Exhibit 2.1
FORM
OF
SEPARATION AND DISTRIBUTION AGREEMENT
AMONG
CADBURY PLC,
CADBURY SCHWEPPES PLC
AND
DR PEPPER SNAPPLE GROUP, INC.
Dated as of [_______], 2008
Table of Contents
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Page
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ARTICLE I DEFINITIONS AND INTERPRETATION
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1
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Section 1.01
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Certain Defined Terms
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1
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Section 1.02
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Interpretation and Rules of Construction
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16
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ARTICLE II THE SEPARATION
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16
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Section 2.01
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Transfer of Assets
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16
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Section 2.02
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Assumption and Satisfaction of Liabilities
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18
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Section 2.03
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Intercompany Balances
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18
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Section 2.04
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Transfers Not Effected on or Prior to the Demerger Effective Time;
Transfers Deemed Effective as of the Demerger Effective Time
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19
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Section 2.05
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Transfer Documents
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20
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Section 2.06
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Further Assurances
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20
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Section 2.07
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Replacement of Guarantors and Obligors
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21
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Section 2.08
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Disclaimer of Representations and Warranties
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22
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ARTICLE III CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTION
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23
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Section 3.01
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Certificate of Incorporation; Bylaws
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23
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Section 3.02
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Directors
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23
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Section 3.03
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Resignations
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23
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Section 3.04
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Ancillary Agreements
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23
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ARTICLE IV THE DISTRIBUTION
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23
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Section 4.01
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The Distribution
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23
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Section 4.02
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Fractional Shares
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24
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Section 4.03
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Actions in Connection with the Distribution.
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24
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Section 4.04
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Distribution Date
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25
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Section 4.05
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Conditions to Distribution
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25
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Section 4.06
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Consent to the Reduction
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26
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ARTICLE V CERTAIN COVENANTS
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26
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Section 5.01
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Non-Solicitation of Employees
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26
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Section 5.02
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Auditors and Audits; Annual and Quarterly Financial Statements and
Accounting
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27
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Section 5.03
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CS Obligations
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29
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ARTICLE VI INTELLECTUAL PROPERTY MATTERS
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29
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Section 6.01
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Cadbury Names and Marks
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29
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Section 6.02
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Beverages Names and Marks
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30
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Section 6.03
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Memorabilia
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32
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Section 6.04
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Additional Licenses
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32
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Section 6.05
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Know-How Agreement
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33
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Section 6.06
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Domain Names Agreement
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33
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i
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Page
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ARTICLE VII INDEMNIFICATION
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33
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Section 7.01
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Release of Pre-Distribution Claims
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33
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Section 7.02
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Indemnification by CS
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35
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Section 7.03
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Indemnification by DPS
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36
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Section 7.04
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Procedures for Indemnification
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36
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Section 7.05
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Cooperation in Defense and Settlement
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38
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Section 7.06
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Indemnification Obligations Net of Insurance Proceeds and Other Amounts
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38
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Section 7.07
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Additional Matters; Survival of Indemnities
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39
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ARTICLE VIII ACCESS TO RECORDS; ACCESS TO INFORMATION; LEGAL AND OTHER MATTERS
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39
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Section 8.01
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Provision of Corporate Records
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39
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Section 8.02
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Access to Information
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40
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Section 8.03
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Disposition of Information
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40
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Section 8.04
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Witness Services
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41
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Section 8.05
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Reimbursement; Other Matters
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41
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Section 8.06
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Confidentiality
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41
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Section 8.07
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Privileged Matters
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42
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Section 8.08
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Ownership of Information
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43
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Section 8.09
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Other Agreements
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44
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Section 8.10
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Control of Legal Matters
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44
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ARTICLE IX INSURANCE
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46
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Section 9.01
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Policies and Rights Included Within Assets
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46
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Section 9.02
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Administration; Other Matters
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47
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Section 9.03
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Agreement for Waiver of Conflict and Shared Defense
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48
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ARTICLE X DISPUTE RESOLUTION
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48
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Section 10.01
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Disputes
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48
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Section 10.02
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Dispute Resolution
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48
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Section 10.03
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Continuity of Service and Performance
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50
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ARTICLE XI TERMINATION
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50
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Section 11.01
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Termination
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50
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Section 11.02
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Effect of Termination
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50
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Section 11.03
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Amendment
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50
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Section 11.04
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Waiver
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50
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ARTICLE XII MISCELLANEOUS
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50
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Section 12.01
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Limitation of Liability
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50
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Section 12.02
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Expenses
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51
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Section 12.03
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Notices
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51
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Section 12.04
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Public Announcements
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52
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Section 12.05
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Severability
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52
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Section 12.06
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Entire Agreement
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52
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Section 12.07
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Assignment
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52
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ii
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Page
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Section 12.08
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Parties in Interest
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52
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Section 12.09
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Currency
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52
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Section 12.10
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Tax Matters
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52
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Section 12.11
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Employee Matters
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53
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Section 12.12
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Governing Law
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53
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Section 12.13
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Waiver of Jury Trial
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53
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Section 12.14
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Survival of Covenants
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53
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Section 12.15
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Counterparts
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53
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SCHEDULES
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Schedule 1.01(a)
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AsiaPac Territory
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Schedule 1.01(b)
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Beverages Assets
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Schedule 1.01(c)
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Beverages Balance Sheet
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Schedule 1.01(d)
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Beverages Liabilities
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Schedule 1.01(e)
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Beverages Litigation Matters
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Schedule 1.01(f)
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Beverages Policies
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Schedule 1.01(g)
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Beverages Shared Policies
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Schedule 1.01(h)
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Cadbury plc Assets
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Schedule 1.01(i)
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Cadbury plc Balance Sheet
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Schedule 1.01(j)
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Cadbury plc Entities
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Schedule 1.01(k)
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Cadbury plc Liabilities
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Schedule 1.01(l)
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Cadbury plc Litigation Matters
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Schedule 1.01(m)
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Continuing Arrangements
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Schedule 1.01(n)
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DPS Entities
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Schedule 1.01(o)
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DPS Transaction Costs
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Schedule 1.01(p)
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Intercompany Balances
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Schedule 1.01(q)
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Required Consents
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Schedule 1.01(r)
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Shared Policies
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Schedule 1.01(s)
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Territory
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Schedule 2.01(a)
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Transfer of Assets
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Schedule 2.01(c)
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Shared Contracts
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Schedule 2.07(a)
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DPS Guarantees and Obligations
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Schedule 2.07(d)
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Cadbury plc Guarantees and Obligations
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Schedule 8.10(c)(i)
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Cadbury plc Claims
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Schedule 8.10(c)(ii)
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Beverages Claims
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Schedule 8.10(c)(iii)
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Joint Cadbury plc and Beverages Claims
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EXHIBITS
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Exhibit 1.01(a)
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Form of Employee Matters Agreement
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Exhibit 1.01(b)
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Form of Tax Sharing Agreement
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Exhibit 1.01(c)
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Form of Transition Services Agreement
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Exhibit 4.06
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Form of Letter of Consent to Reduction
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Exhibit 6.06(a)
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Form of Know-How Agreement
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Exhibit 6.07
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Form of Domain Names Agreement
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iii
SEPARATION AND DISTRIBUTION AGREEMENT
SEPARATION
AND DISTRIBUTION AGREEMENT (this
Agreement
), dated as of [___], 2008,
among Cadbury Schweppes plc, a United Kingdom public limited company incorporated in England and Wales with
registered number 0052457 and whose registered office is at 25 Berkeley
Square, London W1J 6HB (
CS
), Dr Pepper
Snapple Group, Inc., a Delaware corporation (
DPS
) and, solely for the purposes of
Sections 4.01(a)
and
(b)
and
Section 5.03
, Cadbury plc, a United Kingdom
public limited company incorporated in England and Wales with
registered number 06497379 and whose registered office is at 25 Berkeley
Square, London W1J 6HB. Each of CS and DPS is sometimes referred to herein as a
Party
and together, as the
Parties
.
WHEREAS, CS, directly and through its various Subsidiaries, is engaged in the Cadbury plc
Business and the Beverages Business;
WHEREAS, the board of directors of CS has determined that it is in the best interests of CS
and its shareholders to separate CS into two separate, publicly traded companies, which shall
operate the Cadbury plc Business and the Beverages Business, respectively;
WHEREAS, for U.S. federal income tax purposes, the separation and certain related transactions
are intended to qualify as a tax-free transaction under Sections 355 and 368 of the Internal
Revenue Code of 1986, as amended;
WHEREAS, in order to effect such separation, the board of directors of CS has determined,
among other things, that it is in the best interests of CS and its shareholders to enter into
transactions pursuant to which (i) CS will become a wholly-owned subsidiary of Cadbury plc; (ii) CS
and/or one or more members of the Cadbury plc Group will, collectively, retain or acquire
beneficial ownership of all of the Cadbury plc Assets and Assume all of the Cadbury plc Liabilities
and DPS and/or one or more members of the DPS Group will, collectively, retain or acquire
beneficial ownership of all of the Beverages Assets and Assume all of the Beverages Liabilities;
and (iii) DPS will distribute to the holders of Cadbury plc Beverages Shares on a pro rata basis
(in each case without consideration being paid by such shareholders) all of the outstanding shares
of common stock, par value $0.01 per share, of DPS (the
DPS Common Stock
) (such
transactions as they may be amended or modified from time to time, collectively, the
Plan of
Separation
); and
WHEREAS, CS and DPS have determined that it is necessary and desirable to set forth the
agreements that will effect the Plan of Separation and to set forth certain other agreements that
will govern certain other matters following the Demerger Effective Time;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, CS and DPS hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01
Certain Defined Terms
. For purposes of this Agreement:
Action
shall mean any demand, action, claim, suit, countersuit, arbitration,
inquiry, subpoena, proceeding or investigation by or before any Governmental Entity or any
arbitration or mediation tribunal.
Affiliate
shall mean, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under
common control with, such specified Person. For the purposes of this definition, control, when
used with respect to any specified Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or other interests, by Contract or otherwise.
Ancillary Agreements
shall mean the Transfer Documents, the Transition Services
Agreement, the Tax Sharing Agreement, the Employee Matters Agreement, the Domain Names Agreement
and the Know-How Agreement.
AsiaPac Territory
shall mean the countries as set forth in
Schedule 1.01(a)
.
Assets
shall mean all assets, properties, claims and rights (including goodwill),
wherever located (including in the possession of vendors or other third parties or elsewhere), of
every kind, character and description, whether real, personal or mixed, tangible, intangible or
contingent, in each case, whether or not recorded or reflected or required to be recorded or
reflected on the Records or financial statements of any Person, including the following:
(i) all accounting and other legal and business books, records, ledgers and files,
whether printed, electronic or written;
(ii) all apparatuses, computers and other electronic data processing and communications
equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks,
aircraft and other transportation equipment, special and general tools, test devices,
prototypes and models and other tangible personal property;
(iii) all inventories of products, goods, materials, parts, raw materials, packaging,
ingredients and supplies, in each case, whether finished or in process;
(iv) all interests in real property of whatever nature, including easements, whether as
owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor,
lessee, sublessee or otherwise;
(v) (A) all interests in any capital stock or other equity interests of any Subsidiary
or any other Person, (B) all bonds, notes, debentures or other securities issued by any
Subsidiary or any other Person, and (C) all loans, advances or other extensions of credit or
capital contributions to any Subsidiary or any other Person;
(vi) all Contracts, including license Contracts, leases of personal property, open
purchase orders for raw materials, packaging, ingredients, supplies, parts or services,
unfilled orders for the manufacture and sale of products and other Contracts or commitments;
(vii) all deposits, letters of credit and performance and surety bonds;
2
(viii) all written (including in electronic form) technical information, data,
specifications, research and development information, engineering drawings and
specifications, operating and maintenance manuals, and materials and analyses prepared by
consultants and other third parties;
(ix) all Intellectual Property;
(x) all Software;
(xi) all cost information, sales and pricing data, customer prospect lists, supplier
records, customer and supplier lists, customer and vendor data, correspondence and lists,
product data and literature, artwork, design, development and business process files and
data, vendor and customer drawings, specifications, quality records and reports and other
books, records, studies, surveys, reports, plans and documents;
(xii) all prepaid expenses, trade accounts and other accounts and notes receivables;
(xiii) all claims, rights or benefits against any Person or pursuant to any Action,
choses in action or similar rights, whether accrued or contingent;
(xiv) all rights under insurance policies and all rights in the nature of insurance,
indemnification or contribution;
(xv) all licenses, permits, approvals and authorizations which have been issued by any
Governmental Entity;
(xvi) all cash or cash equivalents, bank accounts, lock boxes and other deposit
arrangements; and
(xvii) all interest rate, currency, commodity or other swap, collar, cap or other
hedging or similar Contracts or arrangements.
Beverages Assets
shall mean:
(i) the ownership interests in those Business Entities that are included in the
definition of the DPS Group and all of the Assets owned or held by
such Business Entities (other than any Assets that constitute Cadbury
plc Assets);
(ii) all Beverages Contracts and any rights or claims arising thereunder;
(iii) any rights or claims or contingent rights or claims primarily relating to or
arising from the Beverages Business;
(iv) any and all Assets reflected on the Beverages Balance Sheet or the accounting
records supporting such balance sheet and any Assets acquired by or for DPS or any member of
the DPS Group subsequent to the date of such balance sheet which,
had they been so acquired on or before such date and owned as of such date, would have
been reflected on such balance sheet if prepared on a consistent basis, subject to any
3
dispositions of any of such Assets subsequent to the date of such balance sheet;
(v) subject to
ARTICLE IX
, any rights of any member of the DPS Group under
any Policies, including any rights thereunder arising after the Distribution Date in respect
of any Policies that are occurrence policies;
(vi) all Beverages Claims and, to the extent relating to the Beverages Business,
Joint Cadbury plc and Beverages Claims; and
(vii) the Assets set forth in
Schedule 1.01(b)
and any and all Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have
been or are to be Transferred to DPS or any other member of the DPS Group.
Notwithstanding the foregoing, the Beverages Assets shall not include any Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Assets to be retained by or Transferred to any member of the Cadbury plc Group.
Beverages Balance Sheet
shall mean the combined balance sheet of the DPS Group,
including the notes thereto, as of December 31, 2007, prepared to give effect to the Transactions
contemplated hereby, as set forth in
Schedule 1.01(c)
;
provided
that to the extent
any Assets or Liabilities are Transferred by CS or any member of the Cadbury plc Group to DPS or
any member of the DPS Group or vice versa in connection with the Plan of Separation and on or prior
to the Distribution Date, such Assets and/or Liabilities shall be deemed to be included or excluded
from the Beverages Balance Sheet, as the case may be.
Beverages Business
shall mean the business of (i) manufacturing, distributing,
selling, marketing and promoting carbonated and non-carbonated beverages and other food products
throughout the Territory bearing brands owned by or licensed to a member of the DPS Group and (ii)
licensing brands owned by or licensed to a member of the DPS Group, including for use with
confectionery and other products, to the extent permitted, in the Territory.
Beverages Contracts
shall mean the following Contracts to which any member of the
Cadbury plc Group or any member of the DPS Group is a party or by which any member of the Cadbury
plc Group or any member of the DPS Group or any of their respective Assets is bound, whether or not
in writing:
(i) any Contract that relates primarily to the Beverages Business;
(ii) any Contract or part thereof that is otherwise expressly contemplated pursuant to
this Agreement (including pursuant to
Section 2.01(c)
) or any of the Ancillary
Agreements to be assigned to any member of the DPS Group; and
(iii) any Beverages IP Agreement.
Beverages Indemnitees
shall mean each member of the DPS Group and each of
their directors, officers, employees and agents and each of the heirs, executors, successors
and assigns of any of the foregoing, other than the Cadbury plc Indemnitees.
4
Beverages Intellectual Property
shall mean the Beverages Owned Intellectual Property
and the Beverages Licensed Intellectual Property.
Beverages IP Agreements
shall mean all licenses of Intellectual Property (i) from
any member of the DPS Group to any other Person and (ii) to any member of the DPS Group from any
other Person.
Beverages Liabilities
shall mean:
(i) any Liabilities that are expressly contemplated by this Agreement or any Ancillary
Agreement (or the Schedules hereto or thereto, including
Schedule 1.01(d)
hereto) as
Liabilities to be Assumed by any member of the DPS Group, and all obligations and
Liabilities expressly Assumed by any member of the DPS Group under this Agreement or any of
the Ancillary Agreements;
(ii) any Liabilities to the extent relating to, arising out of or resulting from:
(A) the operation or conduct of the Beverages Business prior to, on or after
the Demerger Effective Time (including any such Liability to the extent relating to,
arising out of or resulting from any act or failure to act by any director, officer,
employee, agent or representative (whether or not such act or failure to act is or
was within such Persons authority) with respect to the Beverages Business);
(B) the operation or conduct of any business conducted by any member of the DPS
Group at any time after the Demerger Effective Time (including any such Liability to
the extent relating to, arising out of or resulting from any act or failure to act
by any director, officer, employee, agent or representative (whether or not such act
or failure to act is or was within such Persons authority) with respect to the
Beverages Business);
(C) any Beverages Assets, whether arising before, on or after the Demerger
Effective Time;
(D) any terminated or divested Business Entity, business or operation formerly
and primarily owned or managed by or associated with DPS or any Beverages Business;
(E) any indebtedness (including debt securities and asset-backed debt) of any
member of the DPS Group or indebtedness (regardless of the issuer of such
indebtedness) exclusively relating to the Beverages Business or any indebtedness
(regardless of the issuer of such indebtedness) secured exclusively by any of the
Beverages Assets (including any Liabilities relating to, arising out of or resulting
from a claim by a holder of any such indebtedness, in its capacity as such); and
(F) any Beverages Litigation Matter, Future Beverages Litigation
Matter and, to the extent relating to the Beverages Business, any Future Joint
Litigation Matter; and
5
(iii) all Liabilities reflected as liabilities or obligations on the Beverages Balance
Sheet or the accounting records supporting such balance sheet, and all Liabilities arising
or Assumed after the date of such balance sheet which, had they arisen or been Assumed on or
before such date and been retained as of such date, would have been reflected on such
balance sheet or such records if prepared on a consistent basis, subject to any discharge of
such Liabilities subsequent to the date of the Beverages Balance Sheet.
Notwithstanding anything to the contrary herein, the Beverages Liabilities shall not include
any Cadbury plc Liabilities.
Beverages Licensed Intellectual Property
shall mean all Intellectual Property that a
member of the DPS Group is licensed to use pursuant to the Beverages IP Agreements.
Beverages Litigation Matters
means the Actions set forth in
Schedule 1.01(e)
hereto and any other Actions related to the Beverages Assets or Beverages Liabilities commenced on
or before the Distribution Date.
Beverages Owned Intellectual Property
shall mean all Intellectual Property owned by
a member of the DPS Group.
Beverages Policies
shall mean the Policies, current or past, that are owned or
maintained by or on behalf of any member of the Cadbury plc Group or any member of the DPS Group,
which relate exclusively to the Beverages Business and are either maintained by DPS or a member of
the DPS Group or assignable to DPS or a member of the DPS Group, as set forth in
Schedule
1.01(f)
.
Beverages Shared Policies
shall mean the Policies, current or past, that are owned
or maintained by or on behalf of any member of the Cadbury plc Group or any member of the DPS Group
which relate to the Beverages Business, other than Beverages Policies, as set forth in
Schedule
1.01(g)
.
Business Day
shall mean any day that is not a Saturday, a Sunday or any other day on
which banks are required or authorized by Law to be closed in The City of New York, United States
or London, England.
Business Entity
shall mean any Person (other than a natural person) which may
legally hold title to Assets.
Cadbury plc Assets
shall mean:
(i) the ownership interests in those Business Entities that are included in the
definition of the Cadbury plc Group and all of the Assets owned or held by such Business Entities (other than any Assets that constitute Beverages Assets);
(ii) all Cadbury plc Contracts and any rights or claims arising thereunder;
(iii) any rights or claims or contingent rights or claims primarily relating to or
arising from the Cadbury plc Business;
6
(iv) any and all Assets reflected on the Cadbury plc Balance Sheet or the accounting
records supporting such balance sheet and any Assets acquired by or for CS or any
member of the Cadbury plc Group subsequent to the date of such balance sheet which, had they
been so acquired on or before such date and owned as of such date, would have been reflected
on such balance sheet if prepared on a consistent basis, subject to any dispositions of any
of such Assets subsequent to the date of such balance sheet;
(v) subject to
ARTICLE IX
, any rights of any member of the Cadbury plc Group
under any Policies, including any rights thereunder arising after the Distribution Date in
respect of any Policies that are occurrence policies;
(vi) all Cadbury plc Claims and, to the extent relating to the Cadbury plc Business,
Joint Cadbury plc and Beverages Claims; and
(vii) the Assets set forth in
Schedule 1.01(h)
and any and all Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have
been or are to be Transferred to CS or any other member of the Cadbury plc Group.
Notwithstanding the foregoing, the Cadbury plc Assets shall not include any Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Assets to be retained by or Transferred to any member of the DPS Group.
Cadbury plc Balance Sheet
shall mean the unaudited pro forma statement of net assets
of the Cadbury plc Group, as of December 31, 2007, prepared to give effect to the transactions
contemplated hereby, including the notes thereto, as set forth in
Schedule 1.01(i)
;
provided
that to the extent any Assets or Liabilities are Transferred by DPS or any member
of the DPS Group to CS or any member of the Cadbury plc Group or vice versa in connection with the
Plan of Separation and on or prior to the Distribution Date, such assets and/or liabilities shall
be deemed to be included or excluded from the Cadbury plc Balance Sheet, as the case may be.
Cadbury plc Beverages Shares
shall mean the issued and outstanding shares of [___] pence each of Cadbury plc.
Cadbury plc Business
shall mean the business of manufacturing, distributing,
selling, marketing and promoting (i) confectionery and other food products throughout the world and
(ii) carbonated and non-carbonated beverages outside of the Territory.
Cadbury plc Contracts
shall mean the following Contracts to which CS or any of its
Affiliates is a party as of the date hereof or by which it or any of its Affiliates as of the date
hereof or any of their respective Assets is bound, whether or not in writing:
(i) any Contract that relates primarily to the Cadbury plc Business; and
(ii) any Contract or part thereof that is otherwise expressly contemplated pursuant to
this Agreement (including pursuant to
Section 2.01(c)
) or any of the Ancillary
Agreements to be assigned to any member of the Cadbury plc Group.
7
Cadbury plc Group
shall mean Cadbury plc and each Business Entity that is a
Subsidiary of Cadbury plc immediately after the Demerger Effective Time, and each Business Entity
that becomes a Subsidiary of Cadbury plc after the Demerger Effective Time, which shall include
those entities identified as such in
Schedule 1.01(j)
.
Cadbury plc Indemnitees
shall mean each member of the Cadbury plc Group and each of
their respective directors, officers, employees and agents and each of the heirs, executors,
successors and assigns of any of the foregoing, other than the Beverages Indemnitees.
Cadbury plc Liabilities
shall mean:
(i) any and all Liabilities that are expressly contemplated by this Agreement or any
Ancillary Agreement (or the Schedules hereto or thereto, including
Schedule 1.01(k)
hereto) as Liabilities to be Assumed by any member of the Cadbury plc Group, and all
obligations and Liabilities expressly Assumed by any member of the Cadbury plc Group under
this Agreement or any of the Ancillary Agreements;
(ii) any and all Liabilities to the extent relating to, arising out of or resulting
from:
(A) the operation or conduct of the Cadbury plc Business prior to, on or after
the Demerger Effective Time (including any such Liability to the extent relating to,
arising out of or resulting from any act or failure to act by any director, officer,
employee, agent or representative (whether or not such act or failure to act is or
was within such Persons authority) with respect to the Cadbury plc Business);
(B) the operation or conduct of any business conducted by any member of the
Cadbury plc Group at any time after the Demerger Effective Time (including any such
Liability to the extent relating to, arising out of or resulting from any act or
failure to act by any director, officer, employee, agent or representative (whether
or not such act or failure to act is or was within such Persons authority) with
respect to the Cadbury plc Business);
(C) any Cadbury plc Assets, whether arising before, on or after the Demerger
Effective Time;
(D) any terminated or divested Business Entity, business or operation formerly
and primarily owned or managed by or associated with CS or any Cadbury plc Business;
(E) any indebtedness (including debt securities and asset-backed debt) of any
member of the Cadbury plc Group or indebtedness (regardless of the issuer of such
indebtedness) exclusively relating to the Cadbury plc Business or any
indebtedness (regardless of the issuer of such indebtedness) secured
exclusively by any of the Cadbury plc Assets (including any Liabilities relating to,
arising out of or resulting from a claim by a holder of any such indebtedness, in
its capacity as such); and
8
(F) any Cadbury plc Litigation Matter, any Future Cadbury plc Litigation Matter
and, to the extent relating to the Cadbury plc Business, any Future Joint Litigation
Matter; and
(iii) all Liabilities reflected as liabilities or obligations on the Cadbury plc
Balance Sheet or the accounting records supporting such balance sheet, and all Liabilities
arising or Assumed after the date of such balance sheet which, had they arisen or been
Assumed on or before such date and been retained as of such date, would have been reflected
on such balance sheet or such records if prepared on a consistent basis, subject to any
discharge of such Liabilities subsequent to the date of the Cadbury plc Balance Sheet.
Notwithstanding anything to the contrary herein, the Cadbury plc Liabilities shall not include
any Beverages Liabilities.
Cadbury plc Litigation Matters
means the Actions set forth in
Schedule
1.01(l)
hereto and any other Actions related to the Cadbury plc Assets or Cadbury plc
Liabilities commenced on or before the Distribution Date.
Cadbury plc Ordinary Shares
shall mean the issued and outstanding ordinary shares of
[___]p each of Cadbury plc.
Circular
shall mean the circular sent to holders of CS Ordinary Shares containing
details of the Plan of Separation.
Claims Administration
shall mean the processing of claims made under the Shared
Policies, including the reporting of claims to the insurance carriers, management and defense of
claims and providing for appropriate releases upon settlement of claims.
Confidential Information
shall mean confidential or proprietary Information
concerning a Party and/or its Subsidiaries which, prior to or following the Demerger Effective
Time, has been disclosed by a Party or its Subsidiaries to another Party or its Subsidiaries, in
written, oral (including by recording), electronic, or visual form to, or otherwise has come into
the possession of, the other Party or its Subsidiaries, including pursuant to the provisions of
Section 8.01
,
8.02
or
8.03
or any other provision of this Agreement (except
to the extent that such Information can be shown to have been (i) in the public domain through no
fault of such Party or its Subsidiaries or (ii) lawfully acquired from other sources by such Party
or its Subsidiaries to which it was furnished;
provided
,
however
, in the case of
clause (ii) that, to the furnished Partys knowledge, such sources did not provide such Information
in breach of any confidentiality obligations).
Consents
shall mean any consents, waivers or approvals from, or notification
requirements to, any Person other than a Governmental Entity, in each case, in connection with
the Plan of Separation.
Continuing Arrangements
shall mean those arrangements set forth in
Schedule
1.01(m)
and such other commercial arrangements among the Parties that are intended to survive
and continue following the Demerger Effective Time.
9
Contract
shall mean any agreement, contract, obligation, indenture, instrument,
lease, arrangement, commitment or undertaking (whether written or oral and whether express or
implied).
CS ADRs
shall mean the American Depositary Receipts evidencing the American
depository shares representing CS Ordinary Shares.
CS Ordinary Shares
shall mean the issued and outstanding ordinary shares of 12.5
pence each of CS.
