balance Sheets.
Royalties
The Company earns royalties from other Cadbury Schweppes-owned
companies for the use of certain brands owned by the Company.
Total amounts earned were $1 million, $1 million and
$9 million for 2007, 2006 and 2005, respectively.
F-82
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Notes
Receivable
The Company held a notes receivable balance with wholly owned
subsidiaries of Cadbury Schweppes with outstanding principal
balances of $1,527 million and $579 million as of
December 31, 2007 and 2006, respectively. The Company
recorded $57 million, $25 million and $36 million
of interest income related to these notes for 2007, 2006 and
2005, respectively.
Debt
and Payables
The Company has entered into a variety of debt agreements with
other companies owned by Cadbury Schweppes. These agreements (as
well as outstanding balances under the agreements) are described
in Note 10.
The related party payable balances of $175 million and
$183 million as of December 31, 2007 and 2006,
respectively, represent non-interest bearing payable balances
with companies owned by Cadbury Schweppes, related party accrued
interest payable associated with interest bearing notes, and
related party payables for sales of goods and services all with
companies owned by Cadbury Schweppes. The non-interest bearing
payable balance was $75 million and $158 million as of
December 31, 2007 and 2006, respectively. The accrued
interest payable balance was $11 million and
$25 million at December 31, 2007 and 2006,
respectively. The intercompany current payable was
$89 million as of December 31, 2007.
Transactions
with Dr Pepper/Seven Up Bottling Group
Prior to the Companys acquisition of the remaining shares
of DPSUBG on May 2, 2006, the Company and DPSUBG entered
into various transactions in the ordinary course of business as
outlined below:
Marketing
support, co-packing fees and other arrangements
The Company assisted DPSUBG in a variety of marketing programs,
local media advertising and other similar arrangements to
promote the sale of Company-branded products. DPSUBG charged the
Company co-packing fees related to the manufacture of certain
Company-branded products. The Company paid DPSUBG marketing
support, co-packing fees and other fees totaling
$41 million and $125 million during 2006 and 2005,
respectively.
Sales of
beverage concentrates
DPSUBG bought concentrates from the Company for the manufacture
of Company-branded soft drinks. The Companys concentrates
sales to DPSUBG totaled $100 million and $426 million
during 2006 and 2005, respectively.
Sales of
finished goods
DPSUBG purchased finished product from the Company for sale to
retailers. The Companys finished product sales totaled
$16 million and $53 million during 2006 and 2005,
respectively.
The Company had recorded receivables from DPSUBG relating to the
above transactions totaling $64 million at January 1,
2006.
|
|
17.
|
Guarantor
and Non-Guarantor Financial Information
|
The Companys 6.12% senior notes due 2013,
6.82% senior notes due 2018 and 7.45% senior notes due
2038 (the notes) are fully and unconditionally
guaranteed by substantially all of the Companys existing
and future direct and indirect domestic subsidiaries (except two
immaterial subsidiaries associated with the Companys
charitable foundations) (the guarantors), as defined
in the indenture governing the notes. The guarantors are
wholly-owned either directly or indirectly by the Company and
jointly and severally guarantee the Companys
F-83
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
obligations under the notes. None of the Companys
subsidiaries organized outside of the United States guarantee
the notes.