Demerger Effective Time
shall mean the time at which the Plan of Separation becomes
effective, expected to be [___] p.m. British Summer Time on [______], 2008 or such other time as
the Court Order is registered.
Disclosure Documents
shall mean any registration statement or other document
(including the Form 10 and the Prospectus) filed with the SEC or the FSA by or on behalf of any
Party or any of its controlled Affiliates in connection with the Plan of Separation, and also
includes any information statement, prospectus, offering memorandum, offering circular (including
the Circular and any franchise offering circular or any similar disclosure statement), or similar
disclosure document, whether or not filed with the SEC or the FSA or any other Governmental Entity
related to the Plan of Separation, which offers for sale or registers the Transfer or distribution
of any security of such Party or any of its controlled Affiliates.
Distribution
shall mean the distribution by DPS on the Distribution Date to holders
of record of shares of Cadbury plc Beverages Shares as of the Distribution Record Date of the
issued and outstanding DPS Common Stock on the basis of [___] shares of DPS Common Stock for every
one outstanding Cadbury plc Beverages Share.
Distribution Date
shall mean the date which DPS distributes all of the issued and
outstanding shares of DPS Common Stock to the holders of Cadbury plc Beverages Shares.
Distribution Record Date
shall mean 6:00 p.m. Greenwich Mean Time or British Summer
Time, as applicable to the time of year, on the Business Day immediately preceding the date on
which the Court Order is registered by the UK Registrar of Companies at Companies House.
DPS Group
shall mean DPS and each Business Entity that is a Subsidiary of DPS
immediately after the Demerger Effective Time, and each Business Entity that becomes a Subsidiary
of DPS after the Demerger Effective Time, which shall include those entities identified as such in
Schedule 1.01(n)
.
DPS Transaction Costs
shall mean the categories of out-of-pocket transaction costs and expenses incurred by CS, DPS or any member of their respective Groups in connection
with the Plan of Separation set forth in
Schedule 1.01(o)
.
Employee
Matters Agreement
shall mean the Employee Matters Agreement
among CS and DPS and, solely for certain limited sections therein,
Cadbury plc, substantially in the form of attached hereto as
Exhibit 1.01(a)
.
10
Exchange Act
shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, all as the same shall be in effect at the time that
reference is made thereto.
Form 10
shall mean the registration statement on Form 10 filed by DPS with the SEC
in connection with the Distribution, and all amendments and supplements thereto.
FSA
shall mean the UK Financial Services Authority.
Governmental Approvals
shall mean any notice or report to be submitted to, or other
filing to be made with, or any consent, registration, approval, permit or authorization to be
obtained from, any Governmental Entity, in each case in connection with the Plan of Separation.
Governmental Entity
shall mean any nation or government, any state, municipality or
other political subdivision thereof and any entity, body, agency, department, board, bureau or
court, whether domestic, foreign or multinational, exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and any executive official
thereof.
Group
shall mean the Cadbury plc Group or the DPS Group, as the context may require.
Indemnifiable Loss
shall mean any and all damages, losses, Liabilities, penalties,
judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs
and expenses of any and all Actions and demands, assessments, judgments, settlements and
compromises relating thereto and the reasonable costs and expenses of attorneys, accountants,
consultants and other professionals fees and expenses incurred in the investigation or defense
thereof or the enforcement of rights hereunder), excluding special, consequential, indirect,
punitive damages (other than special, consequential, indirect and/or punitive damages awarded to
any third party against an indemnified party) and excluding Taxes. In addition, an
Indemnifiable Loss
shall not include any non-cash costs or charges, except to the extent
such non-cash costs or charges result in a cash payment by the applicable Indemnitee.
Information
shall mean all information, whether or not patentable or copyrightable,
in written, oral, electronic, visual or other tangible or intangible form, stored in any medium,
including studies, reports, Records, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples,
flow charts, data, computer data, disks, diskettes, tapes, computer programs or other Software,
marketing plans, customer names, communications by or to attorneys (including attorney-client
privileged communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), communications and materials otherwise related to or
made or prepared in connection with or in preparation for any legal proceeding, and other technical, financial, employee or business
information or data.
Information Statement
shall mean the Information Statement attached as an exhibit to
the Form 10 sent to the holders of CS Ordinary Shares in connection with the Distribution,
including any amendment or supplement thereto.
11
Insurance Administration
shall mean, with respect to each Shared Policy, the
accounting for premiums, retrospectively-rated premiums, defense costs, indemnity payments,
deductibles and retentions, as appropriate, under the terms and conditions of each of the Shared
Policies; and the reporting to excess insurance carriers of any losses or claims which may cause
the per-occurrence, per claim or aggregate limits of any Shared Policy to be exceeded, and the
distribution of Insurance Proceeds as contemplated by this Agreement.
Insurance Proceeds
shall mean those monies (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net
of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, or cost
of reserve paid or held by or for the benefit of such insured.
Intellectual Property
shall mean (i) patents and patent applications; (ii)
Trademarks; (iii) copyrights and design rights, including registrations and applications for
registration thereof; (iv) database rights; and (v) confidential and proprietary information,
including trade secrets and know-how.
Intercompany Balances
shall mean the intercompany accounts receivable, accounts
payable, loans and corporate cross-charges (other than current intercompany accounts receivables
and accounts payable arising out of the ordinary course of business or any balances outstanding
under any Continuing Arrangement), including the interest accrued thereon as of the date hereof,
between any member of the DPS Group, on the one hand, and any member of the Cadbury plc Group, on
the other hand, set forth in
Schedule 1.01(p)
.
Law
shall mean any applicable U.S., English or other federal, national,
supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code,
order, requirement or rule of law (including common law).
Liabilities
shall mean any and all debts, liabilities, costs, expenses and
obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or
unreserved, or determined or determinable, including those arising under any Law, Action, whether
asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or
award entered by or with any Governmental Entity and those arising under any Contract or any fines,
damages or equitable relief which may be imposed and including all costs and expenses related
thereto.
Listing Rules
shall mean the Listing Rules of the UKLA.
London Stock Exchange
shall mean the London Stock Exchange plc.
NYSE
shall mean the New York Stock Exchange.
Person
shall mean any natural person, firm, individual, corporation, business trust,
joint venture, association, company, limited liability company, partnership or other organization
or entity, whether incorporated or unincorporated, or any Governmental Entity.
Policies
shall mean insurance policies and insurance Contracts of any kind (other
than life and benefits policies or Contracts), including primary, excess and umbrella
12
policies,
comprehensive general liability policies, director and officer liability, fiduciary liability,
automobile, aircraft, property and casualty, workers compensation and employee dishonesty
insurance policies, bonds and self-insurance and captive insurance company arrangements, together
with the rights, benefits and privileges thereunder.
Prospectus
shall mean the prospectus issued by Cadbury plc in relation to the
admission by the UKLA of the Cadbury plc Ordinary Shares and the admission of the Cadbury plc
Ordinary Shares to trading on the main market for listed securities of the London Stock Exchange,
prepared, published and approved by, and filed with, the FSA in accordance with the Prospectus
Rules.
Prospectus Rules
shall mean the Prospectus Rules of the FSA made under section 73A
of the Financial Services and Markets Act 2000, as amended.
Records
shall mean any Contracts, documents, books, records or files.
Required Consents
shall mean the Consents set forth in
Schedule 1.01(q)
.
Scheme
shall mean the scheme of arrangement under Section 425 of the Companies Act
1985 between CS and the CS shareholders, with or subject to any modification, addition or condition
approved or imposed by the Court pursuant to which the CS Ordinary Shares will be cancelled, CS
will become a wholly-owned subsidiary of Cadbury plc and each holder of CS Ordinary Shares will be
entitled to receive (i) [___] Cadbury plc Ordinary Shares for every [___] CS Ordinary Shares that
such holder holds as of the Scheme Record Date and (ii) [___] Cadbury plc Beverages Shares for
every [___] CS Ordinary Shares that such holder holds as of the Scheme Record Date.
Scheme Record Date
shall mean 6:00 p.m. Greenwich Mean Time or British Summer Time,
as applicable to the time of year, on the date of the Court hearing to confirm the reduction of
capital of CS provided under the Scheme.
SEC
shall mean the United States Securities and Exchange Commission or any successor
agency.
Securities Act
shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the time that reference is
made thereto.
Security Interest
shall mean any mortgage, security interest, pledge, lien, charge,
claim, option, right to acquire, voting or other restriction, right-of-way, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever, excluding (i) restrictions
on transfer under securities Laws and (ii) licenses of Intellectual Property.
Shared Policies
shall mean the Policies, current or past, which are owned or
maintained by or on behalf of any member of the Cadbury plc Group or any member of the DPS Group
which relate to one or more of the Cadbury plc Business and the Beverages Business, which are set
forth in
Schedule 1.01(r)
.
13
Shared Policy Insured Claims
shall mean those Liabilities that, individually or in
the aggregate, are covered within the terms and conditions of any of the Shared Policies, whether
or not subject to deductibles, co-insurance, uncollectibility or retrospectively-rated premium
adjustments.
Software
shall mean all computer programs, applications and code (including source
code and object code), and all media and documentation (including user manuals and training
materials) relating to or embodying any of the foregoing or on which any of the foregoing are
recorded.
Subsidiary
shall mean, with respect to any Person, (i) a corporation, 50% or more of
the voting or capital stock of which is, as of the time in question, directly or indirectly owned
by such Person and (ii) any other partnership, joint venture, association, joint stock company,
trust, unincorporated organization or other entity in which such Person, directly or indirectly,
owns 50% or more of the equity economic interest thereof or has the power to elect or direct the
election of 50% or more of the members of the governing body of such entity or otherwise has
control over such entity (
e.g.,
as the managing partner of a partnership).
Tax
shall have the meaning set forth in the Tax Sharing Agreement.
Tax Return
shall have the meaning set forth in the Tax Sharing Agreement.
Tax
Sharing Agreement
shall mean the Tax Sharing and
Indemnification Agreement among CS and DPS and, solely for certain
limited sections therein, Cadbury plc, substantially in the form attached hereto as
Exhibit 1.01(b)
.
Territory
shall mean the countries listed across from the brands owned by or
licensed to a member of the DPS Group as of the Distribution Date or otherwise Transferred to a
member of the DPS Group after the Distribution Date pursuant to
Section 2.04
, as set forth
in
Schedule 1.01(s)
. For the avoidance of doubt, the
Territory is specific as to each brand identified in
Schedule 1.01(s)
.
Trademarks
means trademarks, service marks, trade names, trade dress and Internet
domain names, and registrations and applications for registration thereof, together with the
goodwill associated therewith.
Transaction Costs
shall mean all out-of-pocket costs and expenses incurred by CS,
DPS or any member of their respective Groups in connection with the Plan of Separation other than
the DPS Transaction Costs.
Transfer Agent
shall mean Computershare Trust Company, N.A.
Transfer Documents
shall mean, collectively, the various Contracts and other
documents heretofore entered into and to be entered into to effect the Transfer of Assets and the Assumption of Liabilities in the manner contemplated by this Agreement and the Plan of
Separation, or otherwise relating to, arising out of or resulting from the transactions
contemplated by this Agreement, which shall be, as applicable, in such form or forms as the
applicable Parties thereto agree.
14
Transition Services Agreement
shall mean the Transition Services Agreement between
CS and DPS, substantially in the form attached hereto as
Exhibit 1.01(c)
.
UK
shall mean the United Kingdom of Great Britain and Northern Ireland.
UKLA
shall mean the FSA acting in its capacity as the competent authority for the
purposes of Part VI of the Financial Services and Markets Act 2000, as amended.
The following terms have the meanings set forth in the Sections set forth below:
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Definition
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Location
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Agreement
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Preamble
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Agreement Disputes
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10.01
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American Samoa Business
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6.02
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(d)
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AsiaPac Licensed Intellectual Property
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6.04
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(c)
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Assume or Assumed
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2.02
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Audited Party
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5.02
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(d)
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Beverages Claims
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8.10
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(c)
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Beverages Names and Marks
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6.02
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(a)
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Cadbury Names and Marks
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6.01
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(a)
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Cadbury plc Claims
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8.10
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(c)
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Corporate Name
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6.01
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(b)
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Court
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4.01
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(a)
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Court Order
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4.01
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(b)
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CS
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Recitals
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Domain Names Agreement
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6.06
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DPS
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Preamble
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DPS Common Stock
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Recitals
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DPS Licensed Intellectual Property
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6.04
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(b)
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Escalation Notice
|
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10.02
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(a)
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Existing Stock
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6.01
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(c)
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Future Beverages Litigation Matter
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8.10(b)(ii)
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Future Cadbury plc Litigation Matter
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8.10
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(b)(i)
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Future Joint Litigation Matters
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8.10(b)(iii)
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Improvements
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6.04
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(b)
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Indemnifying Party
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7.04
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(b)
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Indemnitee
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|
7.04
|
(b)
|
Indemnity Payment
|
|
|
7.06
|
(a)
|
Interim Financial Statements
|
|
|
5.02
|
(c)
|
Internal Control Audit and Management Assessments
|
|
|
5.02
|
(b)
|
Know-How Agreement
|
|
|
6.05
|
(a)
|
Joint Cadbury plc and Beverages Claims
|
|
|
8.10
|
(c)
|
Memorabilia
|
|
|
6.03
|
|
Other Partys Auditors
|
|
|
5.02
|
(b)
|
Party
|
|
Preamble
|
Plan of Separation
|
|
Recitals
|
15
|
|
|
|
|
Definition
|
|
Location
|
|
Reduction
|
|
|
4.01
|
(a)
|
Shared Contract
|
|
|
2.01
|
(c)(i)
|
Third Party Claim
|
|
|
7.04
|
(b)
|
Third Party Proceeds
|
|
|
7.06
|
(a)
|
Transfer
|
|
|
2.01
|
(a)(i)
|
Section 1.02
Interpretation and Rules of Construction
. In this Agreement, except to the extent otherwise provided or that the context otherwise
requires:
(a) when a reference is made in this Agreement to an Article, Section, Exhibit or
Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated;
(b) the table of contents and headings for this Agreement are for reference purposes
only and do not affect in any way the meaning or interpretation of this Agreement;
(c) whenever the words include, includes or including are used in this Agreement,
they are deemed to be followed by the words without limitation;
(d) the words hereof, herein and hereunder and words of similar import, when used
in this Agreement, refer to this Agreement as a whole and not to any particular provision of
this Agreement;
(e) all terms defined in this Agreement have the defined meanings when used in any
Ancillary Agreement, or any certificate or other document made or delivered pursuant hereto,
unless otherwise defined therein;
(f) the definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms; and
(g) references to a Person are also to its successors and permitted assigns.
ARTICLE II
THE SEPARATION
Section 2.01
Transfer of Assets
.
(a) On or prior to the Demerger Effective Time and to the extent not already completed:
(i) CS shall, on behalf of itself and the members of the Cadbury plc Group, as
applicable, transfer, contribute, assign and convey or cause to be transferred, contributed,
assigned and conveyed (
Transfer
) to DPS or another member of the DPS Group all of
its and its Subsidiaries right, title and interest, if any and to the extent of such right,
title and interest, in and to the Beverages Assets owned or held by a
member of the Cadbury
16
plc Group as of the Distribution Date, including taking the actions necessary to consummate
the transactions set forth in
Schedule 2.01(a)
; and
(ii) DPS shall, on behalf of itself and the members of the DPS Group, as applicable,
Transfer to CS or another member of the Cadbury plc Group all of its and its Subsidiaries
right, title and interest, if any and to the extent of such right, title and interest, in
and to the Cadbury plc Assets owned or held by a member of the DPS Group as of the
Distribution Date, including taking the actions necessary to consummate the transactions set
forth in
Schedule 2.01(a)
.
(b) Unless otherwise agreed to by the Parties, each of CS and DPS shall be entitled to
designate the Business Entity within such Partys respective Group to which any Assets are to be
Transferred pursuant to this
Section 2.01
or
Section 2.04
.
(c) Without limiting the generality of the obligations set forth in
Section 2.01(a)
and
2.01(b)
:
(i) Unless the Parties otherwise agree or the benefits of any Contract described in
this Section are expressly conveyed to the applicable Party pursuant to an Ancillary
Agreement, to the extent any Contract is (1) a Cadbury plc Asset but inures in part to the
benefit or burden of any member of the DPS Group or (2) a Beverages Asset but inures in part
to the benefit or burden of any member of the Cadbury plc Group, including those contracts
listed in
Schedule 2.01(c)
(each, a
Shared Contract
), such Shared Contract
shall be assigned in part to the applicable member(s) of the applicable Group, if so
assignable, or appropriately amended prior to, on or after the Demerger Effective Time, so
that each Party or the members of their respective Groups shall be entitled to the rights
and benefits, and shall Assume the related portion of any Liabilities, inuring to their
respective businesses;
provided
,
however
, that (x) in no event shall any
member of any Group be required to assign (or amend) any Shared Contract in its entirety or
to assign a portion of any Shared Contract (including any Policy) which is not assignable
(or cannot be amended) by its terms (including any terms imposing consents or conditions on
an assignment where such consents or conditions have not been obtained or fulfilled) and (y)
if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot
be amended or if such assignment or amendment would impair the benefit the Parties thereto
derive from such Shared Contract, the Parties shall, and shall cause each of their
respective Subsidiaries to, take such other reasonable and permissible actions to cause a
member of the DPS Group or the Cadbury plc Group, as the case may be, to receive the benefit
of that portion of each Shared Contract that relates to the Beverages Business or the
Cadbury plc Business (to the extent so related) as if such Shared Contract had been assigned
to (or amended to allow) a member of the applicable Group pursuant to this
Section 2.01
and to bear the burden of the corresponding
Liabilities (including any Liabilities that may arise by reason of such arrangement) as if
such Liabilities had been Assumed by a member of the applicable Group pursuant to this
Section 2.01
.
(ii)
Each of CS and DPS shall, and shall cause the respective members of its
Group to, (A) treat for all Tax purposes the portion of each Shared
17
Contract inuring to its
respective businesses as Assets owned by, and/or Liabilities of, as applicable, such Party
not later than the Demerger Effective Time and (B) neither report nor take any Tax position
(on a Tax Return or otherwise) inconsistent with such treatment (in the case of clauses (A)
and (B), unless required by Tax Law or any other Law or the good faith resolution of a
contest or other proceeding relating to Taxes).
(iii) Nothing in this
Section 2.01(c)
shall require any member of any Group to
make any payment (except to the extent advanced, Assumed or agreed in advance to be
reimbursed by any member of the other Group), incur any obligation or grant any concession
for the benefit of any member of any other Group in order to effect any transaction
contemplated by this
Section 2.01(c)
, in each case, other than an incidental
payment, obligation or concession.
(d) The Parties shall use their commercially reasonable efforts to obtain the Required
Consents on or prior to the Distribution Date.
Section 2.02
Assumption and Satisfaction of Liabilities
. Except as otherwise specifically set forth in any Ancillary Agreement, from and after the
Demerger Effective Time, (a) CS shall, or shall cause a member of the Cadbury plc Group to, accept,
assume (or, as applicable, retain), perform, discharge and fulfill, in accordance with their
respective terms (
Assume
), all of the Cadbury plc Liabilities and (b) DPS shall, or shall
cause a member of the DPS Group to, Assume all the Beverages Liabilities, in each case, regardless
of (i) when or where such Liabilities arose or arise, (ii) whether the facts upon which they are
based occurred prior to, on or subsequent to the Demerger Effective Time, (iii) where or against
whom such Liabilities are asserted or determined and (iv) whether arising from or alleged to arise
from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the
Cadbury plc Group or the DPS Group, as the case may be, or any of their past or present respective
directors, officers, employees, agents, Subsidiaries or Affiliates.
Section 2.03
Intercompany Balances
.
(a) All of the Intercompany Balances set forth on
Schedule 1.01(p)
shall, prior to or
at the Demerger Effective Time, be repaid, settled or otherwise eliminated, by means of cash
payments, a dividend, capital contribution, a combination of the foregoing or otherwise, as
determined by CS.
(b) Except as may be contemplated by this Agreement or any Ancillary Agreement and the
transactions contemplated hereby and thereby, from [______], 2008 until the Distribution Date,
DPS shall, and shall cause each member of the DPS Group to, manage its working capital in the
ordinary course of business consistent with past practice.
(c) As between the Parties (and the members of their respective Groups), all payments and
reimbursements received after the Demerger Effective Time by any Party (or member of its Group)
that relate to a Business, Asset or Liability of the other Party (or member of its Group) shall be
held by such Party in trust for the use and benefit of the Party entitled thereto (at the expense
of the Party entitled thereto) and, promptly upon receipt by such Party of any such payment or
reimbursement, such Party shall pay or shall cause the applicable member
18
of its Group to pay over
to the applicable Party the amount of such payment or reimbursement without right of set-off, net
of any costs, including Tax costs, to the Party making the payment.
Section 2.04
Transfers Not Effected on or Prior to the Demerger Effective Time; Transfers
Deemed Effective as of the Demerger Effective Time
.
(a) To the extent that any Transfers contemplated by this Agreement (other than any Transfer
contemplated by
Section 2.01(c)
) shall not have been consummated on or prior to the
Demerger Effective Time, the Parties shall cooperate to effect such Transfers as promptly as
practicable following the Demerger Effective Time. Nothing herein shall be deemed to require the
Transfer of any Assets or the Assumption of any Liabilities which by their terms or operation of
Law cannot be Transferred;
provided
,
however
, that the Parties and their respective
Subsidiaries shall cooperate and use commercially reasonable efforts
following the Distribution Date to seek to obtain any
necessary Consents or Governmental Approvals for the Transfer of all Assets and the Assumption of
all Liabilities contemplated to be Transferred and Assumed pursuant to this Agreement.
(b) In the event that any such Transfer of Assets or Assumption of Liabilities has not been
consummated, from and after the Demerger Effective Time (i) the Party whose Group retains such
Asset shall thereafter hold, or cause the applicable member of its Group to hold, such Asset (at no
net Tax cost to such Party or such member) for the use and benefit of the member of the other Group
entitled thereto (at the expense of the member entitled thereto) to the extent related to such
other Partys business and (ii) the Party intended to Assume such Liability shall, or shall cause
the applicable member of its Group to, pay or reimburse the member of the other Group retaining
such Liability (at no net Tax cost to such retaining member) for all amounts paid or incurred in
connection with the retention of such Liability to the extent related to such other Partys
business. In addition, the Party whose Group retains such Asset or Liability shall, insofar as
reasonably possible and to the extent permitted by applicable Law, treat such Asset or Liability in
the ordinary course of business in accordance with past practice and take such other actions as may
be reasonably requested by the Party to whose Group such Asset is to be Transferred or by the Party
whose Group will Assume such Liability in order to place such Party, insofar as reasonably
possible, in the same position as if such Asset or Liability had been Transferred or Assumed as
contemplated hereby and so that all the benefits and burdens relating to such Asset or Liability,
including possession, use, risk of loss, potential for gain, and dominion, control and command over
such Asset or Liability, are to inure from and after the Demerger Effective Time to the member or
members of the Cadbury plc Group or the DPS Group entitled to the receipt of such Asset or required
to Assume such Liability. In furtherance of the foregoing, the Parties agree that, as of the
Demerger Effective Time, each Party shall be deemed to have acquired complete and sole beneficial
ownership over all of the Assets, together with all rights, powers and privileges incident thereto,
and shall be deemed to have Assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident thereto, which such Party is entitled to acquire or required to
Assume pursuant to the terms of this Agreement.
(c) If and when the Consents, Governmental Approvals and/or conditions, the absence or
non-satisfaction of which caused the deferral of Transfer of any Asset or deferral of the
Assumption of any Liability pursuant to
Section 2.04(a)
, are obtained or satisfied, the
19
Transfer, assignment, Assumption or novation of the applicable Asset or Liability shall be effected
in accordance with and subject to the terms of this Agreement and/or the applicable Ancillary
Agreement.
(d) The Person retaining any Asset or Liability due to the deferral of the Transfer of such
Asset or the deferral of the Assumption of such Liability pursuant to
Section 2.04(a)
or
otherwise shall not be obligated, in connection with the foregoing, to expend any money unless the
necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Person entitled
to such Asset or the Person intended to be subject to such Liability and at no net Tax cost to such
retaining Person, other than reasonable attorneys fees and recording or similar fees, all of which
shall be promptly reimbursed by the Person entitled to such Asset or the Person intended to be
subject to such Liability.
(e) Each of CS and DPS shall, and shall cause the members of its respective Group to, (i)
treat for all Tax purposes (A) the deferred Assets as Assets having been Transferred to and owned
by the Party entitled to such Assets not later than the Demerger Effective Time and (B) the
deferred Liabilities as Liabilities having been Assumed and owed by the Person intended to be
subject to such Liabilities not later than the Demerger Effective Time and (ii) neither report nor
take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (in the case
of clauses (i) and (ii), unless required by a Tax Law or any other Law or good faith resolution of
a contest or proceeding relating to Taxes).
(f) Nothing in this
Section 2.04
shall be deemed to modify the terms of any Beverages
IP Agreement entered into between any member of the DPS Group, on the one hand, and any member of
the Cadbury plc Group on the other.
Section 2.05
Transfer Documents
. In connection with, and in furtherance of, the Transfer of Assets and the acceptance and
Assumption of Liabilities contemplated by this Agreement, to the extent necessary, the Parties
shall execute or cause to be executed, on or prior to the Demerger Effective Time, the Transfer
Documents reasonably necessary to evidence the valid and effective Assumption by the applicable
Party or the members of its Group of the Cadbury plc Liabilities or Beverages Liabilities, as
applicable, and the valid Transfer to the applicable Party or member of such Partys Group of all
right, title and interest in and to the Cadbury plc Assets or the Beverages Asset, as applicable,
to be Transferred hereunder.
Section 2.06
Further Assurances
.
(a) In addition to and without limiting the actions specifically provided for elsewhere in
this Agreement, including
Section 2.04
, each of the Parties shall cooperate with each other
and use (and will cause their respective Subsidiaries and Affiliates to use) commercially
reasonable efforts, on and after the Demerger Effective Time, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary
on its part under applicable Law or contractual obligations to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, on and after the Demerger Effective Time, each Party shall
cooperate with the other Parties, and without any further consideration, but at
20
the expense of the
requesting Party from and after the Demerger Effective Time, to execute and deliver, or use
commercially reasonable efforts to cause to be executed and delivered, all instruments, including
instruments of Transfer, and to make all filings with, and to obtain all Consents and/or
Governmental Approvals, any permit, license, Contract, indenture or other instrument (including any
Consents or Governmental Approvals), and to take all such other actions as such Party may
reasonably be requested to take by the other Party from time to time, consistent with the terms of
this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of
this Agreement and the Ancillary Agreements and the Transfers of the applicable Assets and the
assignment and Assumption of the applicable Liabilities and the other transactions contemplated
hereby and thereby.
Section 2.07
Replacement of Guarantors and Obligors
.
(a) DPS shall (with the reasonable cooperation of CS) use its commercially reasonable efforts
to have any member of the Cadbury plc Group removed as guarantor of or obligor for any Beverages
Liability, including in respect of those guarantees and obligations set forth in
Schedule
2.07(a)
, to the extent that they relate to Beverages Liabilities.
(b) On or prior to the Demerger Effective Time, to the extent required to obtain a release
from a guaranty or obligation for any Beverages Liability of any member of the Cadbury plc Group, a
member of the DPS Group, as applicable, shall either (i) execute a guaranty agreement in the form
of the existing guaranty or such other form as is agreed to by the relevant Parties to such
guaranty agreement or (ii) execute an amendment to the agreement giving rise to such obligation in
such form as is necessary to obtain such release, except to the extent that such existing guaranty
or amendment contains representations, covenants or other terms or provisions either (1) with which
DPS would be reasonably unable to comply or (2) which would be reasonably expected to be breached.
(c) If DPS is unable to obtain, or to cause to be obtained, any such required removal as set
forth in clause (a) and (b) of this
Section 2.07
, (i) the relevant DPS Group beneficiary
and DPS shall, and shall cause the members of the DPS Group to, indemnify and hold harmless the
Cadbury plc Group guarantor or obligor for any Indemnifiable Loss arising from or relating thereto
(in accordance with the provisions of
ARTICLE VII
) and shall or shall cause one of its
Affiliates, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge
fully all the obligations or other Liabilities of such guarantor or obligor thereunder.
(d) CS shall (with the reasonable cooperation of DPS) use its commercially reasonable efforts
to have any member of the DPS Group removed as guarantor of or obligor for any Cadbury plc
Liability, including in respect of the guarantees or obligations set forth in
Schedule
2.07(d)
, to the extent that they relate to Cadbury plc Liabilities.
(e) On or prior to the Demerger Effective Time, to the extent required to obtain a release
from a guaranty or obligation for any Cadbury plc Liability of any member of the DPS Group, a
member of the Cadbury plc Group, as applicable, shall either (i) execute a guaranty agreement in
the form of the existing guaranty or such other form as is agreed to by the relevant Parties to
such guaranty agreement or (ii) execute an amendment to the agreement
21
giving rise to such
obligation in such form as is necessary to obtain such release, except to the extent that such
guaranty or amendment contains representations, covenants or other terms or provisions either (1)
with which CS would be reasonably unable to comply or (2) which would be reasonably expected to be
breached.
(f) If CS is unable to obtain, or to cause to be obtained, any such required removal as set
forth in clause (d) and (e) of this
Section 2.07
, (i) the relevant Cadbury plc Group
beneficiary and CS shall, and shall cause the other members of the Cadbury plc Group to, indemnify
and hold harmless the DPS Group guarantor or obligor for any Indemnifiable Loss arising from or
relating thereto (in accordance with the provisions of
ARTICLE VII
) and shall or shall
cause one of its Affiliates, as agent or subcontractor for such guarantor or obligor to pay,
perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor
thereunder.
Section 2.08
Disclaimer of Representations and Warranties
. EACH OF CS (ON BEHALF OF ITSELF AND EACH MEMBER OF THE CADBURY PLC GROUP) AND DPS (ON
BEHALF OF ITSELF AND EACH MEMBER OF THE DPS GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY
SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT OR IN ANY CONTINUING ARRANGEMENT, NO PARTY TO THIS
AGREEMENT, ANY ANCILLARY AGREEMENT, ANY CONTINUING ARRANGEMENT OR ANY OTHER AGREEMENT OR DOCUMENT
CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENTS, ANY CONTINUING ARRANGEMENTS OR OTHERWISE,
IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES, INFORMATION OR LIABILITIES
CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR
GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM
FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO
THE ABSENCE OF ANY DEFENSES OR RIGHT OF SET-OFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY
ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY
OF ANY CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY
TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF.
EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT OR CONTINUING
ARRANGEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN AS IS, WHERE IS BASIS (AND, IN THE
CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE
RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE
TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST
AND (II) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE
NOT COMPLIED WITH.
22
ARTICLE III
CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTION
Section 3.01
Certificate of Incorporation; Bylaws
. On or prior to the Distribution Date, all necessary actions shall be taken to adopt the
form of Certificate of Incorporation and Bylaws filed by DPS with the SEC as exhibits to the Form
10.
Section 3.02
Directors
. On or prior to the Distribution Date, CS shall take all necessary actions to cause the
board of directors of DPS to consist of the individuals identified in the Information Statement as
directors of DPS.
Section 3.03
Resignations
. On or prior to the Distribution Date, (i) CS shall cause all its employees and any
employees of any member of the Cadbury plc Group (excluding any employees of any member of the DPS
Group) to resign, effective as of the Distribution Date, from all positions as officers or
directors of any member of the DPS Group in which they serve and (ii) DPS shall cause all its
employees and any employees of any member of the DPS Group to resign, effective as of the
Distribution Date, from all positions as officers or directors of any members of the Cadbury plc
Group.
Section 3.04
Ancillary Agreements
. On or prior to the Distribution Date, each of CS and DPS shall enter into, and/or (where
applicable) shall cause a member or members of their respective Group to enter into, the Ancillary
Agreements and any other Contracts in respect of the Distribution reasonably necessary or
appropriate in connection with the transactions contemplated hereby and thereby.
ARTICLE IV
THE DISTRIBUTION
Section 4.01
The Distribution
. Subject to
Sections 4.04
and
4.05
:
(a) Promptly following the sanction by the High Court of Justice of England and Wales (the
Court
) of the Scheme, Cadbury plc shall apply to the Court to approve a reduction in
capital pursuant to Section 135 of the Companies Act 1985 (the
Reduction
) under which the
share capital of Cadbury plc shall be reduced by decreasing the nominal value of each Cadbury plc
Ordinary Share from [___] to [___] pence and the Cadbury plc Beverages Shares will be cancelled in
their entirety.
(b) Promptly after receipt of the order (the
Court Order
) from the Court approving
the Reduction, Cadbury plc shall file the Court Order at Companies House.
(c) On the Distribution Date, DPS shall issue to each holder of a Cadbury plc Beverages Share
[___] share[s] of DPS Common Stock for each [___] Cadbury plc Beverages Share[s] held by such shareholder and the shares of DPS Common Stock held by [___] shall be
cancelled. No action by any such shareholder shall be necessary for such shareholder (or such
shareholders designated transferee or transferees) to receive the applicable number of shares of
(and, if applicable, cash in lieu of any fractional shares) DPS Common Stock such shareholder is
23
entitled to in the Distribution. The Transfer Agent shall credit the appropriate class and number
of such shares of DPS Common Stock to book entry accounts for each such holder or designated
transferee or transferees of such holder of DPS Common Stock.
Section 4.02
Fractional Shares
. Shareholders holding a number of shares of Cadbury plc Beverages Shares, on the
Distribution Record Date, that would entitle such shareholders to receive less than one whole share
of DPS Common Stock in the applicable Distribution will receive cash in lieu of fractional shares.
Fractional shares of DPS Common Stock will not be distributed in the Distribution nor credited to
book-entry accounts. The Transfer Agent shall, as soon as practicable after the applicable
Distribution Date, (a) determine the number of whole shares and fractional shares of DPS Common
Stock allocable to each holder of record or beneficial owner of Cadbury plc Beverages Shares as of
close of business on the Distribution Record Date, (b) aggregate all such fractional shares into
whole shares and sell the whole shares obtained thereby in open market transactions, in each case,
at then prevailing trading prices on behalf of holders who would otherwise be entitled to
fractional share interests and (c) distribute to each such holder, or for the benefit of each such
beneficial owner, such holder or owners ratable share of the net proceeds of such sale, based upon
the average gross selling price per share of DPS Common Stock after making appropriate deductions
for any amount required to be withheld for United States federal income tax purposes. DPS shall
bear the cost of brokerage fees incurred in connection with these sales of fractional shares, which
sales shall occur as soon after the applicable Distribution Date as practicable and as determined
by the Transfer Agent. Neither CS nor DPS or the Transfer Agent will guarantee any minimum sale
price for the fractional shares of DPS Common Stock. Neither CS nor DPS will pay any interest on
the proceeds from the sale of fractional shares. The Transfer Agent will have the sole discretion
to select the broker-dealers through which to sell the aggregated fractional shares and to
determine when, how and at what price to sell such shares. Neither the Transfer Agent nor the
broker-dealers through which the aggregated fractional shares are sold will be Affiliates of CS or
DPS.
Section 4.03
Actions in Connection with the Distribution
.
(a) DPS shall file such amendments and supplements to the Form 10 as CS may reasonably request
and such amendments as may be necessary in order to cause the same to become and remain effective
as required by Law, including filing such amendments and supplements to the Form 10 as may be
required by the SEC or federal, state or foreign securities Laws. A member of the Cadbury plc
Group, on behalf of DPS, shall mail to the holders of CS Ordinary Shares and CS ADRs, at such time
on or prior to the applicable Distribution Date as CS shall determine, the Information Statement
included in the Form 10, as well as any other information concerning DPS, its business, operations
and management, the Plan of Separation and such other matters as CS shall reasonably determine are
necessary and as may be required by Law.
(b) DPS shall cooperate with CS in preparing, filing with the SEC and causing to become effective a registration statement or amendments thereof which are required to
reflect the establishment of, or amendments to, any employee benefit and other plans necessary or
appropriate in connection with the Plan of Separation or other transactions contemplated by this
Agreement and the Ancillary Agreements. Promptly after receiving a request from CS, to the
24
extent
requested, DPS shall prepare and, in accordance with applicable Law, file with the SEC any such
documentation that CS determines is necessary or desirable to effectuate the Distribution, and CS
and DPS shall each use commercially reasonable efforts to obtain all necessary approvals from the
SEC with respect thereto as soon as practicable.
(c) DPS shall prepare and file, and shall use commercially reasonable efforts to have approved
and made effective, an application for the original listing of the DPS Common Stock to be
distributed in the Distribution on the NYSE, subject to official notice of distribution.
Section 4.04
Distribution Date
. CS shall, in its sole discretion, determine the Distribution Date and all terms of the
Distribution, including the form, structure and terms of any transactions and/or offerings to
effect the Distribution and the timing of and conditions to the consummation thereof. In addition,
regardless of whether the conditions to the consummation of the Distribution set forth in
Section 4.05
have been satisfied or waived, CS may, in accordance with
Section
11.01
, at any time and from time to time until the completion of the Distribution, decide to
modify or change the terms of the Distribution, including by accelerating or delaying the timing of
the consummation of all or part of the Distribution.
Section 4.05
Conditions to Distribution
. Subject to
Section 4.04
, the consummation of the Distribution shall be subject to
the satisfaction or waiver of the following conditions which satisfaction or waiver shall be
determined by CS in its sole discretion and which conditions are for the sole benefit of the
Cadbury plc Group and shall not give rise to or create any duty on the part of CS or the board of
directors of CS to waive or not waive any such condition:
(a) The Form 10 shall have been declared effective by the SEC, with no stop order in effect
with respect thereto, and the Information Statement shall have been mailed to the holders of CS
Ordinary Shares;
(b) The DPS Common Stock to be delivered in the Distribution shall have been approved for
listing on the NYSE, subject to official notice of issuance;
(c) Any Governmental Approvals and any Required Consents shall have been obtained and be in
full force and effect;
(d) The Scheme shall have been sanctioned by the Court and office copies of the Scheme Court
Orders shall have been registered by the UK Registrar of Companies at Companies House;
(e) The Cadbury plc Ordinary Shares shall have been (i) admitted to the official list of the
UKLA and (ii) admitted to trading on the London Stock Exchanges main market for listed Securities;
(f) Cadbury plc shall have received the Court Order approving the Reduction and such Court Order shall have been delivered to the UK Registrar of Companies and been
registered by him;
(g) No order, injunction or decree issued by any Governmental Entity of
25
competent jurisdiction
or other legal restraint or prohibition preventing the consummation of the Distribution or any of
the transactions related thereto, including the transfers of Assets and Assumption of Liabilities
contemplated by this Agreement, shall be in effect;
(h) CS shall have completed the contribution/transfer of the Beverages Business to DPS;
(i) The financing transactions described in the Information Statement as having occurred prior
to the Distribution shall have been consummated on or prior to the Distribution;
(j) There shall not have occurred an event or development that, in the opinion of the board of
directors of CS, in its sole and absolute discretion, would result in the Distribution having a
material adverse effect on CS or any of its Subsidiaries or CS shareholders; and
(k) The Ancillary Agreements shall have been entered into by the applicable Parties.
Section 4.06
Consent to the Reduction
. DPS acknowledges that Cadbury plc is proposing to undertake the Reduction and DPS, on
behalf of itself and each member of the DPS Group, (i) shall as soon as reasonably practicable
after the date of this Agreement provide Cadbury plc with an executed letter of consent to the
Reduction in the form attached as
Exhibit 4.06
and agrees that a copy of this letter may be
presented to the Court as part of Cadbury plcs application for confirmation by the Court of the
Reduction; and (ii) undertakes that to the extent further consent is requested by Cadbury plc in
order to effect the Reduction, DPS shall (and shall procure that any member of the DPS Group shall)
give consent promptly on terms reasonably acceptable to Cadbury plc and, for the avoidance of
doubt, such consents shall not be conditional on the provision of any third party guarantee or the
deposit of any funds in any bank or escrow account or any other security, fact, event or thing.
This consent is (and any consent given after the date of this letter shall be) irrevocable.
ARTICLE V
CERTAIN COVENANTS
Section 5.01
Non-Solicitation of Employees
. During the period ending on the 18-month anniversary of the Distribution Date, none of the
Parties or any member of their respective Groups shall solicit for employment or interfere with or
attempt to interfere with any officers, employees, representatives or agents of any member of the
other Group, or induce or attempt to induce any of them to leave the employ of the other Group or
violate the terms of their contracts, or any employment arrangements, with the other Group;
provided
,
however
, that the foregoing will not prohibit (x) any advertising in publication or media of general circulation
including trade journals or similar media or hiring any officer, employee, representative or agent
who responds to such advertisement or (y) the soliciting or hiring of any officers, employees,
representatives or agents of any member of the other Group who are offered a position following
26
the
termination of employment by the other Group.
Section 5.02
Auditors and Audits; Annual and Quarterly Financial Statements and
Accounting
.
(a) DPS shall use its commercially reasonable efforts to cause its auditors to complete its
audit for the year ending December 31, 2008 such that the auditor will date its opinion of the
audited 2008 annual financial statements on the same date that Cadbury plcs auditors date their
opinion on Cadbury plcs audited annual financial statements, such that Cadbury plc is able to meet
its timetable for the printing, filing and public dissemination of Cadbury plcs 2008 annual
financial statements. In addition, DPS shall use its commercially reasonable efforts to cause its
auditors to comply with the processes and procedures required by Cadbury plc Groups auditors to
permit Cadbury plc Groups auditors to opine on the 2008 audited financial statements of Cadbury
plc.
(b) Each Party shall provide, or provide access to the other Party on a timely basis, all
information reasonably required to meet its schedule for the preparation, printing, filing, and
public dissemination of its 2008 annual financial statements and for managements assessment of the
effectiveness of its disclosure controls and procedures and its internal control over financial
reporting in accordance with Items 307 and 308, respectively, of Regulation S-K and, to the extent
applicable to such Party, its auditors audit of its internal control over financial reporting and
managements assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
and the SECs and Public Company Accounting Oversight Boards rules and auditing standards
thereunder, if required (such assessments and audit being referred to as the
Internal Control
Audit and Management Assessments
). Such information shall be provided in the form, time and
manner reasonably requested by CS, which shall not be materially different than the form, time and
manner required by CS prior to the Distribution Date pursuant to the CS Group Reporting Manual in
effect as of the Distribution Date. Without limiting the generality of the foregoing, each Party
will provide all required financial and other information with respect to itself and its
Subsidiaries to its auditors in a sufficient and reasonable time and in sufficient detail to permit
its auditors to take all steps and perform all reviews necessary to provide sufficient assistance
to the other Partys auditors (each such other Partys auditors, collectively, the
Other
Partys Auditors
) with respect to information to be included or contained in such other
Partys annual financial statements and to permit the Other Partys Auditors and management to
complete the Internal Control Audit and Management Assessments, if required.
(c) Each Party shall provide, or provide access to the other Party on a timely basis, all
information reasonably required to meet its schedule for the preparation, printing, filing, and
public dissemination of its financial results for the period ending June 30, 2008 (the
Interim
Financial Statements
) and for its Internal Control Audit and Management Assessments, if
required. Such information shall be provided in the form, time and manner reasonably requested by
CS, which shall not be materially different than the form, time and manner required by CS prior to
the Distribution Date pursuant to the CS Group Reporting Manual in effect as of the Distribution Date. Without limiting the generality of the foregoing, each Party will provide
all required financial and other information with respect to itself and its Subsidiaries to its
auditors in a sufficient and reasonable time and in sufficient detail to permit its auditors to
take all steps and perform all reviews necessary to provide sufficient assistance to the Other
Partys Auditors
27
with respect to information to be included or contained in the Interim Financial
Statements and to permit the Other Partys Auditors and management to complete the Internal Control
Audit and Management Assessments, if required.
(d) Each Party shall authorize its respective auditors to make reasonably available to the
Other Partys Auditors both the personnel who performed or are performing the annual audits of such
audited Party (each such Party with respect to its own audit, the
Audited Party
) and work
papers related to the annual audits of such Audited Party, in all cases within a reasonable time
prior to such Audited Partys auditors opinion date, so that the Other Partys Auditors are able
to perform the procedures they reasonably consider necessary to take responsibility for the work of
the Audited Partys auditors as it relates to their auditors report on such other Partys
financial statements, all within sufficient time to enable such other Party to meet its timetable
for the printing, filing and public dissemination of its annual financial statements. Each Party
shall make reasonably available to the Other Partys Auditors and management its personnel and
Records in a reasonable time prior to the Other Partys Auditors opinion date and other Partys
managements assessment date so that the Other Partys Auditors and other Partys management are
able to perform the procedures they reasonably consider necessary to conduct the Internal Control
Audit and Management Assessments.
(e) To the extent it relates to a pre-Distribution Date period, (i) each of the Parties hereto
shall give the other Party hereto as much prior notice as is reasonably practicable of any changes
in, or proposed determination of, its accounting estimates from those in effect as of immediately
prior to the Distribution Date or of any other action with regard to its accounting estimates or
previously reported financial results which may affect the other Partys financial results, (ii)
each of the Parties hereto will consult with the other and, if requested by the Party contemplating
such changes, with the Other Partys Auditors and (iii) unless required by generally accepted
accounting principles or a reasonable interpretation thereof by either Partys auditors, Law or a
Governmental Entity, neither party shall make such determination or changes which would affect the
other Partys previously reported financial results without prior consent, which shall not be
unreasonably withheld. Further, each Party will give the other Party prompt notice of any
amendments or restatements of accounting statements with respect to pre-Distribution Date periods,
and will provide the other Party with access as provided in
Section 5.02(c)
hereof as
promptly as possible such that the other Party will be able to satisfy its financial reporting
requirements.
(f) In the event either Cadbury plc or DPS is the subject of any SEC, FSA or other
Governmental Entitys comment, review or investigation (formal or informal) relating to a period
prior to the Distribution Date and which in any way relates to the other Party or the other Partys
public filings, such Party shall provide the other Party with a copy of any comment or notice of
such review or investigation and shall give the other Party a reasonable opportunity to be involved
in responding to such comment, review or investigation, and such other Party shall cooperate with
such Party in connection with responding to such comment, review or investigation.
(g) Any Information exchanged pursuant to this
Section 5.02
is subject to
Section
8.06
.
28
Section 5.03
CS Obligations
. DPS and Cadbury plc agree that Cadbury plc shall not, and shall cause CS not to, take any
actions that would materially and adversely impact the ability of CS to fulfill its obligations
under this Agreement;
provided
that Cadbury plc may at any time following the Distribution Date
require CS to assign to Cadbury plc all of CS rights and obligations under this Agreement in
substitution for compliance by Cadbury plc and CS with the aforementioned obligation in this
Section 5.03, and upon such assignment, Cadbury plc shall assume all of CS obligations under this
Agreement.
ARTICLE VI
INTELLECTUAL PROPERTY MATTERS
Section 6.01
Cadbury Names and Marks
.
(a) DPS hereby acknowledges that all right, title and interest in and to the Cadbury name,
together with all variations and acronyms thereof and all Trademarks and other identifiers of
source or goodwill containing or incorporating any of the foregoing (the
Cadbury Names and
Marks
), are owned exclusively by the Cadbury plc Group, and that, except as expressly provided
below, any and all right of the DPS Group to use the Cadbury Names and Marks shall terminate as of
the Demerger Effective Time and shall immediately revert to the Cadbury plc Group, along with any
and all goodwill associated therewith. DPS acknowledges that (i) the Beverages Assets shall not
include any Cadbury Names and Marks, and (ii) it has no rights, and is not acquiring any rights, to
use the Cadbury Names and Marks, except as expressly provided herein.
(b) DPS shall, as soon as practicable after the Distribution Date, but in no event later than
10 Business Days thereafter, cause each member of the DPS Group to file amended certificates of
incorporation with the appropriate Governmental Entities changing its corporate name, doing
business as name, trade name and any other similar corporate identifier (each, a
Corporate
Name
) to a Corporate Name that does not contain any Cadbury Names and Marks and to supply
promptly any additional information, documents and materials that may be requested by CS with
respect to such filings.
(c) The DPS Group shall, for a period of 15 months after the Distribution Date, be entitled to
use, solely in connection with the operation of the Beverages Business as operated immediately
prior to the Demerger Effective Time, all of their existing stocks of product packaging, signs,
letterheads, business cards, invoice stock, advertisements and promotional materials (other than
Internet or intranet websites and web pages), inventory and other documents and materials
(
Existing Stock
) containing the Cadbury Names and Marks, after which 15-month period DPS
shall cause each member of the DPS Group to remove or obliterate all Cadbury Names and Marks from
such Existing Stock or cease using such Existing Stock;
provided
that the Cadbury Names and Marks shall be removed from (i) all of the
DPS Groups Internet websites and web pages within three months following the Distribution Date and
(ii) all of the DPS Groups intranet websites and web pages within three months following the
Distribution Date.
29
(d) Following the Distribution Date, except as expressly provided in this Agreement, (i) no
other right to use the Cadbury Names and Marks is granted by the Cadbury plc Group to DPS or the
DPS Group, whether by implication or otherwise, and (ii) nothing hereunder permits DPS or any
member of the DPS Group to use the Cadbury Names and Marks on or in connection with any documents,
materials, products or services. DPS shall ensure that all use of the Cadbury Names and Marks by
the DPS Group as provided in this
Section 6.01
shall be only with respect to goods and
services of a level of quality equal to or greater than the quality of goods and services with
respect to which the Cadbury Names and Marks were used in the Beverages Business prior to the
Distribution Date. Any and all goodwill generated by the use of the Cadbury Names and Marks under
this
Section 6.01
shall inure solely to the benefit of the Cadbury plc Group. In no event
shall DPS or any member of the DPS Group use the Cadbury Names and Marks in any manner that may
damage or tarnish the reputation of the Cadbury plc Group, or the goodwill associated with the
Cadbury Names and Marks.
(e) DPS agrees that the Cadbury plc Group shall not have any responsibility for claims by
third parties arising out of, or relating to, the use by the DPS Group of any Cadbury Names and
Marks after the Distribution Date. DPS shall indemnify and hold
harmless CS and its
Affiliates, and their respective officers, directors, employees, agents, successors and assigns
from any and all such claims that may arise out of the use of any Cadbury Names and Marks by DPS or
any member of the DPS Group (i) in accordance with the terms and conditions of this
Section
6.01
, other than such claims that the Cadbury Names and Marks infringe the Intellectual
Property rights of any third party, or (ii) in violation of or outside the scope permitted by this
Section 6.01
. Notwithstanding anything in this Agreement to the contrary, including
Section 10.02(f)
, DPS hereby acknowledges that CS, in addition to any other remedies
available to it for any breach or threatened breach of this
Section 6.01
, shall be entitled
to seek a preliminary injunction, temporary restraining order or other equivalent relief
restraining DPS and any member of the DPS Group from any such breach or threatened breach.
(f) Notwithstanding anything in this Agreement to the contrary, and without limiting the
rights otherwise granted in this
Section 6.01
, DPS and the DPS Group shall have the right,
at all times after the Distribution Date, to (i) keep records and other historical or archived
documents containing or referencing the Cadbury Names and Marks, (ii) use the Cadbury Names and
Marks to the extent required by or permitted as a fair use under applicable Law, and (iii) refer to
the historical fact that the DPS Group previously conducted the Beverages Business under the
Cadbury Names and Marks.
Section 6.02
Beverages Names and Marks
.
(a) For a period of 15 months after the Distribution Date, the Cadbury plc Group shall be
entitled to use, solely in connection with the continued operation of the Cadbury plc Business, all
of their Existing Stock containing any Trademark included in the Beverages Intellectual Property
and/or Beverages Assets, any variation or acronym thereof, or any
Trademark or other identifier of source or goodwill containing, incorporating or associated
with any such Trademark (collectively, the
Beverages Names and Marks
);
provided
that the Beverages Names and Marks shall be removed from (i) all of the Cadbury plc Groups
Internet websites and web pages within three months following the Distribution Date and (ii) all of
the Cadbury plc Groups intranet websites and web pages within three months following
the
30
Distribution Date. For the avoidance of doubt, (i) Beverages Names and Marks does not include
any Trademark owned by or licensed to the Cadbury plc Group as of or following the Distribution
Date and (ii) nothing in this
Section 6.02
shall be deemed to limit or modify in any way
any rights of the Cadbury plc Group in or to any Intellectual Property (other than the Beverages
Names and Marks) or under any agreement relating to Intellectual Property to which any member of
the Cadbury plc Group is or becomes a party or beneficiary.
(b) Following the Distribution Date, except as expressly provided in this Agreement, (i) no
other right to use the Beverages Names and Marks is granted by DPS or the DPS Group to the Cadbury
plc Group, whether by implication or otherwise, and (ii) nothing hereunder permits the Cadbury plc
Group to use the Beverages Names and Marks on or in connection with any documents, materials,
products or services. CS shall ensure that all use of the Beverages Names and Marks as
provided in this
Section 6.02
shall be only with respect to goods and services of a level
of quality equal to or greater than the quality of goods and services with respect to which the
Beverages Names and Marks were used in the businesses of the Cadbury plc Group prior to the
Distribution Date. Any and all goodwill generated by the use of the Beverages Names and Marks
under this
Section 6.02
shall inure solely to the benefit of the DPS Group following the
Distribution Date. In no event shall the Cadbury plc Group use the Beverages Names and Marks in
any manner that may damage or tarnish the reputation of DPS or the DPS Group or the goodwill
associated with the Beverages Names and Marks.
(c) CS agrees that DPS and the DPS Group shall not have any responsibility for claims
by third parties arising out of, or relating to, the use by the Cadbury plc Group of any Beverages
Names and Marks after the Distribution Date. CS shall, and shall cause each of the members of the Cadbury plc Group to, shall indemnify and hold harmless DPS and
the DPS Group, and their respective Affiliates, officers, directors, employees, agents, successors
and assigns, from any and all such claims that may arise out of the Cadbury plc Groups use of any
Beverages Names and Marks after the Distribution Date (i) in accordance with the terms and
conditions of this
Section 6.02
, other than such claims that the Beverages Names and Marks
infringe the Intellectual Property rights of any third party or (ii) in violation of or outside the
scope permitted by this
Section 6.02
. Notwithstanding anything in this Agreement to the
contrary, including
Section 10.02(f)
, CS hereby acknowledges that DPS, in addition
to any other remedies available to it for any breach or threatened breach of this
Section
6.02
, shall be entitled to seek a preliminary injunction, temporary restraining order or other
equivalent relief restraining the Cadbury plc Group from any such breach or threatened breach.