The following schedules present the guarantor and non-guarantor
information as of December 31, 2006 and January 1,
2006 and for the three fiscal years 2007, 2006 and 2005. The
consolidating schedules are provided in accordance with the
reporting requirements for guarantor subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
|
|
for the Year Ended December 31, 2007
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
5,184
|
|
|
$
|
575
|
|
|
$
|
(11
|
)
|
|
$
|
5,748
|
|
Cost of sales
|
|
|
|
|
|
|
2,389
|
|
|
|
239
|
|
|
|
(11
|
)
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,795
|
|
|
|
336
|
|
|
|
|
|
|
|
3,131
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,828
|
|
|
|
190
|
|
|
|
|
|
|
|
2,018
|
|
Depreciation and amortization
|
|
|
|
|
|
|
91
|
|
|
|
7
|
|
|
|
|
|
|
|
98
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Restructuring costs
|
|
|
|
|
|
|
63
|
|
|
|
13
|
|
|
|
|
|
|
|
76
|
|
Gain on disposal of property and intangible assets, net
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
878
|
|
|
|
126
|
|
|
|
|
|
|
|
1,004
|
|
Interest expense
|
|
|
|
|
|
|
224
|
|
|
|
29
|
|
|
|
|
|
|
|
253
|
|
Interest income
|
|
|
|
|
|
|
(48
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(64
|
)
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of subsidiaries
|
|
|
|
|
|
|
702
|
|
|
|
115
|
|
|
|
|
|
|
|
817
|
|
Provision for income taxes
|
|
|
|
|
|
|
280
|
|
|
|
42
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of subsidiaries
|
|
|
|
|
|
|
422
|
|
|
|
73
|
|
|
|
|
|
|
|
495
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
|
|
|
$
|
423
|
|
|
$
|
75
|
|
|
$
|
(1
|
)
|
|
$
|
497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-84
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
|
|
for the Year Ended December 31, 2006
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
4,212
|
|
|
$
|
534
|
|
|
$
|
(11
|
)
|
|
$
|
4,735
|
|
Cost of sales
|
|
|
|
|
|
|
1,786
|
|
|
|
219
|
|
|
|
(11
|
)
|
|
|
1,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,426
|
|
|
|
315
|
|
|
|
|
|
|
|
2,741
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,481
|
|
|
|
178
|
|
|
|
|
|
|
|
1,659
|
|
Depreciation and amortization
|
|
|
|
|
|
|
60
|
|
|
|
9
|
|
|
|
|
|
|
|
69
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
|
|
|
|
24
|
|
|
|
3
|
|
|
|
|
|
|
|
27
|
|
Gain on disposal of property and intangible assets, net
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
893
|
|
|
|
125
|
|
|
|
|
|
|
|
1,018
|
|
Interest expense
|
|
|
|
|
|
|
205
|
|
|
|
52
|
|
|
|
|
|
|
|
257
|
|
Interest income
|
|
|
|
|
|
|
(36
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(46
|
)
|
Other (income) expense
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of subsidiaries
|
|
|
|
|
|
|
723
|
|
|
|
82
|
|
|
|
|
|
|
|
805
|
|
Provision for income taxes
|
|
|
|
|
|
|
284
|
|
|
|
14
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of subsidiaries
|
|
|
|
|
|
|
439
|
|
|
|
68
|
|
|
|
|
|
|
|
507
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
|
|
|
$
|
446
|
|
|
$
|
70
|
|
|
$
|
(6
|
)
|
|
$
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-85
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
|
|
for the Year Ended January 1, 2006
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,726
|
|
|
$
|
489
|
|
|
$
|
(10
|
)
|
|
$
|
3,205
|
|
Cost of sales
|
|
|
|
|
|
|
924
|
|
|
|
206
|
|
|
|
(10
|
)
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
1,802
|
|
|
|
283
|
|
|
|
|
|
|
|
2,085
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,016
|
|
|
|
163
|
|
|
|
|
|
|
|
1,179
|
|
Depreciation and amortization
|
|
|
|
|
|
|
18
|
|
|
|
8
|
|
|
|
|
|
|
|
26
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
|
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
Gain on disposal of property and intangible assets, net
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
798
|
|
|
|
108
|
|
|
|
|
|
|
|
906
|
|
Interest expense
|
|
|
|
|
|
|
134
|
|
|
|
76
|
|
|
|
|
|
|
|
210
|
|
Interest income
|
|
|
|
|
|
|
(38
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(40
|
)
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
subsidiaries and cumulative effect of change in accounting policy
|
|
|
|
|
|
|