(d) Notwithstanding anything in this Agreement to the contrary, and without limiting the
rights otherwise granted in this
Section 6.02
, the Cadbury plc Group shall have the right,
at all times after the Distribution Date, to (i) keep records and other historical or archived
documents containing or referencing the Beverages Names and Marks, (ii) use the Beverages Names and
Marks to the extent required by or permitted as a fair use under applicable Law, (iii) refer to the
historical fact that the members of the Cadbury plc Group previously conducted their
respective businesses under the Beverages Names and Marks, (iv) use and sublicense the
Beverages Names and Marks in connection with the Cadbury plc Groups business of manufacturing,
distributing, selling, marketing and promoting carbonated and non-carbonated beverages and other
food products throughout American Samoa (the
American Samoa Business
), (v) use their
Existing Stock, web pages and Internet and intranet websites containing
31
any Beverages Names and
Marks in connection with the Cadbury plc Groups business of manufacturing, distributing, selling,
marketing and promoting carbonated and non-carbonated beverages and other food products throughout
the AsiaPac Territory and (vi) use the Schweppes name in any and all jurisdictions outside of the
United States, Canada and Mexico as or as part of any Corporate Name;
provided
that, no
later than 10 Business Days after the Distribution Date, CS shall use commercially reasonable
efforts to file amended organizational documents with the appropriate Governmental Entities
changing the Corporate Name of any Affiliate organized in any jurisdiction in the United States,
Canada and Mexico to a Corporate Name that does not contain the Schweppes name and to supply
promptly any additional information, documents and materials that may be requested by DPS with
respect to such filings.
Section 6.03
Memorabilia
.
As of the Distribution Date, any and all photographs, artwork and similar objects and other
physical assets owned by the DPS Group or the Cadbury plc Group that relate to the history or
historical activities of the Beverages Business (
Memorabilia
) shall be deemed to be
owned, as between CS and DPS, by (i) CS to the extent located on the premises of
any member of the Cadbury plc Group and (ii) DPS to the extent located on the premises of any
member of the DPS Group. DPS hereby grants the Cadbury plc Group from the Distribution Date a
worldwide, transferable, perpetual, royalty-free, irrevocable (with right to sub-license) license
to use any Memorabilia: (a) in documenting, memorializing and (if desired) use in marketing its
history; and (b) to the extent necessary to comply with the obligations of the Cadbury plc Group
under Section 18.14 of that certain Amended and Restated Sale and Purchase Agreement by and between
CS and Sapphire European Beverages Limited (among others), dated as of January 30, 2006.
Section 6.04
Additional Licenses
.
(a) Effective as of the Distribution Date, CS hereby grants to DPS, solely for the
benefit of each member of the DPS Group, an exclusive, perpetual, irrevocable, royalty-free license
(with the right to grant sub-licenses) of the design known as the modern egg bottle design for
use solely in the Territory;
provided
that DPS shall, and shall procure that each member of
the DPS Group shall, only use such design in relation to beverages sold under the Schweppes brand
and for no other purpose. DPS shall indemnify and hold harmless CS and its Affiliates,
officers, directors, employees, agents, successors and assigns from any and all claims that may
arise out of the DPS or the DPS Groups exercise of any rights granted under, or breach of, this
Section 6.04(a)
.
(b) Effective as of the Distribution Date, DPS hereby grants, and shall cause the DPS Group to
grant, to the Cadbury plc Group a perpetual, non-exclusive, transferable,
royalty-free right and license (with the right to grant sublicenses) in, to and under any and
all copyrights and design rights owned by or licensed to, to the extent permitted, the DPS Group as
of the Distribution Date in product packaging (including bottles), signs, business cards,
letterheads, invoice stock, advertisements and promotional materials and inventory (the
DPS
Licensed Intellectual Property
), to use the DPS Licensed Intellectual Property in connection
with the operation following the Distribution Date of the Cadbury plc Groups business of
manufacturing, distributing, selling, marketing and promoting carbonated and non-carbonated
beverages and other food products throughout the AsiaPac Territory and American Samoa, to the
extent of any existing use or good faith plans to use as of February 1, 2008 in the AsiaPac
32
Territory or American Samoa. The foregoing license includes the right for the Cadbury plc Group to
make, and have made on their behalf, modifications, enhancements, derivative works and improvements
(
Improvements
) to the DPS Licensed Intellectual Property, and as between the Parties to
this Agreement, any and all such Improvements shall be owned by a
member of the Cadbury plc Group without a duty of
accounting or disclosure to DPS or the DPS Group.
(c) Effective
as of the Distribution Date, CS hereby grants, and shall cause the
Cadbury plc Group to grant, to the DPS Group a perpetual, non-exclusive, transferable, royalty-free
right and license (with the right to grant sublicenses) in, to and under any and all copyrights and
design rights owned by or licensed to, to the extent permitted, the Cadbury plc Group conducting
its beverages business in the AsiaPac Territory and American Samoa as of the Distribution Date in
product packaging (including bottles), signs, business cards, letterheads, invoice stock,
advertisements and promotional materials and inventory (the
AsiaPac Licensed Intellectual
Property
), to use the AsiaPac Licensed Intellectual Property in connection with the operation
of the Beverages Business by the DPS Group following the Distribution Date, to the extent of any
existing use or good faith plans to use as of February 1, 2008 in the Territory. The foregoing
license includes the right for the DPS Group to make, and have made on their behalf, Improvements
to the AsiaPac Licensed Intellectual Property, and as between the Parties to this Agreement, any
and all such Improvements shall be owned by DPS without a duty of accounting or disclosure to
a member of the Cadbury plc Group.
Section 6.05
Know-How Agreement
.
(a) Effective
as of the Distribution Date, CS, DPS and the DPS Group shall enter into a know-how agreement substantially in the form attached hereto as
Exhibit 6.06(a)
(the
Know-How Agreement
).
(b) At
CS request, following the Distribution Date, DPS shall reasonably cooperate
with CS and negotiate in good faith to obtain an assignment and novation in favor of DPS
of CS rights and obligations under (i) that certain know-how agreement entered into by and among
CS, The Coca-Cola Company and Atlantic Industries, dated as of July 29, 1999, as amended, and (ii)
that certain know-how agreement entered into by and among CS and Sapphire European Beverages
Limited (among others), dated as of February 2, 2006.
Section 6.06
Domain Names Agreement
.
Effective
as of the Distribution Date, CS and DPS shall enter into a domain names agreement substantially in the form attached hereto as
Exhibit 6.07
(the
Domain Names Agreement
).
ARTICLE VII
INDEMNIFICATION
Section 7.01
Release of Pre-Distribution Claims
.
(a) Except (i) as provided in
Section 7.01(b)
, (ii) as may be otherwise expressly
provided in this Agreement or any Ancillary Agreement and (iii) for any matter with
33
respect to
which any Party is entitled to indemnification or contribution pursuant to this
ARTICLE
VII
, each Party, on behalf of itself and each member of its respective Group, its and their
respective Affiliates and all Persons who at any time prior to the Demerger Effective Time were
shareholders (other than the public shareholders of CS), directors, officers, agents or employees
of it or any member of its Group (in their respective capacities as such), in each case do hereby
remise, release and forever discharge the other Party and the other members of such other Partys
Group, their respective Affiliates and all Persons who at any time prior to the Demerger Effective
Time were shareholders, directors, officers, agents or employees of any member of such other Party
(in their respective capacities as such), in each case from any and all Liabilities whatsoever,
whether at Law or in equity (including any right of contribution), whether arising under any
Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring
or failing to occur or alleged to have occurred or alleged to have failed to occur or any
conditions, in each case, existing on or before the Demerger Effective Time, including in
connection with the Plan of Separation and all other activities to implement the Distribution and
any of the other transactions contemplated hereunder and under the Ancillary Agreements.
(b) Nothing contained in
Section 7.01(a)
shall release any Person from:
(i) any Liability Assumed, Transferred or allocated to a Party or a member of such
Partys Group pursuant to or contemplated by, or any other Liability of any member of such
Group arising under, this Agreement or any Ancillary Agreement;
(ii) any Liability for the sale or receipt of goods or property or services purchased,
obtained or used in the ordinary course of business by a member of one Group from a member
of the other Group prior to the Demerger Effective Time;
(iii) any Liability (other than the Intercompany Balances settled pursuant to
Section 2.03
) for unpaid amounts for products or services or refunds owing on
products or services due for work done by a member of one Group at the request or on behalf
of a member of the other Group;
(iv) any Liability provided in or resulting from any other Contract or understanding
that is entered into after the Demerger Effective Time between a Party (and/or a member of
such Partys Group), on the one hand, and the other Party (and/or a member of such Partys
Group), on the other hand;
(v) any Liability with respect to the Continuing Arrangements;
(vi) any Liability that the Parties have with respect to indemnification or
contribution pursuant to this Agreement or otherwise for claims brought against the Parties
by third Persons, which Liability shall be governed by the provisions of this
ARTICLE
VII
and, if applicable, the appropriate provisions of the Ancillary Agreements;
(vii) any Liability relating to any agreements, arrangements, commitments or
understandings to which any Person other than the Parties and their respective Affiliates is
a Party (it being understood that to the extent that the rights and obligations of the
Parties and the members of their respective Groups under any such Contracts constitute
Beverages Assets or Beverages Liabilities or Cadbury plc Assets or Cadbury plc
34
Liabilities,
such Contracts shall be assigned or retained pursuant to
ARTICLE II
); or
(viii) any Liability relating to agreements, arrangements, commitments or
understandings to which any non-wholly-owned Subsidiary of CS or DPS, as the case
may be, is a Party.
(c) Neither Party shall permit any member of its Group to make any claim or demand, or
commence any Action asserting any claim or demand, including any claim of contribution or any
indemnification, against the other Party or any member of the other Partys Group, or any other
Person released pursuant to
Section 7.01(a)
, with respect to any Liabilities released
pursuant to
Section 7.01(a)
.
(d) It is the intent of each Party, pursuant to the provisions of this
Section 7.01
,
to provide for a full and complete release and discharge of all Liabilities existing or arising
from all acts and events occurring and all conditions existing on or before the Demerger Effective
Time, whether known or unknown, between or among any Party (and/or a member of such Partys Group),
on the one hand, and the other Party (and/or a member of such Partys Group), on the other hand
(including any contractual agreements or arrangements existing or alleged to exist between or among
any such members on or before the Demerger Effective Time), except as specifically set forth in
Section 7.01(a)
and
Section 7.01(b)
. At any time, at the reasonable request of the
other Party, each Party shall cause each member of its respective Group to execute and deliver
releases reflecting the provisions hereof.
(e) For the avoidance of doubt, neither Party shall have any Liability to the other Party in
the event that any information exchanged or provided to the other Party pursuant to this Agreement
(but excluding any such information included in a Disclosure Document) which is an estimate or
forecast, or which is based on an estimate or forecast, is found to be inaccurate.
Section 7.02
Indemnification by CS
. Except as otherwise set forth in any provision of this Agreement or any Ancillary Agreement
or Continuing Arrangement, following the Demerger Effective Time, CS shall and shall cause the
other members of the Cadbury plc Group to indemnify, defend and hold harmless the Beverages
Indemnitees from and against any and all Indemnifiable Losses of the Beverages Indemnitees to the
extent arising out of, by reason of or otherwise in connection with (i) the Cadbury plc Liabilities
or alleged
Cadbury plc Liabilities, (ii) any breach by any member of the Cadbury plc Group of any of the
Shared Contracts, (iii) with respect to statements or omissions made or occurring after the
Demerger Effective Time, any misstatement or alleged misstatement of a material fact contained in
any document filed with the SEC or the FSA by any member of the DPS Group pursuant to the
Securities Act, the Exchange Act, the Prospectus Rules or the Listing Rules, or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only (A) to the extent that those Liabilities are caused by
any misstatement or omission or alleged misstatement or omission in any information that is
furnished in writing to any member of the DPS Group by any member of the Cadbury plc Group after
the Demerger Effective Time, (B) if such member of the Cadbury plc Group has been informed in
writing in advance that such information will be used in such filing
and (C) if the information used by a member of the DPS Group in any
such filing is not materially different to the information furnished by
a member of the Cadbury plc Group, or (iv) any
35
breach by CS or
any member of the Cadbury plc Group of any provision of this Agreement or any Ancillary Agreement
or Continuing Arrangement unless such Ancillary Agreement or Continuing Arrangement expressly
provides for separate indemnification therein, in which case any such indemnification claims shall
be made thereunder.
Section 7.03
Indemnification by DPS
. Except as otherwise specifically set forth in any provision of this Agreement or any
Ancillary Agreement, following the Demerger Effective Time, DPS shall and shall cause the other
members of the DPS Group to indemnify, defend and hold harmless the Cadbury plc Indemnitees from
and against any and all Indemnifiable Losses of the Cadbury plc Indemnitees to the extent arising
out of, by reason of or otherwise in connection with (i) the Beverages Liabilities or any alleged
Beverages Liabilities, (ii) any breach by any member of the DPS Group of any of the Shared
Contracts, (iii) with respect to statements or omissions made or occurring after the Demerger
Effective Time, any misstatement or alleged misstatement of a material fact contained in any
document filed with the SEC or the FSA by any member of the Cadbury plc Group pursuant to the
Securities Act, the Exchange Act, the Prospectus Rules or the Listing Rules, or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only (A) to the extent that those Liabilities are caused by
any misstatement or omission or alleged misstatement or omission in any information that is
furnished in writing to any member of the Cadbury plc Group by any member of the DPS Group after
the Demerger Effective Time, (B) if such member of the DPS Group has been informed in writing
in advance that such information will be used in such filing and (C)
if the information used by a member of the Cadbury plc Group in any
such filing is not materially different to the information furnished by
a member of the DPS Group, or (iv) any breach by DPS or any
member of the DPS Group of any provision of this Agreement or any Ancillary Agreement or Continuing
Arrangement unless such Ancillary Agreement or Continuing Arrangement expressly provides for
separate indemnification therein, in which case any such indemnification claims shall be made
thereunder.
Section 7.04
Procedures for Indemnification
.
(a) An Indemnitee shall give the Indemnifying Party notice of any matter that an Indemnitee
has determined has given, or reasonably anticipates could give rise to, a right of indemnification
under this Agreement (other than a Third Party Claim which shall be governed by
Section
7.04(b)
), within 30 days of such determination, stating the amount of the Indemnifiable Loss
claimed, if known, and method of computation thereof, and containing a
reference to the provisions of this Agreement in respect of which such right of
indemnification is claimed by such Indemnitee or arises;
provided
,
however
, that
the failure to provide such notice shall not release the Indemnifying Party from any of its
obligations except to the extent the Indemnifying Party shall have been actually materially
prejudiced as a result of such failure.
(b) If an Action is made against a Cadbury plc Indemnitee or a Beverages Indemnitee (each, an
Indemnitee
) by any Person who is not a Party or a member of a Group of a Party (a
Third Party Claim
) as to which such Indemnitee is or may be entitled to indemnification
pursuant to this Agreement, such Indemnitee shall notify the other Party which is or may be
required pursuant to this
ARTICLE VII
or pursuant to any Ancillary Agreement or Continuing
Arrangement to make such indemnification (the
Indemnifying Party
) in writing, and in
reasonable detail, of the Third Party Claim promptly (and in any event within 30 days)
36
after
receipt by such Indemnitee of written notice of the Third Party Claim;
provided
,
however
, that the failure to provide notice of any such Third Party Claim pursuant to this
sentence shall not release the Indemnifying Party from any of its obligations except to the extent
the Indemnifying Party shall have been actually materially prejudiced as a result of such failure.
Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly after the Indemnitees
receipt thereof (and in any event within 10 Business Days), copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third Party Claim.
(c) An Indemnifying Party shall be entitled (but shall not be required) to assume and control
the defense of any Third Party Claim, at such Indemnifying Partys own cost and expense and by such
Indemnifying Partys own counsel that is reasonably acceptable to the applicable Indemnitees, if it
gives notice of its intention to do so to the applicable Indemnitees within 30 days of the receipt
of notice of the Third Party Claim from such Indemnitees. After notice from an Indemnifying Party
to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee
shall have the right to employ separate counsel and to participate in (but not control) the
defense, compromise, or settlement thereof, at its own expense and, in any event, shall cooperate
with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the
Indemnifying Partys expense, all witnesses, pertinent Information and materials in such
Indemnitees possession or under such Indemnitees control relating thereto as are reasonably
required by the Indemnifying Party.
(d) If an Indemnifying Party elects not to assume responsibility for defending a Third Party
Claim, or fails to notify an Indemnitee of its election as provided in
Section 7.04(c)
,
such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying
Party. If the Indemnitee is conducting the defense against any such Third Party Claim, the
Indemnifying Party shall cooperate with the Indemnitee in such defense and make available to the
Indemnitee, at the Indemnifying Partys expense, all witnesses, pertinent Information, material in
such Indemnifying Partys possession or under such Indemnifying Partys control relating thereto as
are reasonably required by the Indemnitee.
(e) If the Indemnifying Party has assumed the defense of the Third Party Claim in accordance
with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim
without the consent of the Indemnifying Party.
(f) In the case of a Third Party Claim, no Indemnifying Party shall consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the consent of the
Indemnitee;
provided
that consent from the Indemnitee shall not be required if such
settlement contains a full and unconditional release of the Indemnitee and does not permit any
injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly
or indirectly, against any Indemnitee.
(g) Except as may otherwise be specifically provided for in the Ancillary Agreements and
except as set forth in
Sections 10.02 (d)
and
(f)
hereof, the indemnification provisions
of this
ARTICLE VII
shall be the sole and exclusive remedy of the Parties for any failure
by the other Party to perform and comply with any covenants and agreements in this Agreement and
any other dispute, controversy or claim (whether arising in contract, tort or
37
otherwise) that may
arise out of or relate to, or arise under or in connection with, this Agreement or any Ancillary
Agreement or Continuing Arrangement, or the transactions contemplated hereby or thereby (including
all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to
the Demerger Effective Time), between or among any member of the Cadbury plc Group, on the one
hand, and any member of the DPS Group, on the other hand.
Section 7.05
Cooperation in Defense and Settlement
. CS and DPS agree that, from and after the Demerger Effective Time, if an Action is
commenced by a third party (or any member of either Partys respective Group) with respect to which
one or both Parties (or any member of either Partys respective Group) is a nominal defendant
and/or such Action is otherwise not a Liability allocated to such named Party under this Agreement
or any Ancillary Agreement or Continuing Arrangement, then the other Party shall use commercially
reasonable efforts to cause such nominal defendant to be removed from such Action.
Section 7.06
Indemnification Obligations Net of Insurance Proceeds and Other Amounts
.
(a) Any Indemnifiable Loss subject to indemnification or contribution pursuant to this
ARTICLE VII
will be calculated (i) net of Insurance Proceeds received by the Indemnitee
that actually reduce the amount of the Indemnifiable Loss, and (ii) net of any proceeds received by
the Indemnitee from any third party for indemnification for such Liability that actually reduce the
amount of the Indemnifiable Loss (
Third Party Proceeds
). If an Indemnitee receives a
payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Loss
(an
Indemnity Payment
) and subsequently receives Insurance Proceeds or Third Party
Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of
the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if
the Insurance Proceeds or Third Party Proceeds had been received, realized or recovered before the
Indemnity Payment was made.
(b) Any insurer that would otherwise be obligated to pay any claim shall not be relieved of
the responsibility with respect thereto or, solely by virtue of the indemnification and
contributions provisions hereof, have any subrogation rights with respect thereto. The Indemnitee
shall use reasonable best efforts to seek to collect or recover any third party Insurance Proceeds
and any Third Party Proceeds (other than Insurance Proceeds under an
arrangement where future premiums are adjusted to reflect prior claims in excess of prior
premiums) to which the Indemnitee is entitled in connection with any Indemnifiable Loss for which
the Indemnitee seeks contribution or indemnification pursuant to this
ARTICLE VII
(it being
understood that the obligation to use reasonable best efforts to collect or recover any third party
Insurance Proceeds or Third Party Proceeds shall not require the Indemnitee to commence any
litigation proceedings against any such third party);
provided
that the Indemnitees
inability to collect or recover any such Insurance Proceeds or Third Party Proceeds shall not limit
the Indemnifying Partys obligations hereunder.
(c) CS and DPS agree that any indemnification payment made pursuant to this
ARTICLE
VII
shall be paid free and clear of any Tax deduction or withholding. If any deduction or
withholding is required by applicable Law to be made from any indemnification
38
payment made pursuant
to this
ARTICLE VII
, the amount of the payment will be increased by such additional amount
as is necessary to ensure that the net amount received by the Indemnitee (after taking
account of all such deductions and withholdings) is equal to the amount which it would have received had the payment in
question not been subject to any deductions or withholdings. Notwithstanding the foregoing, the
Parties agree to use commercially reasonable efforts (to the extent such efforts will not result in
materially adverse consequences to a Party) to mitigate or avoid such
deductions and withholdings.
(d) Any indemnification payment made under this
ARTICLE VII
will be subject to
adjustment for certain net Tax benefits and net Tax costs
attributable to such indemnification payment (including gross-up) and
to amounts indemnified
against as provided in the Tax Sharing Agreement.
Section 7.07
Additional Matters; Survival of Indemnities
.
(a) The indemnity and contribution agreements contained in this
ARTICLE VII
shall
remain operative and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Indemnitee; (ii) any knowledge prior to the date hereof by the Indemnitee of
Indemnifiable Losses for which it might be entitled to indemnification or contribution hereunder;
and (iii) any termination of this Agreement.
(b) The rights and obligations of each Party and their respective Indemnitees under this
ARTICLE VII
shall survive the sale or other Transfer by any Party or its respective
Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities.
ARTICLE VIII
ACCESS TO RECORDS; ACCESS TO INFORMATION; LEGAL AND OTHER MATTERS
Section 8.01
Provision of Corporate Records
.
Other than in circumstances in which indemnification is or may be sought pursuant to
ARTICLE VII
(in which event the provisions of such Article will govern), and subject to
appropriate restrictions for privileged or
Confidential Information:
(a) After the Distribution Date until the earlier of (i) the seventh anniversary of the
Distribution Date or (ii) the date on which
CS is entitled to destroy Information related
to the period prior to the Distribution Date pursuant to its record retention policies, upon the
prior written request by DPS for specific and identified Information which relates to (i) DPS (or a
member of its Group) or the conduct of the Beverages Business prior to the Distribution Date, or
(ii) any Ancillary Agreement or Continuing Arrangement to which CS and DPS (or any member of their
respective Groups) are parties, CS shall provide, as soon as reasonably practicable following the
receipt of such request, appropriate copies of such documents (or the originals thereof if the
Party making the request has a reasonable need for such originals) in the possession or control of
CS or any of its Affiliates or Subsidiaries, but only to the extent such
39
items so relate and are
not already in the possession or control of the requesting Party. CS shall notify DPS at least 90
days in advance of destroying any such Information in order to provide DPS the opportunity to
access such Information in accordance with this
Section 8.01(a)
and if DPS fails to request
that such Information be delivered to them, at their expense, within 90 days after receipt of such
notice, CS may destroy such Information.
(b) After the Distribution Date until the earlier of (i) the seventh anniversary of the
Distribution Date or (ii) the date on which DPS is entitled to destroy Information related to the
period prior to the Distribution Date pursuant to its record retention policies, upon the prior
written request by CS for specific and identified Information which relates to (i) CS (or a member
of its Group) or the conduct of the Cadbury plc Business, prior to the Distribution Date, or (ii)
any Ancillary Agreement or Continuing Arrangement to which DPS and CS (or a member of their
respective Groups) are parties, as applicable, DPS shall provide, as soon as reasonably practicable
following the receipt of such request, appropriate copies of such documents (or the originals
thereof if the Party making the request has a reasonable need for such originals) in the possession
or control of DPS or any of its Subsidiaries, but only to the extent such items so relate and are
not already in the possession or control of the requesting Party. DPS shall notify CS at least 90
days in advance of destroying any such Information in order to provide CS the opportunity to access
such Information in accordance with this
Section 8.01(b)
and if CS fails to request that
such Information be delivered to them, at their expense, within 90 days after receipt of such
notice, DPS may destroy such Information.
Section 8.02
Access to Information
. Other than in circumstances in which indemnification is sought pursuant to
ARTICLE
VII
(in which event the provisions of such Article will govern), from the Distribution Date and
for so long as any access is required pursuant to
Section 8.01
, each of CS and DPS shall
afford to the other and its authorized accountants, counsel and other designated representatives
reasonable access during normal business hours, subject to appropriate restrictions for privileged
or Confidential Information and to preserve the completeness and integrity of the Information, to
the personnel, properties, and Information of such Party and its Subsidiaries insofar as such
access is reasonably required by the other Party and relates to (x) such other Party or the conduct
of its business prior to the Demerger Effective Time or (y) any Ancillary Agreement or Continuing
Arrangement. Nothing in this
Section 8.02
shall require any Party to violate any agreement
with any third party regarding the confidentiality of Confidential Information relating to that
third party or its business;
provided
,
however
, that in the event that a Party is
required to disclose any such
Information, such Party shall use commercially reasonable efforts to seek to obtain such third
party Consent to the disclosure of such Information.
Section 8.03
Disposition of Information
.
(a) Each Party acknowledges that Information in its or in a member of its Groups possession,
custody or control as of the Demerger Effective Time may include Information owned by the other
Party or a member of such Partys Group and not related to (i) its Group or its business or (ii)
any Ancillary Agreement to which it or any member of its Group is a Party.
(b) Notwithstanding such possession, custody or control, such Information
40
shall remain the
property of such other Party or member of such other Partys Group. Each Party agrees (i) that any
such Information is to be treated as Confidential Information of the Party or Parties to which it
relates and handled in accordance with
Section 8.07
(except that such Information will not
be used for any purpose other than a purpose permitted under this Agreement) and (ii) following a
reasonable request from the other Party, subject to applicable Law, use commercially reasonable
efforts within a reasonable time to (1) purge such Information from its databases, files and other
systems and not retain any copy of such Information (including, if applicable, by transferring such
Information to the Party to which such Information belongs), or (2) if such purging is not
practicable, to encrypt or otherwise make unreadable or inaccessible such Information.
Section 8.04
Witness Services
.
At all times from and after the Distribution Date, each of CS and DPS shall use its
commercially reasonable efforts to make available to the other, upon reasonable written request,
its and any member of its Groups officers, directors, employees and agents as witnesses to the
extent that (i) such Persons may reasonably be required to testify in connection with the
prosecution or defense of any Action in which the requesting Party may from time to time be
involved (except for claims, demands or Actions between members of each Group) and (ii) there is no
conflict of interest in the underlying Action between the requesting Party and CS and DPS, as
applicable;
provided
that the existence of a claim for indemnification under
ARTICLE
VII
shall not in and of itself be deemed a conflict of interest. A Party providing a witness
to the other Party under this Section shall be entitled to receive from the recipient of such
services, upon the presentation of invoices therefor, payments for such amounts, relating to
disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and
benefits of employees who are witnesses or any pro rata portion of overhead or other costs of
employing such employees which would have been incurred by such employees employer regardless of
the employees service as witnesses), as may be reasonably incurred and properly paid under
applicable Law.
Section 8.05
Reimbursement; Other Matters
. Except to the extent otherwise contemplated by this Agreement, any Ancillary Agreement or
any Continuing Arrangement, a Party providing Information or access to Information to the other
Party under this
ARTICLE VIII
shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements
and other out-of-pocket expenses, as may be reasonably incurred in providing such Information or
access to such Information.
Section 8.06
Confidentiality
. Notwithstanding any termination of this Agreement, the Parties shall hold, and shall cause
each of the members of their respective Groups to hold, and shall each cause their respective
officers, employees, agents, consultants, representatives and advisors to hold, in strict
confidence, and not to disclose or release or use, without the prior written consent of the other
Party, any and all Confidential Information concerning the other Party;
provided
that the
Parties may disclose, or may permit disclosure of, Confidential Information (i) to their respective
auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors who
have a need to know such Information and are informed of their obligation to hold such Information
confidential to the same extent as is applicable to the Parties and in respect of whose failure to
comply with such obligations, the applicable Party will be responsible, (ii) if the Parties or any
member of their respective Groups
41
are required or compelled to disclose any such Confidential
Information by judicial or administrative process or by other requirements of Law or stock exchange
rule, (iii) as required in connection with any legal or other proceeding by one Party against the
other Party, or (iv) as necessary in order to permit a Party to prepare and disclose its financial
statements, Tax Returns or other required disclosures. Notwithstanding the foregoing, in the event
that any demand or request for disclosure of Confidential Information is made pursuant to clause
(ii) above, each Party, shall promptly notify the other of the existence of such request or demand
and shall provide the other a reasonable opportunity to seek an appropriate protective order or
other remedy, which such Parties will cooperate in obtaining. In the event that such appropriate
protective order or other remedy is not obtained, the Party whose Confidential Information is
required to be disclosed shall or shall cause the other Party to furnish, or cause to be furnished,
only that portion of the Confidential Information that is legally required to be disclosed and
shall take commercially reasonable steps to ensure that confidential treatment is accorded such
Information.
Section 8.07
Privileged Matters
.
(a) The Parties recognize that certain legal and other professional services (both internal
and external) have been and will be provided prior to and after the Distribution Date and have been
and will be rendered for the collective benefit of each of the members of the Cadbury plc Group and
the DPS Group, and that each of the members of the Cadbury plc Group and the DPS Group should be
deemed to be the client with respect to such services for the purposes of asserting all privileges
which may be asserted under applicable Law;
provided
that with respect to such services the
Parties agree as follows:
(i) the Parties shall not be entitled to assert privilege with respect to such legal
and other professional services provided prior to the Distribution Date against the other
Party or any member of the other Partys Group;
(ii) CS shall be entitled, on behalf of itself or any member of the Cadbury plc Group,
in perpetuity, to control the assertion or waiver of all privileges in connection with
privileged information to the extent relating to the Cadbury plc Business, whether or not
the privileged information is in the possession of or under the control of CS or DPS. CS
shall also be entitled, on behalf of itself or any member of the Cadbury plc Group, in
perpetuity, to control the assertion or waiver of all privileges in connection with
privileged information that relates solely to the subject matter of any claims constituting
Cadbury plc Liabilities, now pending or which may be asserted in the future, in any
lawsuits or other proceedings initiated against or by any member of the Cadbury plc Group,
whether or not the privileged information is in the possession of or under the control of CS
or DPS;
(iii) DPS shall be entitled, on behalf of itself or any member of the DPS Group, in
perpetuity, to control the assertion or waiver of all privileges in connection with
privileged information to the extent relating to the Beverages Business, whether or not the
privileged information is in the possession of or under the control of CS or DPS. DPS shall
also be entitled, on behalf of itself or any member of the DPS Group, in perpetuity, to
control the assertion or waiver of all privileges in connection with privileged
42
information
that relates solely to the subject matter of any claims constituting Beverages Liabilities,
now pending or which may be asserted in the future, in any lawsuits or other proceedings
initiated against or by any member of the DPS Group, whether or not the privileged
information is in the possession of or under the control of CS or DPS; and
(iv) the Parties shall have a shared privilege, with equal right to assert or waive,
subject to the restrictions in this
Section 8.07
, with respect to all privileges not
allocated pursuant to the terms of
Section 8.07(a)(ii)
and
(iii)
. All
privileges relating to any claims, proceedings, litigation, disputes, or other matters which
involve members of both the Cadbury plc Group and the DPS Group in respect of which such
Parties retain any responsibility or Liability under this Agreement, shall be subject to a
shared privilege among them.
(b) No Party may waive any privilege which could be asserted under any applicable Law, and in
which the other Party has a shared privilege, without the consent of the other Party, which shall
not be unreasonably withheld or delayed or as provided in
Section 8.07(c)
or
Section
8.07(d)
below. Consent shall be in writing, or shall be deemed to be granted unless written
objection is made within 10 Business Days after notice upon the other Party requesting such
consent.
(c) In the event of any litigation or dispute between or among the Parties, or any members of
their respective Groups, either Party may waive a privilege in which the other Party or member of
such Group has a shared privilege, without obtaining the consent of the other Party;
provided
that such waiver of a shared privilege shall be effective only as to the use of
Information with respect to the litigation or dispute between the relevant Parties and/or the
applicable members of their respective Groups, and shall not operate as a waiver of the shared
privilege with respect to third parties.
(d) If a dispute arises between or among the Parties or any member of their respective Groups
regarding whether a privilege should be waived to protect or advance the interest of any Party,
each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice
to the rights of the other Party, and shall not unreasonably withhold consent to any request for
waiver by another Party. Each Party specifically agrees that it will not withhold consent to
waiver for any purpose except to protect its own legitimate interests.
(e) Upon receipt by any Party or by any member of a Partys Group of any
subpoena, discovery, court order or other request which arguably calls for the production or
disclosure of Information subject to a shared privilege or as to which another Party has the sole
right hereunder to assert a privilege, or if any Party obtains knowledge that any of its or any
member of its Groups current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or disclosure of such
privileged Information, such Party shall promptly notify the other Party of the existence of the
request and shall provide the other Party a reasonable opportunity to review the Information and to
assert any rights it or they may have under this
Section 8.07
or otherwise to prevent the
production or disclosure of such privileged Information.
Section 8.08
Ownership of Information
.
43
(a) Any information owned by one Party or any of its Subsidiaries that is provided to a
requesting Party pursuant to this
ARTICLE VIII
shall be deemed to remain the property of
the providing Party. Unless specifically set forth herein, nothing contained in this Agreement
shall be construed as granting or conferring rights of license or otherwise in any such
information.
(b) Any Information provided by or on behalf of or made available by or on behalf of the other
Party hereto pursuant to this
ARTICLE VIII
shall be on an as is, where is basis and no
Party is making any representation or warranty with respect to such Information or the completeness
thereof.
Section 8.09
Other Agreements
. Except as otherwise provided in
Section 8.06
,
Sections 8.01
through
8.08
and
8.10
shall not apply with respect to Information, Records, actions and
other matters relating to Tax matters, all of which shall be governed by the Tax Sharing Agreement.
Section 8.10
Control of Legal Matters
.
(a)
General.
(i) On or prior to the Distribution Date, CS shall assume (or, as applicable,
retain), or cause the applicable member of the Cadbury plc Group to assume (or, as applicable,
retain) control of each of the Cadbury plc Litigation Matters, and CS shall use its reasonable best
efforts to have a member of the Cadbury plc Group substituted for any member of the DPS Group named
as a defendant in any such Cadbury plc Litigation Matters;
provided
,
however
, that
no member of the Cadbury plc Group shall be required to make any such effort if the removal of any
member of the DPS Group would jeopardize insurance coverage or rights to indemnification from third
parties applicable to such Cadbury plc Litigation Matters.
(ii) On or prior to the Distribution Date, DPS shall assume (or, as applicable,
retain), or cause the applicable member of the DPS Group to assume (or, as applicable,
retain) control of each of the Beverages Litigation Matters, and DPS shall use its
reasonable best efforts to have a member of the DPS Group substituted for any member of the
Cadbury plc Group named as a defendant in any such Beverages Litigation Matters;
provided
,
however
, that no member of the DPS Group shall be required to make
any such effort if the removal of any member of the Cadbury plc Group would jeopardize
insurance coverage or rights to indemnification from third parties applicable to such Beverages Litigation Matters.
(b) Except as provided in
Section 8.10(a)
, after the Distribution Date, the Parties
hereto agree that with respect to all Actions commenced against any member of the Cadbury plc
Group, any member of the DPS Group or members of both Groups relating to events that take place
before, on or after the Distribution Date, such demands, claims or Actions shall be controlled by:
(i) A member of the Cadbury plc Group, if such Action relates solely to the Cadbury plc
Assets, Cadbury plc Liabilities or Cadbury plc Business (as the Cadbury plc Business is
conducted after the Distribution Date) (a
Future Cadbury plc Litigation Matter
),
and CS shall use its reasonable best efforts to have a member of the Cadbury
44
plc Group substituted for any member of the DPS Group which may be named as a defendant in such Future
Cadbury plc Litigation Matter;
provided
,
however
, that no member of the
Cadbury plc Group shall be required to make any such effort if the removal of any member of
the DPS Group would jeopardize insurance coverage or rights to indemnification from third
parties applicable to such Future Cadbury plc Litigation Matter;
(ii) A member of the DPS Group, if such claim, demand or Action relates solely to the
Beverages Assets, Beverages Liabilities or Beverages Business (as the Beverages Business is
conducted after the Distribution Date) (a
Future Beverages Litigation Matter
), and
DPS shall use its reasonable best efforts to have a member of the DPS Group substituted for
any member of the Cadbury plc Group which may be named as a defendant in such Future
Beverages Litigation Matter;
provided
,
however
, that no member of the DPS
Group shall not be required to make any such effort if the removal of any member of the
Cadbury plc Group would jeopardize insurance coverage or rights to indemnification from
third parties applicable to such Future Beverages Litigation Matter; and
(iii) Except as provided in subparagraphs (i) or (ii) above, or as may be otherwise
agreed by DPS and CS, a member of each of the DPS Group and the Cadbury plc Group jointly if
(A) members of both Groups jointly operate or operated at the relevant time the Business to
which such Action relates or such Action relates to both the Cadbury plc Assets, Cadbury plc
Liabilities or Cadbury plc Business and the Beverages Assets, Beverages Liabilities or
Beverages Business, (B) an Action arises from or relates to any Disclosure Document or any
other document filed with any Governmental Authority (including the SEC or the FSA) at or
prior to the Distribution Date by CS, Cadbury plc or DPS in connection with the
Distribution, (C) an Action is brought by or on behalf of the current or former stockholders
of CS, Cadbury plc or DPS and relates to any filing by CS, Cadbury plc or DPS with the SEC
or the FSA other than those described in clause (B), (D) an Action is brought by any person
against CS, Cadbury plc or DPS with respect to the Distribution, (the matters in clauses (A)
through (D) being
Future Joint Litigation Matters
);
provided
,
however
, that no member of either Group may settle a Future Joint Litigation Matter
without the prior written consent of the members of the other Group named or involved in
such Future Joint Litigation Matter, which consent shall not be unreasonably withheld or
delayed;
provided
further
that either party may settle a Future Joint Litigation matter if such settlement is for money only
and provides a full release from any liability under such Future Joint Litigation Matter for
the other party and, as applicable, the members of the other partys Group.
(c)
Claims Against Third Parties.
Actions by any member of either Group against third
parties, and any proceeds or other benefits that may be received as a result of such Actions and
any Liabilities arising out of or resulting from such Actions, that are (i) listed in
Schedule
8.10(c)(i)
or that relate to the Cadbury plc Business and not to the Beverages Business shall
be the property of the applicable member of the Cadbury plc Group (
Cadbury plc Claims
),
(ii) listed in
Schedule 8.10(c)(ii)
or that relate to the Beverages Business and not to the
Cadbury plc Business shall be the property of the applicable member of the DPS Group
(
Beverages Claims
), and (iii) listed in
Schedule 8.10(c)(iii)
or that relate to both the Cadbury
45
plc Business and the Beverages Business shall be the property of, and shall be
shared by, CS and DPS in proportion to their respective interests (
Joint Cadbury plc
and Beverages Claims
).
(d)
Retention of Counsel.
The parties hereto agree that attorneys who have worked for any
member of the Cadbury plc Group or any member of the DPS Group prior to the Distribution Date are
not conflicted from representing any members of the Cadbury plc Group or the DPS Group, except to
the extent such representation is adverse to a member of the other Group.
(e)
Notice to Third Parties; Service of Process; Cooperation.
(i) To the extent necessary, to effectuate the provisions in this Agreement, CS and DPS
shall cause the members of their respective Groups to promptly notify their respective
agents for service of process and all other necessary parties, including plaintiffs and
courts and shall provide instructions for proper service of legal process and other
documents.
(ii) Each Party shall, and shall cause the members of its respective Groups to, attempt
in good faith to not accept service on behalf of any member of the other Partys Group, and
shall, and shall cause the members of their respective Groups to, use their reasonable best
efforts to deliver to each other any legal process or other documents incorrectly delivered
to them or their agents as soon as possible following receipt.
(f) Nothing in this
Section 8.10
shall effect in any way the indemnification
provisions in
ARTICLE VII
or the allocation of Liabilities between the Parties under this
Agreement.
ARTICLE IX
INSURANCE
Section 9.01
Policies and Rights Included Within Assets
. The Beverages Assets shall
include (i) any and all rights of an insured Party under each of the Beverages Shared
Policies, subject to the terms of such Beverages Shared Policies and any limitations or
obligations of DPS contemplated by this
ARTICLE IX
, specifically including rights of
indemnity and the right to be defended by or at the expense of the insurer, with respect to all
alleged wrongful acts, claims, suits, actions, proceedings, injuries, losses, liabilities, damages
and expenses incurred or claimed to have been incurred prior to the Distribution Date by any Party
in connection with the conduct of the Beverages Business or, to the extent any claim is made
against DPS or any of its Subsidiaries or conduct of the Cadbury plc Business, and which alleged
wrongful acts, claims, suits, actions, proceedings, injuries, losses, liabilities, damages and
expenses may arise out of an insured or insurable event, occurrence or wrongful act under one or
more of such Beverages Shared Policies;
provided
,
however
, that nothing in this
clause shall be deemed to constitute (or to reflect) an assignment of such Beverages Shared
Policies, or any of them, to DPS, and (ii) the Beverages Policies.
46
Section 9.02
Administration; Other Matters
.
(a)
Administration.
Except as otherwise provided in
Section 9.02
hereof, from and
after the Demerger Effective Time, CS shall be responsible for (i) Insurance Administration of the
Shared Policies; and (ii) Claims Administration under such Shared Policies with respect to Cadbury
plc Liabilities and (iii) reasonable oversight of Claims Administration by DPS under such Shared
Policies with respect to Beverages Liabilities;
provided
that the retention of such
responsibilities by CS is in no way intended to limit, inhibit or preclude any right to insurance
coverage for any Shared Policy Insured Claim of a named insured under such Policies as contemplated
by the terms of this Agreement;
provided
further
that CS retention of the
administrative responsibilities for the Shared Policies shall not relieve the Party submitting any
Shared Policy Insured Claim of the primary responsibility for reporting such Shared Policy Insured
Claim accurately, completely and in a timely manner or of such Partys authority to settle any such
Shared Policy Insured Claim within any period permitted or required by the relevant Policy. CS may
discharge its administrative responsibilities under this
Section 9.02
by contracting for
the provision of services by independent parties. Each of the applicable Parties shall pay any
costs relating to defending its respective Shared Policy Insured Claims under Shared Policies to
the extent such costs including defense, out-of-pocket expenses, and direct and indirect costs of
employees or agents of CS related to Claims Administration and Insurance Administration are not
covered under such Policies.
(b)
Claims Under Shared Policies.
Where Beverages Liabilities are specifically covered under
the same Shared Policy for periods prior to the Distribution Date, or where such Shared Policies
cover claims made after the Distribution Date with respect to an occurrence or wrongful act prior
to the Distribution Date, then from and after the Distribution Date, DPS may claim coverage for
Shared Policy Insured Claims under such Shared Policy as and to the extent that such insurance is
available up to the full extent of the applicable limits of liability of such Shared Policy (and
may receive any Insurance Proceeds with respect thereto as contemplated by
Section 9.02(c)
hereof), subject to the terms of this
Section 9.02
. Except as set forth in this
Section 9.02
, no member of the Cadbury plc Group or the DPS Group, as applicable, shall be
liable to a member of the other Partys Group for claims not reimbursed by insurers for any reason
not within the control of a member of the Cadbury plc Group or the DPS Group, as the case may be,
including coinsurance provisions, deductibles, quota share deductibles, self-insured retentions,
bankruptcy or insolvency of an insurance carrier, Shared Policy limitations or
restrictions, any coverage disputes, any failure to timely claim by a member of the Cadbury
plc Group or the DPS Group or any defect in such claim or its processing. It is expressly
understood that the foregoing shall not limit any Partys liability to the other Party for
indemnification pursuant to
ARTICLE VII
.
(c)
Allocation of Insurance Proceeds.
Except as otherwise provided in
Section 9.02
,
Insurance Proceeds received with respect to claims, costs and expenses under the Shared Policies
shall be paid to or on behalf of CS, which shall thereafter administer the Shared Policies by
paying the Insurance Proceeds, as appropriate, to CS with respect to Cadbury plc Liabilities and to
DPS with respect to Beverages Liabilities, net of the reasonable, documented out-of-pocket costs incurred by CS
in administering the applicable claim (it being understood that such costs shall fairly reflect the
costs to CS of providing such administrative services, including the costs incurred by CS in
respects of any increased premiums resulting from any such claims on
such Shared Policy and a reasonable allocation for
salary, wages, benefits, Taxes and other expenses directly attributable thereto and without any markup for profit).
CS will provide documentation of any reasonable out-of-pocket costs incurred at the time of payment of the allocable portions of the indemnity costs and Insurance Proceeds to DPS. Payment
47
of the allocable portions of indemnity costs of Insurance Proceeds resulting from such Policies will be made by CS
to the appropriate Party upon receipt from the insurance carrier. Each Party agrees to obtain for
itself and each member of its Group insurance policies (in forms and amounts determined by that
Party), which shall be effective as of the Distribution Date, to cover any Cadbury plc Liabilities
or Beverages Liabilities, as applicable, that exceed the Insurance Proceeds available from such
Shared Policies. Each of the Parties agrees to use commercially reasonable efforts to maximize
available coverage under those Shared Policies applicable to it, and to take all commercially
reasonable steps to recover from all other responsible parties in respect of an Shared Policy
Insured Claim to the extent coverage limits under a Shared Policy have been exceeded or would be
exceeded as a result of such Shared Policy Insured Claim (it being understood that the obligation
to use commercially reasonable efforts to recover from all other responsible parties in respect of
a Shared Policy Insured Claim shall not require any Party to commence any litigation proceedings
against any such other responsible party).
Section 9.03
Agreement for Waiver of Conflict and Shared Defense
. In the event that Shared Policy Insured Claims of both Parties exist relating to the same
occurrence, the Parties shall jointly defend and waive any conflict of interest necessary to the
conduct of the joint defense. Nothing in this
ARTICLE IX
shall be construed to limit or
otherwise alter in any way the obligations of the Parties to this Agreement, including those
created by this Agreement, by operation of Law or otherwise.
ARTICLE X
DISPUTE RESOLUTION
Section 10.01
Disputes
. Except as otherwise specifically provided in any Ancillary Agreement or Continuing
Arrangement (the terms of which, to the extent so provided therein, shall govern the resolution of
disputes, controversies or claims that are the subject of such Ancillary Agreement or Continuing
Arrangement), the procedures for discussion, negotiation and arbitration set forth in this
ARTICLE X
shall apply to all disputes, controversies or claims (whether arising in
contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection
with, this Agreement or any Ancillary Agreement or Continuing Arrangement, or the transactions
contemplated hereby or thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the Demerger Effective Time), between or among any
member of the Cadbury plc Group, on the one hand, and any member of the DPS Group, on the other
hand (collectively,
Agreement Disputes
).
Section 10.02
Dispute Resolution
.
(a) CS and DPS will use their respective commercially reasonable efforts to resolve
expeditiously any Agreement Dispute on a mutually acceptable negotiated basis. In furtherance of
the foregoing, any member of the DPS Group or the Cadbury plc Group involved in an Agreement
Dispute may deliver a notice (an
Escalation Notice
) demanding an in-person meeting
involving senior level management representatives of Cadbury plc and DPS (or, if CS and DPS agree,
of the appropriate strategic business unit or division within each such entity). A copy of any
such Escalation Notice shall be given to the Chief Legal Officer of each of Cadbury
48
plc and DPS (which copy shall state that it is an Escalation Notice pursuant to this
Section 10.02
).
Any agenda, location or procedures for such discussions or negotiations between CS and DPS
may be established by CS and DPS from time to time;
provided
,
however
, that the
representatives of Cadbury plc and DPS shall use their reasonable efforts to meet within 30 days of
the Escalation Notice.
(b) If the senior level management representatives of Cadbury plc and DPS are not able to
resolve the Agreement Dispute within 30 days after the date of receipt of the Escalation Notice (or
such shorter time as is necessary to avoid immediate irreparable injury), then the Agreement
Dispute shall be submitted to the chief executive officers of both Cadbury plc and DPS.
(c) If CS and DPS are not able to resolve the Agreement Dispute through the processes
set forth in subsections (a) and (b) of this
Section 10.02
within 60 days after the date of
the Escalation Notice, such Agreement Dispute shall be determined, at the request of either CS or DPS by
arbitration, which shall be conducted (i) by three arbitrators, consisting of one
arbitrator appointed by CS, one arbitrator appointed by DPS and a third arbitrator
appointed by the two arbitrators appointed by CS and DPS or, if the arbitrators appointed
by CS and DPS cannot agree on a third arbitrator, the third arbitrator shall be appointed
by the chief executive officers of both CS and DPS, and (ii) in accordance with the
Commercial Rules of the American Arbitration Association (except with respect to the selection of
arbitrators) in effect at the time of filing of the demand for arbitration.
(d) The decision of the arbitrators (which, notwithstanding any other provision of this
Agreement to the contrary, may include an order to specifically perform any provision of this
Agreement) shall be final and binding upon the Parties hereto, and the expense of the arbitration
(including the award of attorneys fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be executory, and judgment thereon may be entered
by any court of competent jurisdiction. The seat of the arbitration shall be New York, New York.
(e) The existence of, and any discussions, negotiations, arbitrations or other proceedings
relating to, any Agreement Dispute shall be considered by each Party hereto as Confidential
Information until such time as a judgment thereon is entered in a court of competent jurisdiction.
(f) Notwithstanding anything contained in this Agreement to the contrary, no member of the DPS
Group and no member of the Cadbury plc Group shall have the right to institute judicial proceedings
against the other Party or any Person acting by, through or under such other Party, in order to
enforce the instituting Partys rights hereunder, except that any such member shall be permitted to
seek an injunction in aid of arbitration with respect to an Agreement Dispute to preserve the
status quo during the pendency of any arbitration proceeding pursuant to paragraph (c) of this
Section 10.02
. All judicial proceedings arising out of or relating to this Agreement shall
be heard and determined exclusively in any New York state or federal court sitting in the Borough
of Manhattan in The City of New York.
49
Section 10.03
Continuity of Service and Performance
. Unless otherwise agreed in writing, the Parties will continue to provide service and honor
all other commitments under this Agreement and each Ancillary Agreement during the course of
dispute resolution pursuant to the provisions of this
ARTICLE X
with respect to all matters
not subject to such Agreement Dispute.
ARTICLE XI
TERMINATION
Section 11.01
Termination
. This Agreement may be terminated and the Distribution may be abandoned at any time prior to
the Distribution Date by and in the sole discretion of CS.
Section 11.02
Effect of Termination
. In the event of termination of this Agreement in accordance with
Section 11.01
,
this Agreement shall forthwith become void and there shall be no Liability on the part of either
Party hereto.
Section 11.03
Amendment
. This Agreement may not be amended or modified except (a) by an instrument in writing signed
by, or on behalf of, the Parties hereto or (b) by a waiver in accordance with
Section
11.04
.
Section 11.04
Waiver
. Either Party to this Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other Party and (b) waive compliance with any of the agreements of
the other Party or conditions to such Partys obligations contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by the Party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any other term or
condition of this Agreement. The failure of either Party hereto to assert any of its rights
hereunder shall not constitute a waiver of any of such rights.
ARTICLE XII
MISCELLANEOUS
Section 12.01
Limitation of Liability
. IN NO EVENT SHALL ANY MEMBER OF THE CADBURY PLC GROUP OR THE DPS GROUP BE LIABLE TO ANY
MEMBER OF THE DPS GROUP OR THE CADBURY PLC GROUP, RESPECTIVELY, FOR ANY SPECIAL, CONSEQUENTIAL,
INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;
PROVIDED
,
HOWEVER
, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTYS
50
INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN
ARTICLE VII
.
Section 12.02
Expenses
. Notwithstanding anything in this Agreement or in any Ancillary Agreement to the contrary,
all DPS Transaction Costs shall be borne by DPS and all Transaction Costs shall be borne by CS.
Section 12.03
Notices
. All notices, requests, claims, demands and other communications hereunder shall be in
writing and shall be given or made (and shall be deemed to have been duly given or made upon
receipt) by delivery in person, by an internationally recognized overnight courier service, by
facsimile or registered or certified mail (postage prepaid, return receipt requested) to the
respective Parties hereto at the following addresses (or at such other address for a Party as shall
be specified in a notice given in accordance with this
Section 12.03
):
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(a)
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if to Cadbury plc or CS:
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Cadbury plc
25 Berkeley Square
London W1J 6HB
Facsimile: 44-20-7830-5015
Attention: Henry Udow, Esq.
Chief Legal Officer
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with a copies to:
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Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022-6069
Telecopy: (212) 848-7179
Attention: Creighton OM. Condon, Esq.
Scott Petepiece, Esq.
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and
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Slaughter and May
One Bunhill Row
London EC1Y 8YY
Facsimile: 44-20-7090-5000
Attention: Tim Boxell
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(b)
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if to DPS:
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5301 Legacy Drive
Plano, TX 75024
Facsimile: (972) 673-8130
Attention: James L. Baldwin, Jr.
General Counsel
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Section 12.04
Public Announcements
. Following the Demerger Effective Time, neither Party to this Agreement shall make, or cause
to be made, any press release or public announcement in respect of this Agreement or the
transactions contemplated by this Agreement without the prior written consent of the other Party
unless otherwise required by Law or applicable stock exchange regulation, and the Parties to this
Agreement shall cooperate as to the timing and contents of any such press release or public
announcement. The Parties shall use commercially reasonable efforts to agree on the timing and
content of any announcement or communication relating to the financial results and/or results of
operations of the quarters ending March 31, 2008 and June 30, 2008 for DPS and the period ending
June 30, 2008 for Cadbury plc.
Section 12.05
Severability
. If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any Law or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect for so long as the economic or legal substance of the
transactions contemplated by this Agreement is not affected in any manner materially adverse to
either Party hereto. Upon such determination that any term or other provision is invalid, illegal
or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as possible in an
acceptable manner in order that the transactions contemplated by this Agreement are consummated as
originally contemplated to the greatest extent possible.
Section 12.06
Entire Agreement
. This Agreement, the Ancillary Agreements and the Transfer Documents constitute the entire
agreement of the Parties hereto and their Affiliates with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and oral, between the
Parties hereto with respect to the subject matter hereof and thereof.
Section 12.07
Assignment
. This Agreement may not be assigned by a Party hereto without the consent of the other Party
hereto;
provided
that a merger shall not be deemed to be an assignment under this
Agreement; and
provided
further
, that any Party may assign this Agreement or any of
its rights and obligations hereunder to one or more Affiliates of such Party without the consent of
the other Party
provided
that no such assignment shall relieve the assignor of any of its
obligations hereunder.
Section 12.08
Parties in Interest
. This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto
and their respective successors and permitted assigns, and nothing herein, express or implied
(including the provisions of
ARTICLE VII
relating to indemnified parties), is intended to
or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
Section 12.09
Currency
. Unless otherwise specified in this Agreement, all references to currency, monetary values
and dollars set forth herein means United States dollars and all payments hereunder shall be made
in United States dollars unless otherwise mutually agreed upon by the Parties.