702
|
|
|
|
85
|
|
|
|
|
|
|
|
787
|
|
Provision for income taxes
|
|
|
|
|
|
|
283
|
|
|
|
38
|
|
|
|
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of subsidiaries and cumulative
effect of change in accounting policy
|
|
|
|
|
|
|
419
|
|
|
|
47
|
|
|
|
|
|
|
|
466
|
|
Equity in earnings of consolidated subsidiaries
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
|
|
|
|
19
|
|
|
|
2
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
|
|
|
|
432
|
|
|
|
49
|
|
|
|
6
|
|
|
|
487
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
|
|
|
$
|
422
|
|
|
$
|
49
|
|
|
$
|
6
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
As of December 31, 2007
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
28
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
67
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $0, $16, $4, $0 and $20,
respectively)
|
|
|
|
|
|
|
464
|
|
|
|
74
|
|
|
|
|
|
|
|
538
|
|
Other
|
|
|
|
|
|
|
58
|
|
|
|
1
|
|
|
|
|
|
|
|
59
|
|
Related party receivable
|
|
|
|
|
|
|
61
|
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
66
|
|
Note receivable from related parties
|
|
|
|
|
|
|
1,317
|
|
|
|
210
|
|
|
|
|
|
|
|
1,527
|
|
Inventories
|
|
|
|
|
|
|
296
|
|
|
|
29
|
|
|
|
|
|
|
|
325
|
|
Deferred tax assets
|
|
|
|
|
|
|
71
|
|
|
|
10
|
|
|
|
|
|
|
|
81
|
|
Prepaid and other current assets
|
|
|
|
|
|
|
72
|
|
|
|
4
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
2,367
|
|
|
|
376
|
|
|
|
(4
|
)
|
|
|
2,739
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
796
|
|
|
|
72
|
|
|
|
|
|
|
|
868
|
|
Investments in consolidated subsidiaries
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
Investments in unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Goodwill
|
|
|
|
|
|
|
3,156
|
|
|
|
27
|
|
|
|
|
|
|
|
3,183
|
|
Other intangible assets, net
|
|
|
|
|
|
|
3,526
|
|
|
|
91
|
|
|
|
|
|
|
|
3,617
|
|
Other non-current assets
|
|
|
|
|
|
|
98
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
100
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
10,032
|
|
|
$
|
590
|
|
|
$
|
(94
|
)
|
|
$
|
10,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
|
|
|
$
|
748
|
|
|
$
|
64
|
|
|
$
|
|
|
|
$
|
812
|
|
Related party payable
|
|
|
|
|
|
|
143
|
|
|
|
36
|
|
|
|
(4
|
)
|
|
|
175
|
|
Current portion of long-term debt payable to related parties
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Income taxes payable
|
|
|
|
|
|
|
15
|
|
|
|
7
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
1,032
|
|
|
|
107
|
|
|
|
(4
|
)
|
|
|
1,135
|
|
Long-term debt payable to third parties
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Long-term debt payable to related parties
|
|
|
|
|
|
|
2,893
|
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
1,289
|
|
|
|
35
|
|
|
|
|
|
|
|
1,324
|
|
Other non-current liabilities
|
|
|
|
|
|
|
126
|
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
5,359
|
|
|
|
153
|
|
|
|
(5
|
)
|
|
|
5,507
|
|
Total equity
|
|
|
|
|
|
|
4,673
|
|
|
|
437
|
|
|
|
(89
|
)
|
|
|
5,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
|
|
|
$
|
10,032
|
|
|
$
|
590
|
|
|
$
|
(94
|
)
|
|
$
|
10,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-87
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
As of December 31, 2006
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
35
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $0, $8, $6, $0 and $14, respectively)
|
|
|
|
|
|
|
501
|
|
|
|
61
|
|
|
|
|
|
|
|
562
|
|
Other
|
|
|
|
|
|
|
15
|
|
|
|
3
|
|
|
|
|
|
|
|
18
|
|
Related party receivable
|
|
|
|
|
|
|
21
|
|
|
|
6
|
|
|
|
(22
|
)
|
|
|
5
|
|
Note receivable from related parties
|
|
|
|
|
|
|
458
|
|
|
|
121
|
|
|
|
|
|
|
|
579
|
|
Inventories
|
|
|
|
|
|
|
272
|
|
|
|
28
|
|
|
|
|
|
|
|
300
|
|
Deferred tax assets
|
|
|
|
|
|
|
52
|
|
|
|
9
|
|
|
|
|
|
|
|
61
|
|
Prepaid and other current assets
|
|
|
|
|
|
|
68
|
|
|
|
4
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
1,403
|
|
|
|
251
|
|
|
|
(22
|
)
|
|
|
1,632
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
681
|
|
|
|
74
|
|
|
|
|
|
|
|
755
|
|
Investments in consolidated subsidiaries
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
Investments in unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Goodwill