Section 12.10
Tax Matters
. Except as otherwise specifically provided herein, this Agreement (including
ARTICLE
VII
(other than
Section 7.06
)) shall not govern Tax matters,
52
which shall be governed by the Tax Sharing Agreement.
Section 12.11
Employee Matters
. Except as otherwise provided herein and not inconsistent with the Employee Matters
Agreement, this Agreement shall not govern any employee matters, which shall be exclusively
governed by the Employee Matters Agreement.
Section 12.12
Governing Law
. This Agreement shall be governed by, and construed in accordance with, the laws of the
State of New York.
Section 12.13
Waiver of Jury Trial
. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH OF THE PARTIES HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT,
AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION
12.13
.
Section 12.14
Survival of Covenants
. Except as expressly set forth in any Ancillary Agreement, the covenants and agreements
contained in this Agreement and each Ancillary Agreement, and Liability for the breach of any
obligations contained herein or therein, shall survive the Distribution Date and shall remain in
full force and effect.
Section 12.15
Counterparts
. This Agreement may be executed and delivered (including by facsimile transmission or
portable document format (
.pdf
)) in counterparts, and by the different Parties hereto in
separate counterparts, each of which when executed shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement.
[
Remainder of page intentionally left blank
]
53
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the
date first written above by their respective officers thereunto duly authorized.
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CADBURY SCHWEPPES PLC
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By
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Name:
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Title:
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DR PEPPER SNAPPLE GROUP, INC.
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By
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Name:
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Title:
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CADBURY PLC, solely for the purposes of
Sections 4.01(a) and (b) and Section 5.03
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By:
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Name:
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Title:
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Information
contained herein is subject to completion or amendment. A
Registration Statement on Form 10 relating to these
securities has been filed with the United States Securities and
Exchange Commission under the United States Securities Exchange
Act of 1934, as amended.
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Preliminary
and Subject to Completion, dated February 12,
2008
INFORMATION
STATEMENT
Dr Pepper Snapple Group,
Inc.
We are furnishing this information statement to the shareholders
of Cadbury Schweppes plc (Cadbury Schweppes) in
connection with the distribution of all of the outstanding
shares of common stock of Dr Pepper Snapple Group, Inc.
(DPS) to shareholders of Cadbury Schweppes. After
the distribution is completed, DPS will be a separate company
and will own and operate Cadbury Schweppes beverage
business in the United States, Canada, Mexico and the Caribbean
(the Americas Beverages business). Cadbury
Schweppes global confectionery business and its other
beverages business (located principally in Australia) will be
owned and operated by Cadbury plc, a U.K. company, which will be
the new publicly-traded parent company of Cadbury Schweppes.
A shareholder vote approving the distribution was held in the
United Kingdom
on ,
2008. No further shareholder action is necessary for you to
receive the shares of our common stock to which you are entitled
in the distribution. You do not need to pay any consideration to
DPS, Cadbury Schweppes or Cadbury plc. The distribution remains
contingent on, among other things, court approval of certain
matters in the United Kingdom. The final court approval is
scheduled
for ,
2008. Immediately after the distribution is completed, we will
be an independent public company. We expect the distribution to
occur
on ,
2008. For additional details regarding the distribution, see
The Distribution in this information statement.
All of our common stock is currently owned by Cadbury Schweppes.
Accordingly, currently there is no public trading market for our
common stock. We intend to apply to have our common stock
authorized for listing on the New York Stock Exchange under the
symbol DPS.
As you review this information statement, you should
carefully consider the matters described in Risk
Factors beginning on page 15 of this information
statement.
Neither the United States Securities and Exchange Commission
nor any U.S. state securities commission has approved or
disapproved of these securities or determined if this
information statement is truthful or complete. Any
representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell
or the solicitation of an offer to buy any securities.
The date of this information statement
is ,
2008.
This information statement was first mailed to stockholders of
Cadbury Schweppes on or
about ,
2008.
TABLE OF
CONTENTS
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1
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15
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25
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27
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28
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29
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32
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37
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71
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76
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90
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96
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125
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126
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127
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129
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142
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F-1
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In this information statement, references to DPS,
our company, we, us and
our refer to Dr Pepper Snapple Group, Inc. and its
subsidiaries, references to Cadbury Schweppes refer
to Cadbury Schweppes plc and its subsidiaries and references to
Cadbury plc refer to Cadbury plc and its
subsidiaries, except in each case where otherwise indicated or
the context otherwise requires.
We were recently formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and had no
operations prior to the separation and distribution. Our company
was initially incorporated under the name CSAB Inc. The name of
our company was changed from CSAB Inc. to Dr Pepper Snapple
Group, Inc. on January 2, 2008.
The fiscal years presented in this information statement are the
52-week
period ended December 31, 2006, which we refer to as
2006, the
52-week
period ended January 1, 2006, which we refer to as
2005, and
53-week
period ended January 2, 2005, which we refer to as
2004. The year end dates represent the Sunday
closest to December 31 of each year. Effective 2006, our fiscal
year ends on December 31 of each year. We refer to the
fiscal period from January 1, 2007 to September 30,
2007 as the nine months ended September 30,
2007 and from January 2, 2006 to September 30,
2006 as the nine months ended September 30,
2006.
This information statement contains some of our owned or
licensed trademarks, trade names and service marks, which we
refer to as our brands. All of the product names and logos
included in the information statement are either our registered
trademarks or those of our licensors.
The market and industry data in this information statement is
from the following independent industry sources: ACNielsen of
the Nielsen Company (ACNielsen), Beverage Digest LLC
(Beverage Digest) and Canadean Limited
(Canadean). For a description of the different
methodologies used by these sources (including the sales
channels covered), see Industry Use of Market
Data in this Information Statement.
i
INFORMATION
STATEMENT SUMMARY
This summary highlights information contained elsewhere in
this information statement. It is not complete and may not
contain all the information that may be important to you. You
should read the entire information statement carefully,
especially the information presented under the heading
Risk Factors, our unaudited pro forma combined
financial statements and our audited and unaudited combined
financial statements included elsewhere in this information
statement.
Except as otherwise indicated or unless the context otherwise
requires, the information included in this information statement
assumes the completion of the separation of DPS from Cadbury
Schweppes and the related distribution of our common stock. Our
historical combined financial information has 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 including
allocations of expenses from Cadbury Schweppes. Our unaudited
pro forma combined financial information adjusts our historical
combined financial information to give effect to our separation
from Cadbury Schweppes, the distribution of our common stock and
the related financing, each as described herein.
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)
carbonated soft drinks (CSDs) and non-carbonated
soft drinks (non-CSDs), 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:
Our
Company
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#1 flavored CSD company in the United States
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More than 75% of our volume from brands that are either #1 or #2 in their category
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#3 North American liquid refreshment beverage business
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$4.7 billion of net sales in 2006 from the United States (88%), Canada (4%) and Mexico and the Caribbean (8%)
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$1.0 billion of income from operations in 2006
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Our
Key Brands
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#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
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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
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#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
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#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 1876
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#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
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#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
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#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
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#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
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#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
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#1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
Flavors include regular, diet and ruby red
Founded in 1938
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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
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#1 carbonated mineral water brand in Mexico
Brand includes Flavors, Twist and Naturel
Mexicos oldest mineral water, founded in 1928
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#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
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Note:
All information regarding our
companys market positions is for 2006 and from Beverage
Digest and Canadean. All information regarding our brand market
positions in the United States is for 2006 and from ACNielsen.
All information regarding our brand market positions in Canada
and Mexico is for 2006 and from Canadean. For a description of
the different methodologies used by these sources (including
sales channels covered), see Industry Use of
Market Data in this Information Statement.
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.
2
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). Most recently, we acquired
several bottling businesses in the United States, which provide
us with more control over the bottling, distribution and
route-to-market
for our products. In the six months ended June 30, 2007, we
bottled and/or distributed approximately 45% of our total
products sold in the United States (as measured by volume).
Our business is currently part of Cadbury Schweppes. Following
our separation from Cadbury Schweppes, we will be an
independent, publicly-traded company, and Cadbury Schweppes will
not retain any ownership interest in us. In connection with the
separation, we will enter into a number of agreements with
Cadbury plc that will govern our relationship following the
separation. These include agreements to provide each other with
services during a transition period and indemnify each other
against certain liabilities arising from our respective
businesses and from the separation. For a more detailed
description of the separation, see The Distribution
and for a more detailed description of these agreements, see
Our Relationship with Cadbury plc After the
Distribution.
Our
Industry
Total retail sales (i.e., sales to end consumers) in 2006 in the
U.S. liquid refreshment beverage market were
$106 billion, with CSDs accounting for 66.1%,
non-CSDs
(including ready-to-drink teas, juices, juice drinks and sports
drinks) accounting for 19.7% and bottled water accounting for
14.2%. The U.S. liquid refreshment beverage market has
grown over the last five years, with average annual volume
growth of 3.9% between 2001 and 2006 and average annual retail
sales growth of 5.1% over the same period. In 2006, CSD retail
sales grew 2.9%, despite a 0.6% decline in volume. Within the
CSD market segment, flavored CSDs increased their share (as
measured by volume), from 40.1% in 2001 to 42.6% in 2006, and
colas lost share from 59.9% in 2001 to 57.4% in 2006. Non-CSDs
have experienced strong volume growth over the last five years
with their share of the U.S. liquid refreshment beverage market
increasing from 12.7% in 2001 to 16.3% in 2006. Non-CSD volume
and retail sales increased by 13.2% and 14.8%, respectively, in
2006, with strong growth in
ready-to-drink
teas, sports drinks and juice drinks. The Canadian and Mexican
markets have exhibited broadly similar trends to those in the
United States, except that Mexican CSD volume grew 4.9% in 2006
according to Canadean. All U.S. market and industry data
set forth in this paragraph is from Beverage Digest. See
Industry Use of Market Data in this
Information Statement.
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
non-CSD
brands, which 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 2006, 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. Our integrated
business model also 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.
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 The Coca-Cola
Company (Coca-Cola) and PepsiCo, Inc.
(PepsiCo), some of the largest and most important
retailers, including
Wal-Mart,
Safeway, Kroger and
3
Target, some of the largest foodservice customers, including
McDonalds, Yum! and Burger King, and convenience store
customers, including 7-Eleven.
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. 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 57.4% in 2006
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 more than
250 distribution centers in the United States, as well as 4
manufacturing facilities and more than 25 distribution
centers in Mexico. These facilities use a variety of
manufacturing processes. 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.
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, we relaunched 7UP with 100% natural flavors and no
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. We also intend to capitalize on
opportunities in these categories through brand extensions, new
product launches and selective acquisitions of brand and
distribution rights.
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 investments in coolers and other
cold drink equipment. 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.
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.
4
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 and enhance coordination with our
large retail customers.
Improve operating efficiency.
We believe our
recently announced 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.
Background
and Reasons for the Distribution
On March 15, 2007, Cadbury Schweppes announced that it
intended to separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). The board of directors of
Cadbury Schweppes initially determined to simultaneously explore
the potential for both a sale of our company to a third party
and a distribution of our common stock to Cadbury Schweppes
shareholders as alternatives for the separation of the
businesses. After determining that difficult debt market
conditions would not facilitate an acceptable sale process for
the foreseeable future, Cadbury Schweppes announced on
October 10, 2007 that it intended to focus on the
separation of its Americas Beverages business through the
distribution of the common stock of DPS to Cadbury
Schweppes shareholders.
On ,
2008, Cadbury Schweppes board of directors approved the
distribution of our common stock to the shareholders of Cadbury
Schweppes. Cadbury Schweppes believes that the separation of its
Americas Beverages business from its global confectionery
business and its other beverages business (located principally
in Australia) will enhance value for stockholders of DPS and
shareholders of Cadbury plc, the new parent company of Cadbury
Schweppes, by creating significant opportunities and benefits,
including:
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allowing the management of each company to focus its efforts on
its own business and strategic priorities;
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enabling each company to allocate its capital more efficiently;
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providing DPS with direct access to the debt and equity capital
markets;
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improving DPSs ability to pursue strategic transactions
through the use of shares of common stock as consideration;
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enhancing DPSs market recognition with investors; and
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increasing DPSs ability to attract and retain employees by
providing equity compensation tied directly to its business.
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For more information on the distribution, see The
Distribution.
Risk
Factors
Our new company faces both general and specific risks and
uncertainties relating to our business, our separation from
Cadbury Schweppes and our being a publicly-traded company
following the distribution, which are described in Risk
Factors, beginning on page 15.
Recent
Developments
New
President and Chief Executive Officer
Larry Young was appointed President and Chief Executive Officer
of Cadbury Schweppes Americas Beverages business on
October 10, 2007. Mr. Young was previously our Chief
Operating Officer, as well as President, Bottling Group, and has
more than 30 years of experience in the bottling and
beverages industry.
Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization that is intended to create a more efficient
organization. This restructuring will result in a reduction of
approximately 470 employees in our corporate, sales and
supply chain functions and will include approximately 150
employees in Plano, Texas,
5
150 employees in Rye Brook, New York and 80 employees in
Aspers, Pennsylvania. The remaining reductions will occur at a
number of sites located in the United States, Canada and Mexico.
The restructuring will also include the closure of two
manufacturing facilities in Waterloo, New York and Denver,
Colorado. The employee reductions and facilities closures are
expected to be completed by June 2008.
As a result of this restructuring, we expect to recognize a
charge of approximately $70 million primarily in 2007, with
the balance in 2008. We expect this restructuring to generate
annual cost savings of approximately $70 million, most of
which are expected to be realized in 2008 with the full annual
benefit realized from 2009 onwards. As part of this
restructuring, our Bottling Group segment has assumed management
and operational control of our Snapple Distributors segment.
These operations are currently being integrated and will be
reported in our 2007 annual results as a single segment.
Accelerade
Launch
We launched our new, ready-to-drink Accelerade sports drink in
the first half of 2007. The launch represented an introduction
of a new product into a new beverage category for us and has
been supported by significant national product placement and
marketing investments, predominantly in the third quarter. Net
sales have been well below expectations despite these
investments. We incurred an operating loss of approximately
$40 million from the Accelerade launch in the nine months
ended September 30, 2007. Going forward, we intend to focus
on selling Accelerade to informed athletes, trainers and
exercisers, and targeting retailers that are frequented by these
consumers, such as health and nutrition outlets, where we expect
the product to be financially viable.
Glacéau
Termination
Following its acquisition by Coca-Cola on August 30, 2007,
Energy Brands, Inc. notified us that it was terminating our
distribution agreements for glacéau products, including
vitaminwater, fruitwater and smartwater, effective
November 2, 2007. Pursuant to the terms of the agreement,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007. Our
glacéau net sales for the nine months ended
September 30, 2007 were approximately $200 million and
are reflected in our Bottling Group and Snapple Distributors
segments.
SeaBev
Acquisition
On July 11, 2007, we acquired the Jacksonville,
Florida-based Southeast-Atlantic Beverage Corp.
(SeaBev), the second largest independent bottling
and distribution company in the United States, for approximately
$53 million. SeaBev has 2 manufacturing facilities and 16
warehouses and distribution centers located from Miami to
Atlanta. It distributes many of our CSDs and non-CSDs throughout
Florida and Northern Georgia, providing us with expanded
geographic coverage and a more integrated business.
SeaBevs results of operations are reported as part of our
Bottling Group segment.
6
Questions
and Answers About the Distribution
The information statement has been prepared as if the vote of
the shareholders of Cadbury Schweppes plc to approve the
separation and distribution of our shares and related matters
described herein had already occurred. The information statement
will not be distributed to shareholders until such a vote has
occurred. For a more detailed description of the matters
summarized below, see The Distribution.
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What is the distribution?
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The distribution is part of the process by which Cadbury
Schweppes will separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). Although the separation and
distribution have several steps, ultimately, holders of Cadbury
Schweppes ordinary shares (and holders of American depositary
receipts (ADRs) representing Cadbury Schweppes
ordinary shares) will receive shares of common stock of
Dr Pepper Snapple Group, Inc., a new company which will own
Cadbury Schweppes Americas Beverages business, and shares
of Cadbury plc, a new company which will own Cadbury
Schweppes global confectionery business and its other
beverages business (located principally in Australia) (or ADRs
representing such shares). These two companies will be
independent from each other after the separation. We intend that
the shares of our common stock will be listed on the New York
Stock Exchange. It is also intended that the ordinary shares of
Cadbury plc will be listed on the London Stock Exchange and ADRs
representing its ordinary shares will be listed on the New York
Stock Exchange.
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How will the separation work?
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Cadbury Schweppes currently intends to effect the separation and
distribution through the following steps:
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Scheme of Arrangement
. Cadbury
Schweppes intends to implement a corporate reorganization
pursuant to which a new company, Cadbury plc, will become the
holding company of Cadbury Schweppes. This corporate
reorganization is known as a scheme of arrangement
under UK law. Pursuant to the scheme of arrangement, all
outstanding Cadbury Schweppes ordinary shares will be cancelled
and holders of Cadbury Schweppes ordinary shares will receive
Cadbury plc ordinary shares, which will represent the ongoing
ownership interest in the global confectionery business and its
other beverages business (located principally in Australia), and
Cadbury plc beverage shares, which, ultimately, will
entitle the holder to receive our common stock in connection
with the distribution which we expect to be completed
on ,
2008.
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Reduction of Capital and the Distribution of Our
Common Stock.
Shortly after the scheme of
arrangement becomes effective, Cadbury plc will cancel the
Cadbury plc beverage shares (pursuant to a
reduction of capital under UK law) and transfer its
Americas Beverages business to us. In return for the transfer of
the Americas Beverages business to us, we will distribute all of
the shares of our common stock to the holders of Cadbury plc
beverage shares.
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For additional information on the distribution, see The
Distribution Reorganization of Cadbury Schweppes and
Distribution of Shares of Our Common Stock and The
Distribution Manner of Effecting the
Distribution.
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What will the relationship of Dr Pepper Snapple
Group, Inc. and
Cadbury plc
be
after the
distribution?
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We and Cadbury plc will each be independent, publicly-traded
companies with separate management teams and boards of
directors. Pursuant to the scheme of arrangement, Cadbury
Schweppes will become a subsidiary of Cadbury plc.
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Prior to the distribution, we will enter into agreements with
Cadbury Schweppes to provide each other with services during a
transition period and indemnify each other against certain
liabilities arising from our respective businesses and from the
separation. For additional information on our relationship with
Cadbury plc after the distribution, see Our Relationship
with Cadbury plc After the Distribution.
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When will the distribution be
completed?
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We expect the distribution to be completed in the second quarter
of 2008.
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What is the record date for the
distribution
of our
shares of common stock?
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The record date for the distribution of shares of our common
stock is expected to
be ,
2008.
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What do Cadbury Schweppes shareholders and holders of
ADRs
have to do to
participate in
the
distribution?
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A shareholder vote approving the separation and distribution was
held in the United Kingdom
on ,
2008. No further action by Cadbury Schweppes shareholders or
holders of Cadbury Schweppes ADRs is necessary for you to
receive the shares of our common stock to which you are entitled
in the distribution. You do not need to pay any consideration to
us, Cadbury Schweppes or Cadbury plc. The distribution remains
contingent on the approval of the High Court of Justice of
England and Wales, as well as certain other conditions described
in The Distribution and summarized below under
What are the conditions to the
distribution?
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How many shares of our common stock will
Cadbury Schweppes shareholders and holders of ADRs
receive?
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We will
distribute shares
of our common stock for each Cadbury plc beverage share
or shares
of our common stock for each Cadbury Schweppes ADR held at the
Cadbury plc Reduction of Capital Record Time (as defined under
The Distribution). Based on
approximately million
Cadbury Schweppes ordinary shares outstanding as
of ,
2008, a total of
approximately million
shares of our common stock will be distributed. For additional
information on the distribution, see The
Distribution Results of the Distribution.
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What are the tax consequences of the
receipt
of Cadbury plc ordinary shares or Cadbury plc ADRs and our
common
stock by
holders of
Cadbury
Schweppes ordinary
shares?
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The receipt of Cadbury plc ordinary shares and shares of our
common stock should not constitute a disposal by a holder of
Cadbury Schweppes ordinary shares for U.K. tax purposes, and so
no chargeable gain or allowable loss should arise for U.K. tax
purposes. Where the amount of cash received in lieu of a
fractional share of our common stock is small as
compared to the value of the holding, a U.K. Holder (as
defined under Material Tax Considerations U.K.
Holders) may treat the cash received as a deduction from
the base cost of the holding of common stock, rather than as a
partial disposal of the common stock.
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In the case of any U.K. Holder who, alone or together with
persons connected with him, holds more than 5% of, or any class
of, shares in or debentures of Cadbury Schweppes, it is a
condition for this treatment that the separation and
distribution are being effected for
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bona fide commercial reasons and do not form part of a scheme or
arrangement of which the main purpose, or one of the main
purposes, is an avoidance of liability to U.K. corporation tax
or capital gains tax.
|
|
|
|
Cadbury Schweppes has requested a private letter ruling from the
U.S. Internal Revenue Service (the IRS) that subject
to the facts, representations and qualifications contained
therein, your receipt of Cadbury plc ordinary shares and our
common stock (along with certain related restructuring
transactions) will qualify for non-recognition treatment under
Sections 355 and 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended (the Internal Revenue Code).
Under such treatment, a holder of Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs who is a U.S. person for U.S.
federal income tax purposes will not incur U.S. federal income
tax upon the receipt of Cadbury plc ordinary shares or Cadbury
plc ADRs and our common stock. Any cash received in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock will generally be treated as capital gain.
|
|
|
|
See Material Tax Considerations.
|
|
What are the conditions to the distribution?
|
|
The distribution is subject to a number of conditions,
including, among others, the approval of Cadbury Schweppes
shareholders and the High Court of Justice of England and Wales,
the Securities and Exchange Commission (the SEC)
declaring effective the registration statement of which this
information statement forms a part and the completion of the
financing related to the distribution. See The
Distribution.
|
|
Does Dr Pepper Snapple Group, Inc. intend to pay
dividends on the common
stock?
|
|
Prior to the effectiveness of the registration statement of
which this information statement forms a part, we intend to
determine and disclose a policy with respect to the payment of
any dividends to our stockholders. See Dividend
Policy.
|
|
Will Dr Pepper Snapple Group, Inc. incur any debt
prior to or at the time
of the
distribution?
|
|
We intend to enter into new financing arrangements prior to the
completion of the distribution. See Risk
Factors Risks Related to Our Business
After our separation from Cadbury Schweppes, we will have a
significant amount of debt, which could adversely affect our
business and our ability to meet our obligations and
Description of Indebtedness.
|
|
Where will trading begin in the common stock?
|
|
There is no current trading market for our common stock. We
intend to apply to have our common stock authorized for listing
on the New York Stock Exchange under the symbol
DPS. After this listing, shares of our common stock
will generally be freely-tradable. For additional information
regarding the trading of our common stock, see Risk
Factors Risks Related to Our Common Stock and
The Distribution Market for Our Common
Stock.
|
|
What will happen to the listing of Cadbury
Schweppes ordinary
shares and ADRs?
|
|
Once the scheme of arrangement becomes effective, Cadbury
Schweppes ordinary shares and Cadbury Schweppes ADRs will be
delisted from the London Stock Exchange and the New York Stock
Exchange, respectively. Ordinary shares of Cadbury plc, the new
parent company of Cadbury Schweppes, will be listed on the
London Stock Exchange under the symbol
and the Cadbury plc ADRs will be listed on the New York Stock
Exchange
|
9
|
|
|
|
|
under the symbol
.
See The Distribution Reorganization of Cadbury
Schweppes and Distribution of Shares of Our Common Stock.
|
|
What will be the separation costs?
|
|
Cadbury Schweppes currently expects to incur pre-tax separation
costs of approximately
$ million to
$ million in connection with
our separation from Cadbury Schweppes, with the possibility that
these costs could be higher. Nearly all of these costs will be
incurred by Cadbury Schweppes and us prior to the distribution.
Except as provided in the agreements to be entered into by
Cadbury plc and us in connection with the separation, to the
extent additional separation costs are incurred by us after the
distribution, they will be our responsibility. In addition, we
will incur additional costs on a going-forward basis in
connection with operating as a publicly-traded company separate
from Cadbury Schweppes. For more information regarding the costs
of the separation and our ongoing incremental costs, see
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
|
|
Are there risks associated with owning
Dr Pepper Snapple Group, Inc. common stock?
|
|
Our new company will face both general and specific risks and
uncertainties relating to our business, our separation from, and
ongoing relationship with, Cadbury plc and our being a
publicly-traded company following the distribution. You should
read carefully Risk Factors, beginning on
page 15.
|
|
Who do I contact for information regarding
Dr Pepper Snapple Group, Inc. and the
distribution?
|
|
You should direct inquiries relating to the distribution to:
|
|
|
Cadbury Schweppes plc
25 Berkeley Square
London W1J 6HB
United Kingdom
Attention: Investor Relations
Tel: 011-44-207-830-5124
|
|
|
|
|
After the distribution, the transfer agent and registrar for our
common stock will be:
|
|
|
|
Computershare Trust Company,
N.A.
250 Royall Street
Canton, MA 02021
USA
Attention: Jennifer LaGrow
Tel: 781-575-2000
|
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.
We were recently formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and had no
operations prior to the separation and distribution.
10
Summary
Historical and Unaudited Pro Forma Combined Financial
Data
The following table presents our summary historical and
unaudited pro forma combined financial data. Our summary
historical combined financial data presented below as of
December 31, 2006 and January 1, 2006 (the last day of
fiscal 2005) and for the three fiscal years 2006, 2005 and 2004
have been derived from our audited combined financial
statements, included elsewhere in this information statement.
Our summary historical combined balance sheet data presented
below as of January 2, 2005 (the last day of fiscal 2004)
have been derived from our historical accounting records, which
are unaudited. Our summary historical combined financial data
presented below as of September 30, 2007 and for each of
the nine months ended September 30, 2007 and 2006 have been
derived from our unaudited combined financial statements
included elsewhere in this information statement, which have
been prepared on a basis consistent with our annual audited
combined financial statements. In the opinion of our management,
such unaudited financial statements reflect all adjustments,
consisting only of normal and recurring adjustments, necessary
for the fair presentation of the information set forth therein.
The results for the interim periods are not necessarily
indicative of the results to be expected for any future period.
Our historical financial data 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 including
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverages information is our
predecessor financial information. The results included below
and elsewhere in this information statement 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 presented. You should
read this information along with the information included in
Unaudited Pro Forma Combined Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our audited and
unaudited combined financial statements and the related notes
thereto included elsewhere in this information statement.
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 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. There are no adjustments reflected in
the summary unaudited pro forma financial data for these
acquisitions.
The summary unaudited pro forma financial data has been adjusted
to give effect to:
|
|
|
|
|
the contribution by Cadbury Schweppes of its Americas Beverages
business to us;
|
|
|
|
the distribution
of million
shares of our common stock to shareholders of Cadbury plc;
|
|
|
|
$ million of debt incurred under
our new financing arrangements and the associated interest
expense and other financing costs; and
|
|
|
|
the repayment of $ million of
related party debt and
$ million
of related party payables, in each case owed by DPS to Cadbury
Schweppes.
|
11
The unaudited pro forma combined balance sheet data has been
prepared as though the separation, distribution and related
financing transactions occurred on September 30, 2007. The
unaudited pro forma combined statement of operations data for
2006 and the nine months ended September 30, 2007 have been
prepared as though the separation, distribution and related
financing transactions occurred on January 2, 2006 (the
first day of fiscal 2006). The pro forma adjustments are based
upon available information and assumptions that we believe are
reasonable. The unaudited pro forma combined financial
statements are for informational purposes only and are not
necessarily indicative of what our financial performance would
have been had the separation, distribution and related financing
transactions been completed on the dates assumed. They may not
reflect the financial performance which would have resulted had
we been an independent, publicly-traded company during those
periods. In addition, they are not indicative of our future
financial performance. For further information regarding the pro
forma adjustments described above, see Unaudited Pro Forma
Combined Financial Data and our audited and unaudited
combined financial statements and related notes thereto included
elsewhere in this information statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Statements of Operations Data:
|
|
(In millions, except per share
data)
|
Net sales
|
|
$
|
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
|
$
|
|
|
|
$
|
4,347
|
|
|
$
|
3,380
|
|
Cost of sales
|
|
|
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
1,051
|
|
|
|
|
|
|
|
1,984
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
2,014
|
|
|
|
|
|
|
|
2,363
|
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
1,135
|
|
|
|
|
|
|
|
1,527
|
|
|
|
1,239
|
|
Depreciation and amortization
|
|
|
|
|
|
|
69
|
|
|
|
26
|
|
|
|
10
|
|
|
|
|
|
|
|
69
|
|
|
|
44
|
|
Restructuring costs
|
|
|
|
|
|
|
27
|
|
|
|
10
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
|
|
9
|
|
Gain on disposal of property and intangible assets
|
|
|
|
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
1,018
|
|
|
|
906
|
|
|
|
834
|
|
|
|
|
|
|
|
731
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
|
|
|
|
|
|
195
|
|
|
|
189
|
|
Interest income
|
|
|
|
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
(38
|
)
|
|
|
(35
|
)
|
Other expense (income)
|
|
|
|
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
|
|
|
|
805
|
|
|
|
787
|
|
|
|
703
|
|
|
|
|
|
|
|
576
|
|
|
|
562
|
|
Provision for income taxes
|
|
|
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
|
|
|
|
218
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
|
|
|
|
507
|
|
|
|
466
|
|
|
|
433
|
|
|
|
|
|
|
|
358
|
|
|
|
356
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
|
|
|
|
3
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
|
|
|
|
510
|
|
|
|
487
|
|
|
|
446
|
|
|
|
|
|
|
|
359
|
|
|
|
359
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
$
|
|
|
|
$
|
359
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic(1)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted(2)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
19
|
|
|
|
|
|
|
$
|
34
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
7,625
|
|
|
|
|
|
|
|
10,896
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
708
|
|
|
|
404
|
|
|
|
435
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
3,468
|
|
|
|
|
|
|
|
2,969
|
|
|
|
|
|
Other non-current liabilities
|
|
|
|
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
943
|
|
|
|
|
|
|
|
1,381
|
|
|
|
|
|
Total invested equity
|
|
|
|
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
2,106
|
|
|
|
|
|
|
|
4,992
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Statements of Cash Flows Data:
|
|
(In millions)
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
|
|
|
$
|
581
|
|
|
$
|
583
|
|
|
$
|
610
|
|
|
$
|
|
|
|
$
|
757
|
|
|
$
|
521
|
|
Investing activities
|
|
|
|
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
184
|
|
|
|
|
|
|
|
(1,450
|
)
|
|
|
(550
|
)
|
Financing activities
|
|
|
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
(799
|
)
|
|
|
|
|
|
|
691
|
|
|
|
81
|
|
Depreciation expense(3)
|
|
|
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
|
|
|
|
|
|
89
|
|
|
|
65
|
|
Amortization expense(3)
|
|
|
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
38
|
|
|
|
33
|
|
Capital expenditures
|
|
|
|
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
(123
|
)
|
|
|
(79
|
)
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(4)
|
|
$
|
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
$
|
|
|
|
$
|
861
|
|
|
$
|
817
|
|
|
|
|
(1)
|
|
The number of shares used to compute net income per
share basic
is ,
which is the number of shares of our common stock assumed to be
outstanding on the distribution date, based on a distribution
ratio
of shares
of our common stock for
each
Cadbury Schweppes ordinary shares.
|
|
(2)
|
|
The number of shares used to compute net income per
share diluted is based on the number of shares
of our common stock assumed to be outstanding on the
distribution date. Net income per share diluted also reflects
the potential dilution that could occur if restricted stock
units and options granted under equity-based compensation
arrangements were exercised or converted into common stock.
|
|
(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,
cost of sales and selling, general and
administrative expenses.
|
|
(4)
|
|
EBITDA is defined as net income before interest expense,
interest income, provision for income taxes, depreciation and
amortization. EBITDA is a measure commonly used by financial
analysts in evaluating a companys liquidity. Accordingly,
we believe that EBITDA may be useful for investors in assessing
our ability to meet our debt service requirements. EBITDA is not
a recognized measurement under U.S. GAAP. When evaluating
liquidity, investors should not consider EBITDA in isolation of,
or as a substitute for, measures of liquidity as determined in
accordance with U.S. GAAP, such as net income or net cash
provided by operating activities. EBITDA may have material
limitations as a liquidity measure because it excludes interest
expense, interest income, taxes and depreciation and
amortization. Other companies may calculate EBITDA differently,
and therefore our EBITDA may not be comparable to similarly
titled measures reported by other companies. A reconciliation of
EBITDA to net income is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Historical
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Pro Forma
|
|
Historical
|
|
September 30,
|
|
|
2006
|
|
2006
|
|
2005
|
|
2004
|
|
2007
|
|
2007
|
|
2006
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In millions)
|
|
Net income
|
|
$
|
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
$
|
|
|
|
$
|
359
|
|
|
$
|
359
|
|
Interest expense
|
|
|
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
|
|
|
|
|
|
195
|
|
|
|
189
|
|
Interest income
|
|
|
|
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
(38
|
)
|
|
|
(35
|
)
|
Income taxes
|
|
|
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
|
|
|
|
218
|
|
|
|
206
|
|
Depreciation expense
|
|
|
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
|
|
|
|
|
|
89
|
|
|
|
65
|
|
Amortization expense
|
|
|
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
38
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
$
|
|
|
|
$
|
861
|
|
|
$
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Significant
Items Affecting Comparability
The comparability of our period-to-period income from operations
is affected by significant acquisitions and disposals, most
notably our bottling acquisitions in 2006, and the other factors
described in our period-to-period results of operations under
Managements Discussion and Analysis of Financial
Condition and Results of Operations. As a result, our
financial data is not necessarily comparable on a
period-to-period basis. The table below sets forth certain
significant items affecting comparability of our
period-to-period income from operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Restructuring costs
|
|
$
|
27
|
|
|
$
|
10
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
9
|
|
Gain on disposal of assets
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(32
|
)
|
Restructuring
Costs
In the nine months ended September 30, 2007, the
$36 million in expenses was primarily due to restructuring
costs associated with the integration of our Bottling Group. In
the nine months ended September 30, 2006, the
$9 million in expenses was primarily related to costs
associated with the integration of our Bottling Group 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 employees, and employee relocations.
In 2006, the $27 million in expenses was primarily related
to integration costs associated with our bottling acquisitions,
similar to those discussed above, as well as outsourcing
initiatives related to our back office operations and a
reorganization of our information technology functions. The
outsourcing initiatives involved the transfer of certain back
office functions, such as accounts payable and travel and
entertainment management, to a third party provider. 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) that
occurred in 2004 and the further consolidation of our back
office operations. In 2004, the $36 million in expenses was
primarily related to the restructuring of our four North
American businesses into a combined management reporting unit,
the creation of a back office operations service center and the
closure of our North Brunswick plant.
Gain on
Disposal of Assets
In 2006, we recognized a $32 million gain attributed to the
disposals of the Grandmas Molasses brand and Slush Puppie
business, which is also reflected in the nine months ended
September 30, 2006. In 2005, we recognized a
$36 million gain on the disposal of the Holland House
brand. In 2004, we recognized a $1 million gain attributed
to various asset disposals.
14
RISK
FACTORS
Ownership of our common stock involves risk. You should
understand and carefully consider the risks below, as well as
all of the other information contained in this information
statement, including our financial statements and the related
notes. Some of the risks relate to our business while others
relate to our separation from Cadbury Schweppes and ownership of
our common stock. Our business may be adversely affected by
risks and uncertainties not currently known to us. If any of
these risks or uncertainties develop into actual events, our
business and financial performance (including our financial
condition, results of operations and cash flows) could be
materially and adversely affected, and the trading price of our
common stock could decline.
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 non-CSDs, 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, plastic 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, plastic
and HFCS prices increased significantly in 2006 and 2007. 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 plastic 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, plastic 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,
15
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
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, the
largest retailer of our products, represented approximately 9.5%
of our net sales in 2006. 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.
16
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
2006, 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 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
many cases, they may be 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, Dr Pepper 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,
17
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 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.
Approximately 5,000 of our employees, many of whom are at our
key manufacturing locations, are 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 and distributors to complement our
18
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
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.
The
accounting treatment of goodwill and other identified
intangibles could result in future asset impairments losses,
which would adversely affect our financial
performance.
As of December 31, 2006, we had approximately
$9.3 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, 2006, did not result in an impairment charge.
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 combined financial
statements included elsewhere in this information statement.
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.
After
our separation from Cadbury Schweppes, we will have a
significant amount of debt, which could adversely affect our
business and our ability to meet our obligations.
As of September 30, 2007, on a pro forma basis after giving
effect to the new financing arrangements that we expect to enter
into in connection with the separation and the application of
the net proceeds thereof as contemplated under Unaudited
Pro Forma Combined Financial Data and Description of
Indebtedness, our total indebtedness would have been
$ .
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; 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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19
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.
Risks
Related to Our Separation from and Relationship with Cadbury
Schweppes
We may
not realize the potential benefits from the
separation.
We may not realize the benefits that we anticipate from our
separation from Cadbury Schweppes. 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 separating
our business from Cadbury Schweppes and operating as an
independent public company may distract our management from
focusing on our business and strategic priorities. Although as
an independent public company we will be 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 will 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.
Our
historical financial performance may not be representative of
our financial performance as a separate, stand-alone
company.
The historical financial information included in this
information statement has been derived from Cadbury
Schweppes 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 the periods presented. Cadbury
Schweppes currently provides certain corporate functions to us
and costs associated with these functions have been allocated
to us. These functions include 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 Schweppes was approximately
$103 million in the nine months ended September 30,
2007 and approximately $124 million in 2006. In addition to
the foregoing corporate allocations, Cadbury Schweppes made
other allocations to us totaling $10 million for the nine
months ended September 30, 2007 and $18 million for
2006. All of these allocations are based on what we and Cadbury
Schweppes 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 in the future as an
independent publicly-traded, stand-alone company.
Significant changes are expected to occur in our cost structure,
management, financing and business operations as a result of our
separation from Cadbury Schweppes. These changes are expected to
increase our
20
expenses as we will incur stand-alone costs for services
currently provided by Cadbury Schweppes, will need additional
personnel to perform services currently provided by Cadbury
Schweppes and will incur legal, accounting, compliance and other
costs associated with being a public company with listed equity.
For additional information, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Unaudited Pro Forma Combined Financial
Data and Our Relationship with Cadbury plc After the
Distribution.
After
our separation from Cadbury Schweppes, we may experience
increased costs resulting from a decrease in the purchasing
power and other operational efficiencies we currently have due
to our association with Cadbury Schweppes.
We have been able to take advantage of Cadbury Schweppes
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 distribution, we will enter into agreements with
Cadbury plc, the new holding company of Cadbury Schweppes, under
which Cadbury plc will provide some of these services to us on a
transitional basis, for which we will pay Cadbury plc. These
services may not be sufficient to meet our needs and, after
these agreements with Cadbury plc 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.
Historically, we have relied on certain financial,
administrative and other support functions of Cadbury Schweppes
to operate our business. With our separation from Cadbury
Schweppes, we will need to enhance our own financial,
administrative and other support systems. We will also need to
rapidly establish 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 Schweppes and the
distribution of our common stock, we will become 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 will be 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
International Financial Reporting Standard (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 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
21
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 Schweppes are agreeing to indemnify each other for
certain taxes.
We will enter into a tax-sharing and indemnification agreement
with Cadbury Schweppes under which tax liabilities relating to
taxable periods before and after the separation and distribution
will be computed and apportioned between Cadbury Schweppes and
ourselves, and responsibility for payment of those tax
liabilities (including any subsequent adjustments to such tax
liabilities) will be allocated between Cadbury Schweppes and
ourselves. In general, under the terms of the tax-sharing and
indemnification agreement, we and Cadbury Schweppes each will be
responsible for taxes imposed on our respective business for all
taxable periods, whether ending on, before or after the date of
the separation and distribution, except that taxes attributable
to certain restructuring transactions undertaken in anticipation
of the separation and distribution and various other
transactions will be specially allocated to (and indemnified
against by) Cadbury Schweppes or ourselves depending on the
transaction. In addition, we generally will be liable for any
liabilities, taxes or other charges that are imposed on Cadbury
Schweppes as a result of the separation and distribution (and
certain related restructuring transactions) failing to qualify
for nonrecognition treatment for U.S. federal income tax
purposes, if such failure is the result of a breach by us of any
representation or covenant made by us in the tax-sharing and
indemnification agreement in respect of these transactions and
various other matters, including our failure to continue the
active conduct of the historic business relied upon for purposes
of the private letter ruling request submitted to the IRS,
certain sales of our common stock for cash and taking any action
inconsistent with the information and representations furnished
to the IRS in connection with the private letter ruling request.
As a result, we could have significant indemnification
obligations to Cadbury Schweppes with respect to tax
liabilities. Further, although Cadbury Schweppes has agreed to
indemnify us against certain tax liabilities pursuant to the
tax-sharing and indemnification agreement, we may be liable at
law to a taxing authority for some of these tax liabilities and,
if Cadbury Schweppes were to default on their obligations to us,
we would be liable for the entire amount of these liabilities.
Accordingly, under certain circumstances, we may be obligated to
pay amounts in excess of our allocated share of tax liabilities.
The
receipt of our common stock could be a taxable transaction for
U.S. persons.
The receipt of Cadbury plc ordinary shares or Cadbury plc ADRs
and our common stock by holders of Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs (and certain related
restructuring transactions) is intended to qualify for
non-recognition treatment under Sections 355 and
368(a)(1)(F) of the Internal Revenue Code. Cadbury Schweppes has
requested a private letter ruling from the IRS that, subject to
the facts, representations and qualifications contained therein,
the receipt of Cadbury plc ordinary shares and our common stock
by Cadbury Schweppes stockholders (along with certain related
restructuring transactions) will qualify for non-recognition
treatment under Sections 355 and 368(a)(1)(F) of the
Internal Revenue Code. Notwithstanding any eventual private
letter ruling, the IRS could determine on audit that the receipt
of Cadbury plc ordinary shares or Cadbury plc ADRs and our
common stock should not qualify for nonrecognition treatment
because, for example, one or more of the controlling facts or
representations set forth in the private letter ruling request
was not complete, or as a result of certain actions taken after
the separation. If, contrary to any eventual private letter
ruling, the receipt of our common stock ultimately is determined
not to qualify for nonrecognition treatment under
Section 355 of the Internal Revenue Code, a holder of
Cadbury Schweppes ordinary shares or Cadbury Schweppes ADRs who
is a U.S. person for U.S. federal income tax purposes
generally would be treated as receiving a taxable distribution
in an amount equal to the fair market value of our common stock
(at the time of distribution) that is received by such
stockholder and the amount of cash received in lieu of a
fractional share of our common stock (without reduction for any
portion of their tax basis in their Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs), which amount would be taxable
as a dividend for U.S. federal income tax purposes
(provided, as is expected, Cadbury plc has sufficient current
and accumulated earnings and profits (including current and
accumulated earnings and profits of Cadbury Schweppes) as
determined for U.S. federal income purposes, or, if not so
determined, dividend treatment will be presumed).
22
Risks
Related to Our Common Stock
Our
common stock has no existing public market and the price of our
common stock may be subject to volatility.
Prior to the distribution, there will be no trading market for
our common stock and you will not be able to buy or sell our
common stock publicly. Although we intend to apply to have our
common stock authorized for listing on the New York Stock
Exchange, we cannot predict the extent to which an active
trading market for our common stock will develop or be sustained
after the distribution.
We have not and will not set the initial price of our common
stock. The initial price will be established by the public
markets. We cannot predict the price at which our common stock
will trade after the distribution. In fact, the combined trading
prices after the separation of the shares of our common stock
and the Cadbury plc ordinary shares that each Cadbury Schweppes
shareholder receives in connection with the separation may not
equal the trading price of a Cadbury Schweppes ordinary share
immediately prior to the separation. The price at which our
common stock trades is likely to fluctuate significantly,
particularly until an orderly public market develops. Even if an
orderly and active trading market for our common stock develops,
the market price of our common stock could be subject to
significant volatility due to factors such as:
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general economic trends and other external factors;
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changes in our earnings or operating results;
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success or failure of our business strategies;
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failure of our financial performance to meet securities
analysts expectations;
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our ability to obtain financing as needed;
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introduction of new products by us or our competitors;
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changes in conditions or trends in our industry, markets or
customers;
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changes in governmental regulation;
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depth and liquidity of the market for our common stock; and
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our operating performance and that of our competitors.
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In the past, the stock markets have experienced significant
price and volume fluctuations. Such fluctuations in the future
could result in volatility in the trading price of our common
stock.
Following
the distribution, substantial sales of our common stock could
cause our stock price to decline.
Sales of substantial amounts of our common stock (or shares
issuable upon exercise of options), or the perception that these
sales may occur, may cause the price of our common stock to
decline and impede our ability to raise capital through the
issuance of equity securities in the future. Based on the
distribution ratio and the number of shares of Cadbury Schweppes
common stock outstanding as of , we
expect that immediately following the distribution, there will
be approximately shares of
our common stock outstanding. All of these shares will be freely
transferable without restriction or further registration under
the Securities Act of 1933, as amended (the Securities
Act), subject to restrictions that may be applicable to
our affiliates, as that term is defined in
Rule 144 of the Securities Act.
23
Index funds tied to the Standard & Poors 500
Index and other indices that hold shares of Cadbury Schweppes
common stock likely will be required to sell their shares of our
common stock received in the distribution to the extent we are
not included in the index. In addition, a significant
percentage of the shareholders of Cadbury Schweppes are not
resident in the United States. Many of these shareholders may
sell their shares immediately following the distribution. The
sale of significant amounts of our common stock for the above or
other reasons, or the perception that such sales will occur, may
cause the price of our common stock to decline.
Provisions
in Delaware law and our certificate of incorporation and by-laws
could delay and discourage takeover attempts that stockholders
may consider favorable.
Certain provisions in Delaware law and our certificate of
incorporation and by-laws may make it more difficult for or
prevent a third party from acquiring control of us or changing
our board of directors. These provisions could have the effect
of depriving stockholders of an opportunity to sell their shares
at a premium over prevailing market prices, or could deter
potential acquirers or prevent the completion of a transaction
in which our stockholders could receive a substantial premium
over the then-current market price for their shares.
24
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This information statement 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
information statement. 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 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 asset impairments;
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need to service a significant amount of debt;
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completing our current organizational restructuring;
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risks relating to our separation from and relationship with
Cadbury Schweppes;
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25
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risks relating to our agreement to indemnify, and be indemnified
by, Cadbury plc for certain taxes; and
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other factors discussed under Risk Factors and
elsewhere in this information statement.
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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 information statement, 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 information statement. 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 information
statement in its entirety as it contains important information
about our business and the risks we face.
26
DIVIDEND
POLICY
Prior to the effectiveness of the registration statement of
which this information statement is a part, we intend to
determine and disclose a policy with respect to the payment of
any dividends to our stockholders.
27
CAPITALIZATION
The following table presents our capitalization and cash and
cash equivalents as of September 30, 2007:
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on an actual basis
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on a pro forma basis after giving effect to the adjustments
described in Unaudited Pro Forma Combined Financial
Data.
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The information below is not necessarily indicative of what our
capitalization and cash and cash equivalents would have been had
the separation, distribution and related financing transactions
been completed as of September 30, 2007. In addition, it is
not indicative of our future capitalization and cash and cash
equivalents, results of operations or financial condition. This
table should be read in conjunction with Unaudited Pro
Forma Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and our audited and unaudited combined
financial statements and the related notes thereto included
elsewhere in this information statement.
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September 30, 2007
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Historical
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Pro Forma
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(In millions)
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Cash and cash equivalents
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$
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34
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$
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Debt:
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Short-term debt:
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Debt payable to Cadbury Schweppes
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$
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218
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$
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Payable to Cadbury Schweppes
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509
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Debt payable to third parties
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40
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Long-term debt (excluding current maturities):
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Debt payable to Cadbury Schweppes
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2,946
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Debt payable to third parties
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23
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New financing arrangements
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Total debt
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3,736
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Total invested equity
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4,992
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Total capitalization
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$
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8,728
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$
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28
SELECTED
HISTORICAL COMBINED FINANCIAL DATA
The following table presents our selected historical combined
financial data. Our selected historical combined financial data
presented below as of December 31, 2006 and January 1,
2006 (the last day of fiscal 2005) and for the three fiscal
years 2006, 2005 and 2004 have been derived from our audited
combined financial statements, included elsewhere in this
information statement. Our selected historical combined balance
sheet data presented below as of January 2, 2005 (the last
day of fiscal 2004) have been derived from our historical
accounting records, which are unaudited. Our selected historical
combined financial data presented below as of September 30,
2007 and for each of the nine months September 30, 2007 and
2006 have been derived from our unaudited combined financial
statements included elsewhere in this information statement,
which have been prepared on a basis consistent with our annual
audited combined financial statements. In the opinion of our
management, such unaudited financial statements reflect all
adjustments, consisting only of normal and recurring
adjustments, necessary for the fair presentation of the
information set forth therein. The results for the interim
periods are not necessarily indicative of the results that may
be expected for any future period.
Our historical financial data 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 including
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes 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 presented. You should read this information
along with the information included in Unaudited Pro Forma
Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our audited and unaudited combined
financial statements and the related notes thereto included
elsewhere in this information statement.
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.
There are no adjustments reflected in the summary unaudited pro
forma financial data for these acquisitions.
Our financial data for the years ended December 31, 2003
and 2002 have been omitted from this information statement
because they are not available without unreasonable effort and
expense. We believe the omission of the financial data for the
years ended December 31, 2003 and 2002 does not have a
material impact on the understanding of our financial
performance and related trends.
29
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Nine Months Ended
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September 30,
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2006
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2005
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2004
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2007
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2006
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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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4,735
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$
|
3,205
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$
|
3,065
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|
|
$
|
4,347
|
|
|
$
|
3,380
|
|
Cost of sales
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
1,051
|
|
|
|
1,984
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
2,014
|
|
|
|
2,363
|
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
1,135
|
|
|
|
1,527
|
|
|
|
1,239
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
26
|
|
|
|
10
|
|
|
|
69
|
|
|
|
44
|
|
Restructuring costs
|
|
|
27
|
|
|
|
10
|
|
|
|
36
|
|
|
|
36
|
|
|
|
9
|
|
Gain on disposal of property and intangible assets
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,018
|
|
|
|
906
|
|
|
|
834
|
|
|
|
731
|
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
|
|
195
|
|
|
|
189
|
|
Interest income
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
|
|
(38
|
)
|
|
|
(35
|
)
|
Other expense (income)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
805
|
|
|
|
787
|
|
|
|
703
|
|
|
|
576
|
|
|
|
562
|
|
Provision for income taxes
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
218
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
507
|
|
|
|
466
|
|
|
|
433
|
|
|
|
358
|
|
|
|
356
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
3
|
|
|
|
21
|
|
|
|
13
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
510
|
|
|
|
487
|
|
|
|
446
|
|
|
|
359
|
|
|
|
359
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
$
|
359
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
19
|
|
|
$
|
34
|
|
|
|
|
|
Total assets
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
7,625
|
|
|
|
10,896
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
708
|
|
|
|
404
|
|
|
|
435
|
|
|
|
258
|
|
|
|
|
|
Long-term debt
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
3,468
|
|
|
|
2,969
|
|
|
|
|
|
Other non-current liabilities
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
943
|
|
|
|
1,381
|
|
|
|
|
|
Total invested equity
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
2,106
|
|
|
|
4,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
581
|
|
|
$
|
583
|
|
|
$
|
610
|
|
|
$
|
757
|
|
|
$
|
521
|
|
Investing activities
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
184
|
|
|
|
(1,450
|
)
|
|
|
(550
|
)
|
Financing activities
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
(799
|
)
|
|
|
691
|
|
|
|
81
|
|
Depreciation expense(1)
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
|
|
89
|
|
|
|
65
|
|
Amortization expense(1)
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
|
|
38
|
|
|
|
33
|
|
Capital expenditures
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
|
|
(123
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
$
|
861
|
|
|
$
|
817
|
|
30
|
|
|
(1)
|
|
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,
cost of sales and selling, general and
administrative expenses.
|
|
(2)
|
|
EBITDA is defined as net income before interest expense,
interest income, provision for income taxes, depreciation and
amortization. EBITDA is a measure commonly used by financial
analysts in evaluating a companys liquidity. Accordingly,
we believe that EBITDA may be useful for investors in assessing
our ability to meet our debt service requirements. EBITDA is not
a recognized measurement under U.S. GAAP. When evaluating
liquidity, investors should not consider EBITDA in isolation of,
or as a substitute for, measures of liquidity as determined in
accordance with U.S. GAAP, such as net income or net cash
provided by operating activities. EBITDA may have material
limitations as a liquidity measure because it excludes interest
expense, interest income, taxes and depreciation and
amortization. Other companies may calculate EBITDA differently,
and therefore our EBITDA may not be comparable to similarly
titled measures reported by other companies. A reconciliation of
EBITDA to net income is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2006
|
|
2005
|
|
2004
|
|
2007
|
|
2006
|
|
|
(In millions)
|
|
Net income
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
$
|
359
|
|
|
$
|
359
|
|
Interest expense
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
|
|
195
|
|
|
|
189
|
|
Interest income
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
|
|
(38
|
)
|
|
|
(35
|
)
|
Income taxes
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
218
|
|
|
|
206
|
|
Depreciation expense
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
|
|
89
|
|
|
|
65
|
|
Amortization expense
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
|
|
38
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
$
|
861
|
|
|
$
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
The following tables present our unaudited pro forma combined
financial data and reflects adjustments to our historical
combined financial statements to give effect to our separation
from Cadbury Schweppes, the distribution of our shares of common
stock and related financing transactions. The unaudited pro
forma combined balance sheet data as of September 30, 2007
has been prepared as though the separation, distribution and
related financing transactions occurred on September 30,
2007. The unaudited pro forma combined statement of operations
data for the year ended December 31, 2006 and the nine
months ended September 30, 2007 have been prepared as
though the separation, distribution and related financing
transactions occurred on January 2, 2006 (the first day of
fiscal 2006). The pro forma adjustments are based upon available
information and assumptions that we believe are reasonable.
Cadbury Schweppes currently provides certain corporate functions
to us and costs associated with these functions have been
allocated to us. These functions include 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 cost of these allocations from Cadbury
Schweppes was approximately $103 million in the nine months
ended September 30, 2007 and approximately
$124 million in 2006. As an independent publicly-traded
company, and effective as of our separation from Cadbury
Schweppes, we will assume responsibility for the costs for these
functions. We expect, subject to the finalization of our plans,
that our total annual costs for these functions, together with
other independent publicly-traded company costs not previously
paid by Cadbury Schweppes, will be in the range of
$ million to
$ million in 2008
(representing incremental expenses in the range of
$ million to
$ million). These incremental
anticipated costs are not reflected in our historical combined
financial statements or in our pro forma financial data
presented below. In addition, we may lose the benefits of
combined purchasing power with Cadbury Schweppes for some
supplies and services.