|
|
|
|
|
|
|
3,151
|
|
|
|
29
|
|
|
|
|
|
|
|
3,180
|
|
Other intangible assets, net
|
|
|
|
|
|
|
3,561
|
|
|
|
90
|
|
|
|
|
|
|
|
3,651
|
|
Other non-current assets
|
|
|
|
|
|
|
104
|
|
|
|
3
|
|
|
|
|
|
|
|
107
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
8,930
|
|
|
$
|
468
|
|
|
$
|
(52
|
)
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
|
|
|
$
|
725
|
|
|
$
|
63
|
|
|
$
|
|
|
|
$
|
788
|
|
Related party payable
|
|
|
|
|
|
|
188
|
|
|
|
17
|
|
|
|
(22
|
)
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt payable to related parties
|
|
|
|
|
|
|
693
|
|
|
|
15
|
|
|
|
|
|
|
|
708
|
|
Income taxes payable
|
|
|
|
|
|
|
10
|
|
|
|
2
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
1,616
|
|
|
|
97
|
|
|
|
(22
|
)
|
|
|
1,691
|
|
Long-term debt payable to third parties
|
|
|
|
|
|
|
22
|
|
|
|
521
|
|
|
|
|
|
|
|
543
|
|
Long-term debt payable to related parties
|
|
|
|
|
|
|
2,518
|
|
|
|
23
|
|
|
|
|
|
|
|
2,541
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
1,270
|
|
|
|
22
|
|
|
|
|
|
|
|
1,292
|
|
Other non-current liabilities
|
|
|
|
|
|
|
22
|
|
|
|
7
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
5,448
|
|
|
|
670
|
|
|
|
(22
|
)
|
|
|
6,096
|
|
Total equity
|
|
|
|
|
|
|
3,482
|
|
|
|
(202
|
)
|
|
|
(30
|
)
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
|
|
|
$
|
8,930
|
|
|
$
|
468
|
|
|
$
|
(52
|
)
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-88
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
for the Year Ended December 31, 2007
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
504
|
|
|
$
|
99
|
|
|
$
|
|
|
|
$
|
603
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
Purchases of investments and intangibles
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(218
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(230
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
6
|
|
Group transfer of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of notes receivable, net
|
|
|
|
|
|
|
(1,441
|
)
|
|
|
(496
|
)
|
|
|
|
|
|
|
(1,937
|
)
|
Proceeds from repayments of notes receivable, net
|
|
|
|
|
|
|
604
|
|
|
|
404
|
|
|
|
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(985
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
(1,087
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
2,845
|
|
Repayment long-term debt
|
|
|
|
|
|
|
(3,130
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
(3,455
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Change in the parents net investment
|
|
|
|
|
|
|
773
|
|
|
|
348
|
|
|
|
|
|
|
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
492
|
|
|
|
23
|
|
|
|
|
|
|
|
515
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
|
|
|
|
11
|
|
|
|
20
|
|
|
|
|
|
|
|
31
|
|
Currency translation
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
16
|
|
|
|
19
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
29
|
|
|
$
|
38
|
|
|
|
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-89
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
for the Year Ended December 31, 2006
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
509
|
|
|
$
|
72
|
|
|
$
|
|
|
|
$
|
581
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
Purchases of investments and intangibles
|
|
|
|
|
|
|
(39
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
(53
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(144
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
(158
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
|
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
16
|
|
Group transfer of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of notes receivable, net
|
|
|
|
|
|
|
(18
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
(91
|
)
|
Proceeds from repayments of notes receivable, net
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(404
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
(502
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
2,086
|
|
|
|
|
|
|
|
|
|
|
|
2,086
|
|
Repayment long-term debt
|
|
|
|
|
|
|
(2,056
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,056
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Change in the parents net investment
|
|
|
|
|
|
|
(129
|
)
|
|
|
26
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(98
|
)
|
|
|
26
|
|
|
|
|
|
|
|
(72
|
)
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Currency translation
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
8
|
|
|
|
20
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
for the Year Ended January 1, 2006
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
525
|
|
|
$
|
58
|
|
|
$
|
|
|
|
$
|
583
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments and intangibles
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Purchases of property, plant and equipment
|
|
|
|
|
|
|
(28
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(44
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
Group transfer of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of notes receivable, net
|
|
|
|
|
|
|
(333
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
(359
|
)
|
Proceeds from repayments of notes receivable, net
|
|
|
|
|
|
|
637
|
|
|
|
43
|
|
|
|
|
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
|
|
|
|
280
|
|
|
|
3
|
|
|
|
|
|
|
|
283
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
Repayment long-term debt
|
|
|
|
|
|
|
(99
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
(279
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Change in the parents net investment
|
|
|
|
|
|
|
(707
|
)
|
|
|
44
|
|
|
|
|
|
|
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(803
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(815
|
)
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
|
|
|
|
2
|
|
|
|
49
|
|
|
|
|
|
|
|
51
|
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
6
|
|
|
|
13
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2008, the Company began to separate commingled
pension plans which contained participants of both the Company
and other Cadbury Schweppes global companies. As a result, the
Company re-measured the projected benefit obligation of the
separated pension plans. The Company expects the re-measurement
to result in an increase of approximately $71 million to
other non-current liabilities and a decrease of
approximately $53 million to accumulated other
comprehensive income, a component of invested equity. The
actual pension liability and associated unamortized losses will
be finalized at the separation date.
On March 10, 2008, the Company entered into arrangements
with a group of lenders to provide it with an aggregate of
$4.4 billion of financing. On April 11, 2008, the
arrangements were amended and restated. The amended and restated
arrangements consist of a $2.7 billion senior credit
agreement that provides a $2.2 billion
F-91
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
term loan A facility and a $500 million revolving credit
facility (collectively, the senior credit facility)
and a
364-day
bridge credit agreement that provides a $1.7 billion bridge
loan facility.
On April 11, 2008, the Company borrowed an aggregate of
$3.9 billion under the term loan A facility and the bridge
loan facility. The proceeds will be held in escrow pending
completion of the separation.
Borrowings under the senior credit facility and the bridge loan
facility will bear interest at a floating rate per annum based
upon LIBOR or the alternate base rate (ABR), in each
case plus an applicable margin which varies based upon our debt
ratings, from 1.00% to 2.50% in the case of LIBOR loans and
0.00% to 1.50% in the case of ABR loans. The alternate base rate
means the greater of (a) JPMorgan Chase Banks prime
rate and (b) the federal funds effective rate plus
1 / 2 of 1%. Based on the Companys expected debt
ratings at the time of the separation, the applicable margin for
LIBOR loans would be 2.00% and for ABR loans would be 1.00%. The
documentation relating to the senior credit facility and bridge
loan facility contains certain provisions that allow the
bookrunners to increase the interest rates or yield of the
loans, add collateral, reallocate up to $200 million
between the term loan A facility and the bridge loan facility
(and vice versa) and modify other terms and aspects of the
facilities, in each case within a limit agreed upon by the
bookrunners and the Company.
F-92