The unaudited pro forma combined financial data has been
adjusted to give effect to:
|
|
|
|
|
the contribution by Cadbury Schweppes of its Americas Beverages
business to us;
|
|
|
|
the distribution
of million
shares of our common stock to shareholders of Cadbury plc;
|
|
|
|
$ million of debt incurred
under new financing arrangements and the associated interest
expense and other financing costs; and
|
|
|
|
the repayment of $ million of
related party debt and $ million
of related party payables, in each case, owed by DPS to Cadbury
Schweppes.
|
These unaudited pro forma combined financial data are for
informational purposes only and are not necessarily indicative
of what our financial performance would have been had the
separation, distribution and related financing transactions been
completed on the dates assumed. They may not reflect the
financial performance that would have resulted had we been
operating as an independent, publicly-traded company during
those periods. In addition, they are not indicative of our
financial performance.
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 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. There are no adjustments
reflected in the summary unaudited pro forma financial data for
these acquisitions.
The following unaudited pro forma combined financial statements
should be read in conjunction with Selected Historical
Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our historical audited and unaudited
combined financial statements and the related notes thereto
included elsewhere in this information statement.
32
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Statement of Operations
For the
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions except per share amounts)
|
|
|
Net sales
|
|
$
|
4,735
|
|
|
$
|
|
|
|
$
|
|
|
Cost of sales
|
|
|
1,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,659
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Gain on disposal of property and intangible assets
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
257
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
805
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
507
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic(1)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Net income per share diluted(2)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
33
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Statement of Operations
For the
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions, except per share amounts)
|
|
|
Net sales
|
|
$
|
4,347
|
|
|
$
|
|
|
|
$
|
|
|
Cost of sales
|
|
|
1,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
195
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
576
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
358
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
359
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic(1)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Net income per share diluted(2)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
34
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Balance Sheet
As of
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34
|
|
|
$
|
|
|
|
$
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowance of $21)
|
|
|
609
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Related party receivable
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Note receivable from related party
|
|
|
1,931
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
352
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,118
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
795
|
|
|
|
|
|
|
|
|
|
Investment in unconsolidated subsidiaries
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
3,211
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
|
3,635
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
|
95
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,896
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Invested Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
763
|
|
|
$
|
|
|
|
$
|
|
|
Related party payable
|
|
|
509
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt payable to third party
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt payable to related parties
|
|
|
218
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,554
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to third party
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to related parties
|
|
|
2,946
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,904
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
4,964
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
4,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
10,896
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
35
Notes to
Unaudited Pro Forma Combined Financial Data
(1) The number of shares used to compute net income per
share basic is based on the number of shares of our
common stock assumed to be outstanding on the distribution date,
based on a distribution ratio
of shares
of our common stock for each Cadbury Schweppes ordinary share.
(2) The number of shares used to compute diluted earnings
per share is based on the number of shares of our common stock
assumed to be outstanding on the distribution date. Net income
per share diluted also reflects the potential
dilution that could occur if restricted stock units and options
granted under equity-based compensation arrangements were
exercised or converted into common stock.
36
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with
our audited and unaudited combined financial statements and
related notes and our unaudited pro forma combined financial
data included elsewhere in this information statement. 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
information statement.
The fiscal years presented in this section are the 52-week
period ended December 31, 2006, which we refer to as
2006, 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. The year end dates represent the Sunday
closest to December 31 of each year. Effective 2006, our fiscal
year ends on December 31 of each year. We refer to the
fiscal period from January 1, 2007 to September 30,
2007 as the nine months ended September 30,
2007, and from January 2, 2006 to September 30,
2006 as the nine months ended September 30,
2006. References in the financial tables to percentage
changes that are not meaningful are denoted by
NM.
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 non-CSDs,
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 non-CSD 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 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
2006, 88% of our net sales were generated in the United States,
4% in Canada and 8% in Mexico and the Caribbean.
Our
Business Model
We operate as a brand owner, a bottler and a distributor through
our five 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;
|
|
|
|
our Snapple Distributors segment is a 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 non-CSD finished
beverages. 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,
37
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 non-CSD finished beverages 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 CSD finished beverages
from concentrates and non-CSD finished beverages 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.
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 2006 Bottling Group net sales
of branded products come from our own brands, with the remaining
from the distribution of third-party brands such as Monster
energy drink, 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 2006 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.
|
|
|
|
|
|
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.
|
|
|
|
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.
|
38
|
|
|
|
|
Allows us to more fully leverage our scale and reduce costs by
creating greater geographic manufacturing and distribution
coverage.
|
Trends
Affecting our Business
According to Beverage Digest, in 2006, the U.S. CSD market
segment grew by 2.9% in retail sales, despite a 0.6% decline in
total CSD volume. The U.S. non-CSD volume and sales increased by
13.2% and 14.8%, respectively, in 2006. In addition, non-CSDs
experienced strong volume growth over the last five years with
their 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:
|
|
|
|
|
Increased health consciousness.
We believe the
main beneficiaries of this trend include diet drinks,
ready-to-drink teas, enhanced waters and bottled waters.
|
|
|
|
Changes in lifestyle.
We believe changes in
lifestyle will continue to drive increased sales of single-serve
beverages, which typically have higher margins.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
Recently, these costs on the whole have increased significantly
and this has exerted pressure on industry margins.
|
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.
Recent
Developments
Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization that is intended to create a more efficient
organization. This restructuring will result in a reduction of
approximately 470 employees in our corporate, sales and
supply chain functions and will include approximately 150
employees in Plano, Texas, 150 employees in Rye Brook, New York,
and 80 employees in Aspers, Pennsylvania. The remaining
reductions will occur at a number of sites located in the United
States, Canada and Mexico. The restructuring will also include
the closure of two manufacturing facilities in Waterloo, New
York and Denver, Colorado. The employee reductions and
facilities closures are expected to be completed by June 2008.
As a result of this restructuring, we expect to recognize a
charge of approximately $70 million primarily in 2007, with
the balance in 2008. We expect this restructuring to generate
annual cost savings of approximately $70 million, most of
which are expected to be realized in 2008 with the full annual
benefit realized from 2009 onwards. As part of this
restructuring, our Bottling Group segment has assumed management
and operational control of our Snapple Distributors segment.
These operations are currently being integrated and will be
reported in our 2007 annual results as a single segment.
39
Accelerade
Launch
We launched our new, ready-to-drink Accelerade sports drink in
the first half of 2007. The launch represented an introduction
of a new product into a new beverage category for us, and has
been supported by significant national product placement and
marketing investments, predominantly in the third quarter. Net
sales have been well below expectations despite these
investments. We incurred an operating loss of approximately
$40 million from the Accelerade launch in the nine months
ended September 30, 2007. Going forward, we intend to focus
on selling Accelerade to informed athletes, trainers and
exercisers, and targeting retailers that are frequented by these
consumers, such as health and nutrition outlets, where we expect
the product to be financially viable.
Glacéau
Termination
Following its acquisition by Coca-Cola, on August 30, 2007,
Energy Brands, Inc. notified us that it was terminating our
distribution agreements for glacéau products, including
vitaminwater, fruitwater and smartwater, effective
November 2, 2007. Pursuant to the terms of the agreement,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007. Our
glacéau net sales for the nine months ended
September 30, 2007 were approximately $200 million and
are reflected in our Bottling Group and Snapple Distributors
segments.
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 Schweppes
On March 15, 2007, Cadbury Schweppes announced that its
board of directors had approved a plan to separate its Americas
Beverages business from its global confectionery business and
its other beverages business (located principally in Australia).
The Americas Beverages business consists of Cadbury
Schweppes beverage business in the United States, Canada,
Mexico and the Caribbean. Upon separation, DPS will own the
Americas Beverages business currently owned by Cadbury Schweppes
and its subsidiaries, and shares of our common stock will be
distributed to holders of Cadbury Schweppes ordinary shares and
ADRs.
Our historical financial statements have been prepared on a
combined basis from Cadbury Schweppes consolidated
financial statements using the historical results of operations
and assets and liabilities attributed to Cadbury Schweppes
Americas Beverages business and including allocations of
expenses from Cadbury Schweppes. Our combined financial
statements are presented in U.S. dollars, and have been
prepared in accordance with U.S. GAAP. 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
40
our financial performance would have been had we been an
independent publicly-traded company during the periods presented.
Cadbury Schweppes currently provides certain corporate functions
to us and costs associated with these functions have been
allocated to us. These functions include 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
Schweppes was approximately $103 million in the nine months
ended September 30, 2007 and approximately
$124 million in 2006. As an independent publicly-traded
company, and effective as of our separation from Cadbury
Schweppes, we will assume responsibility for the costs for these
functions. We expect, subject to the finalization of our plans,
that our total annual costs for these functions, together with
other independent publicly-traded company costs not previously
paid by Cadbury Schweppes, will be in the range of
$ million to
$ million in 2008
(representing incremental expenses in the range of
$ million to
$ million). These incremental
anticipated costs are not reflected in our historical combined
financial statements or in our pro forma financial data. We may
also lose the benefit of combined purchasing power in the case
of some supplies and services. In addition to the foregoing
corporate allocations, Cadbury Schweppes made other allocations
to us totaling $10 million for the nine months ended
September 30, 2007 and $18 million for 2006. See
notes 1 and 14 to our unaudited combined financial
statements and notes 1 and 16 to our audited combined
financial statements for further information regarding expenses
historically allocated to us.
Segments
We currently operate in five segments.
|
|
|
|
|
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.
|
|
|
|
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
non-CSD 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 Snapple Distributors segment reflects sales from the
distribution of finished beverages, primarily Snapple, in New
York City and the surrounding regions.
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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.
|
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 30% of our Beverage
Concentrates segment annual net sales and therefore drive a
similar proportion of our Beverage Concentrates segment
profitability. In addition, our Snapple Distributors segment
purchases finished beverages from our Finished Goods segment.
These sales 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, Snapple
Distributors and Mexico and the Caribbean segments relate
primarily to those segments. However, as a result of our
historical segment reporting
41
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 key financial measures management uses to assess the
performance of our segments are net sales, gross contribution
before marketing (GCBM) and underlying operating
profit (UOP).
To reconcile total net sales of our segments to our total
company net sales, on a U.S. GAAP basis, adjustments are
required to eliminate any intersegment net sales not previously
eliminated at the segment level.
GCBM represents a measure of gross profit. To reconcile total
GCBM of our segments to our total company gross profit on a
U.S. GAAP basis, adjustments and eliminations are required.
Adjustments consist principally of: (1) revaluations of
inventory from the first in, first out
(FIFO) method to a last in, first out
(LIFO) inventory valuation method and
(2) mark-to-market adjustments on commodity contracts
related to our raw materials. Eliminations relate to the profit
attributable to unsold inventory from intersegment sales held at
the end from a period (profit in inventory). The
elimination reflects the change of the profit in inventory
during the period.
UOP represents a 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 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.
|
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 include aluminum, glass,
plastic 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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42
Packaging costs and ingredients costs represented
approximately % and %, respectively, of
our cost of sales in 2007. Our cost of aluminum increased
significantly beginning in January 2008 and is expected to
negatively impact cost of sales by approximately
$ million in 2008.
Selling,
General and Administrative Expenses
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 Schweppes (as
described under Our Separation from Cadbury
Schweppes).
|
We expect that our selling, general and administrative expenses
will increase in the range of
$ million to
$ million for incremental
corporate and other independent publicly-traded company costs
following our separation from Cadbury Schweppes. We also expect
our October 10, 2007 announced organizational restructuring
to result in annual selling, general and administrative expense
savings of approximately $70 million, most of which are
expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards.
Depreciation
and Amortization
Our depreciation expense includes depreciation of buildings,
machinery and equipment relating to our manufacturing,
distribution and office facilities as well as vending machines
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.
Interest
Expense
Historically, we have borrowed funds from subsidiaries of
Cadbury Schweppes. 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.
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 Schweppes, which are a result of
Cadbury Schweppes cash management practices.
43
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.
In connection with the separation, we will enter into a
tax-sharing and indemnification agreement with Cadbury
Schweppes. For a discussion of the tax-sharing and
indemnification agreement, see Our Relationship with
Cadbury plc after the Distribution.
Volume
In evaluating our performance, we consider different volume
measures depending on whether we sell beverage concentrates and
syrups or finished beverages.
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.
Significant
Items Affecting Comparability
The comparability of our period-to-period income from operations
is affected by significant acquisitions and disposals, most
notably our bottling acquisitions in May 2006, and the other
factors described in our period-to-period results of operations.
As a result, our financial data is not necessarily comparable on
a period-to-period basis. The table below sets forth certain
significant items affecting comparability of our
period-to-period income from operations.
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Nine Months Ended September 30,
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2006
|
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|
2005
|
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|
2004
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Restructuring costs
|
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$
|
27
|
|
|
$
|
10
|
|
|
$
|
36
|
|
|
$
|
36
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|
$
|
9
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|
Gain on disposal of assets
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|
(32
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)
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|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(32
|
)
|
44
Restructuring
Costs
In the nine months ended September 30, 2007, the $36 million in
expenses was primarily due to restructuring costs associated
with the integration of our Bottling Group. In the nine months
ended September 30, 2006, the $9 million in expenses
was primarily related to costs associated with the integration
of our Bottling Group 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 employees, and employee
relocations.
In 2006, the $27 million in expenses was primarily related to
integration costs associated with our bottling acquisitions,
similar to those discussed above, as well as outsourcing
initiatives related to our back office operations and a
reorganization of our information technology functions. The
outsourcing initiatives involved the transfer of certain back
office functions, such as accounts payable and travel and
entertainment management, to a third party provider. 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)
that occurred in 2004 and the further consolidation of our back
office operations. In 2004, the $36 million in expenses was
primarily related to restructuring of our four North American
businesses into a combined management reporting unit, the
creation of a back office operations service center and the
closure of our North Brunswick plant.
Gain on
Disposal of Assets
In 2006, we recognized a $32 million gain attributed to the
disposals of the Grandmas Molasses brand and Slush Puppie
business, which is also reflected in the nine months ended
September 30, 2006. In 2005, we recognized a
$36 million gain on the disposal of the Holland House
brand. In 2004, we recognized a $1 million gain attributed
to various asset disposals.
45
Results
of Operations for Nine Months Ended September 30, 2007
Compared with Nine Months Ended September 30,
2006
Combined
Operations
The following table sets forth our combined results of
operations for the nine months ended September 30, 2007 and
2006.
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Nine Months Ended September 30,
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Dollar Amount
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|
Percentage
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|
2007
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|
2006
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|
Change
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|
Change
|
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|
(In millions, except % data)
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|
Net sales
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|
$
|
4,347
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|
$
|
3,380
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|
|
$
|
967
|
|
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|
28.6
|
%
|
Cost of sales
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|
|
1,984
|
|
|
|
1,399
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|
|
|
585
|
|
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|
41.8
|
%
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|
|
|
|
|
|
|
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|
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|
|
|
|
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|
Gross profit
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|
2,363
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|
|
|
1,981
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|
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|
382
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|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Selling, general and administrative expenses
|
|
|
1,527
|
|
|
|
1,239
|
|
|
|
288
|
|
|
|
23.2
|
%
|
Depreciation and amortization
|
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|
69
|
|
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|
44
|
|
|
|
25
|
|
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|
56.8
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%
|
Restructuring costs
|
|
|
36
|
|
|
|
9
|
|
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|
27
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|
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|
NM
|
|
Gain on disposal of property and intangible assets
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|
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|
(32
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)
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|
32
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|
|
|
NM
|
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|
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|
|
|
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|
Income from operations
|
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|
731
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|
|
|
721
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|
|
|
10
|
|
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|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
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|
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|
Interest expense
|
|
|
195
|
|
|
|
189
|
|
|
|
6
|
|
|
|
3.2
|
%
|
Interest income
|
|
|
(38
|
)
|
|
|
(35
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)
|
|
|
(3
|
)
|
|
|
(8.6
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)%
|
Other expense (income)
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|
|
(2
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)
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|
|
5
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|
|
(7
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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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|
|
576
|
|
|
|
562
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|
|
|
14
|
|
|
|
2.5
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%
|
Provision for income taxes
|
|
|
218
|
|
|
|
206
|
|
|
|
12
|
|
|
|
5.8
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%
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Income before equity in earnings of unconsolidated subsidiaries
|
|
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358
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|
|
|
356
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|
|
|
2
|
|
|
|
0.6
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%
|
Equity in earnings of unconsolidated subsidiaries, net of tax
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|
1
|
|
|
|
3
|
|
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|
(2
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)
|
|
|
(66.7
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)%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net income
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|
$
|
359
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|
|
$
|
359
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|
|
$
|
|
|
|
|
|
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Net Sales.
The $967 million increase was
primarily due to the inclusion of our bottling acquisitions,
which contributed an additional $908 million. Higher
pricing and improved sales mix in all remaining segments
increased net sales by 2% despite lower volumes. Excluding the
impact of our bottling acquisitions, volumes were down 2%, 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 $382 million increase was
primarily due to the inclusion of our bottling acquisitions,
which contributed an additional $353 million. 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 the nine months ended September 30,
2007 and 59% in the nine months ended September 30, 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 nine months in 2007 as compared
to partial periods in 2006.
Selling, General and Administrative
Expenses.
The $288 million increase was
primarily due to the inclusion of our bottling acquisitions,
which resulted in an additional $294 million of expenses in
the Bottling Group segment. The expenses for all other segments
decreased, primarily reflecting a reduction in annual management
incentive plan accruals which more than offset the impact of
inflation (particularly in wages and benefits). Marketing was up
slightly as increases in the Finished Goods segment to support
new product launches were offset by a reduction in the Beverage
Concentrates segment.
46
Depreciation and Amortization.
The
$25 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.
Restructuring Costs.
The $36 million
expense in the nine months ended September 30, 2007 was
primarily due to restructuring costs associated with the
Bottling Group integration. The $9 million expense in the
nine months ended September 30, 2006 was also 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 employees, and employee relocations.
Gain on Disposal of Property and Intangible
Assets.
In the nine months ended
September 30, 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 $10 million
increase was due to higher net sales in 2007 and the impact of
the bottling acquisitions, partially offset by $27 million of
higher restructuring costs in 2007 and the $32 million gain
on disposals in 2006.
Interest Expense.
The $6 million increase
was primarily due to the increase in related party debt in
connection with our bottling acquisitions.
Interest Income.
The $3 million decrease
was due to fluctuations in related party note receivable
balances with subsidiaries of Cadbury Schweppes.
Provision for Income Taxes.
The effective tax
rates for the nine months ended September 30, 2007 and the
nine months ended September 30, 2006 were 37.8% and 36.9%,
respectively. The increase in the effective rate for the nine
months ended September 30, 2007 was due to the impact of a
favorable reversal in 2006 of previously accrued income tax
reserves for various income tax uncertainties.
Results
of Operations by Segment for Nine Months Ended
September 30, 2007 Compared with Nine Months Ended
September 30, 2006
We operate our business in five segments: Beverage Concentrates,
Finished Goods, Bottling Group, Snapple Distributors and Mexico
and the Caribbean. The key financial measures management uses to
assess the performance of our segments are net sales, GCBM and
UOP.
The following tables set forth net sales, GCBM and UOP for our
segments for the nine months ended September 30, 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.
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|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Dollar Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Operating Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,004
|
|
|
$
|
980
|
|
|
$
|
24
|
|
|
|
2.4
|
%
|
Finished Goods
|
|
|
1,036
|
|
|
|
1,014
|
|
|
|
22
|
|
|
|
2.2
|
%
|
Bottling Group
|
|
|
2,160
|
|
|
|
1,081
|
|
|
|
1,079
|
|
|
|
99.8
|
%
|
Snapple Distributors
|
|
|
194
|
|
|
|
205
|
|
|
|
(11
|
)
|
|
|
(5.4
|
)%
|
Mexico and the Caribbean
|
|
|
313
|
|
|
|
302
|
|
|
|
11
|
|
|
|
3.6
|
%
|
Adjustments and Eliminations(1)
|
|
|
(360
|
)
|
|
|
(202
|
)
|
|
|
(158
|
)
|
|
|
78.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,347
|
|
|
$
|
3,380
|
|
|
$
|
967
|
|
|
|
28.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
(1)
|
|
Consists principally of eliminations of net sales made by our
Beverage Concentrates and Finished Goods segments to our
Bottling Group segment, which totaled $362 million in the
nine months ended September 30, 2007 and $199 million
in the nine months ended September 30, 2006. The increase
in these eliminations was due principally to the inclusion of
our 2006 bottling acquisitions for the full nine months ended
September 30, 2007 as compared to the inclusion of our 2006
bottling acquisitions for partial periods in the nine months
ended September 30, 2006. Adjustments in these periods were
not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Dollar Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Gross contribution before marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
909
|
|
|
$
|
886
|
|
|
$
|
23
|
|
|
|
2.6
|
%
|
Finished Goods
|
|
|
536
|
|
|
|
518
|
|
|
|
18
|
|
|
|
3.5
|
%
|
Bottling Group
|
|
|
723
|
|
|
|
383
|
|
|
|
340
|
|
|
|
88.8
|
%
|
Snapple Distributors
|
|
|
33
|
|
|
|
40
|
|
|
|
(7
|
)
|
|
|
(17.5
|
)%
|
Mexico and the Caribbean
|
|
|
174
|
|
|
|
173
|
|
|
|
1
|
|
|
|
0.6
|
%
|
Adjustments and eliminations(1)
|
|
|
(12
|
)
|
|
|
(19
|
)
|
|
|
7
|
|
|
|
(36.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as reported
|
|
$
|
2,363
|
|
|
$
|
1,981
|
|
|
$
|
382
|
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Eliminations consist principally of eliminations of intersegment
profit in inventory. These eliminations totaled $5 million
in the nine months ended September 30, 2007 and
$10 million in the nine months ended September 30,
2006. Adjustments consist principally of LIFO inventory
revaluation and mark-to-market charges for commodity contracts
related to our raw materials.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
Dollar Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Underlying operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
541
|
|
|
$
|
511
|
|
|
$
|
30
|
|
|
|
5.9
|
%
|
Finished Goods
|
|
|
116
|
|
|
|
121
|
|
|
|
(5
|
)
|
|
|
(4.1
|
)%
|
Bottling Group
|
|
|
69
|
|
|
|
67
|
|
|
|
2
|
|
|
|
3.0
|
%
|
Snapple Distributors
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Mexico and the Caribbean
|
|
|
75
|
|
|
|
72
|
|
|
|
3
|
|
|
|
4.2
|
%
|
Corporate and other(1)
|
|
|
(34
|
)
|
|
|
(15
|
)
|
|
|
(19
|
)
|
|
|
126.7
|
%
|
Adjustments and eliminations(2)
|
|
|
(225
|
)
|
|
|
(228
|
)
|
|
|
3
|
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries as reported
|
|
$
|
576
|
|
|
$
|
562
|
|
|
$
|
14
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
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
the nine months ended September 30, 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.
|
|
(2)
|
|
For the nine months ended September 30, 2007, adjustments
consist principally of net interest expense of
$157 million, restructuring costs of $36 million and
depreciation and amortization of $69 million. For the nine
months ended September 30, 2006, adjustments consist
principally of net interest expense of $154 million,
restructuring costs of $9 million and depreciation and
amortization costs of $44 million. These 2006 adjustments
were partially offset by the $32 million gain on disposal
of the Grandmas Molasses brand
|
48
|
|
|
|
|
and Slush Puppie business. Eliminations in these periods were
not material. Information on restructuring charges by segment is
available in note 10 to our unaudited combined financial
statements.
|
The following is a discussion of the results of each of our
segments.
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Dollar Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,004
|
|
|
$
|
980
|
|
|
$
|
24
|
|
|
|
2.4
|
%
|
Gross contribution before marketing
|
|
$
|
909
|
|
|
$
|
886
|
|
|
$
|
23
|
|
|
|
2.6
|
%
|
Underlying operating profit
|
|
$
|
541
|
|
|
$
|
511
|
|
|
$
|
30
|
|
|
|
5.9
|
%
|
The $24 million net sales increase was due primarily to
price increases, which more than offset the impact of a 1.8%
volume decline. The volume decline was due primarily to a 4.4%
decline in Dr Pepper partially offset by single digit percentage
increases in Sunkist 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 (base Dr Pepper volumes) declined 0.5%.
For the nine months ended September 30, 2006, net
sales included $8 million for the Slush Puppie business,
which was disposed in May 2006.
The $23 million GCBM increase was due to the net sales
growth, partially offset by higher cost of sales from increased
sweeteners and flavors costs.
The $30 million UOP increase was primarily due to the
higher GCBM and lower marketing investments (particularly
advertising costs) which were partially offset by increased
selling, general and administrative expenses. 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. The lower marketing
investments were primarily a result of a shift in marketing to
support new product initiatives in our Finished Goods segment,
offset by a revision effective January 1, 2007 in our
internal management reporting for marketing which resulted in
higher marketing expenses in the first nine months of 2007 as
compared to the first nine months of 2006. The impact of higher
marketing in the first nine months of 2007 will reverse itself
in the last three months of 2007. This revision only impacts the
results of our Beverage Concentrates segment and has no impact
on our combined results of operations.
Bottler case sales declined 2.1% in the nine months ended
September 30, 2007 due primarily to a 3.4% decline in
Dr Pepper, and a single and double digit percentage decline
in 7UP and Diet Rite, respectively. The Dr Pepper decline was
driven by 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 were equal to the prior period. The 7UP decline reflects
the discontinuance of 7UP Plus, partially offset by the growth
of base 7UP. This growth was driven by the launch of 7UP with
natural flavors and the reformulation of Diet 7UP. The Diet Rite
decline was due to the shift of marketing investment from Diet
Rite to other diet brands, such as Diet 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.
49
Finished
Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
Dollar Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,036
|
|
|
$
|
1,014
|
|
|
$
|
22
|
|
|
|
2.2
|
%
|
Gross contribution before marketing
|
|
$
|
536
|
|
|
$
|
518
|
|
|
$
|
18
|
|
|
|
3.5
|
%
|
Underlying operating profit
|
|
$
|
116
|
|
|
$
|
121
|
|
|
$
|
(5
|
)
|
|
|
(4.1
|
)%
|
The $22 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
3.3% 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 super premium teas and 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 $18 million GCBM increase was primarily due to net
sales growth and the elimination of co-packing fees previously
charged by the Bottling Group segment, which was partially
offset by higher costs for glass, HFCS, apple juice concentrate
and inventory write-offs related to Accelerade.
The $5 million UOP decrease was primarily due to new
product launch expenses associated with Accelerade. For the nine
months ended September 30, 2007, we incurred
$36 million in costs to support the launch of our
Accelerade product into the sports drink category, in which we
did not have an existing product. The launch has been supported
by significant product placement and marketing investments. In
the nine months ended September 30, 2007, we had no net
sales for this product as gross sales were more than offset by
product placement fees. UOP was also impacted by
$10 million of costs for the launch of Motts line
extensions and the launch of Peñafiel in the
United States, which was partially offset by lower selling,
general and administrative costs due to the transfer of sales
personnel from this segment to the Beverages Concentrates
segment in connection with a sales reorganization.
Bottling
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
Dollar
|
|
|
|
|
Ended September 30,
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
2,160
|
|
|
$
|
1,081
|
|
|
$
|
1,079
|
|
|
|
99.8
|
%
|
Gross contribution before marketing
|
|
$
|
723
|
|
|
$
|
383
|
|
|
$
|
340
|
|
|
|
88.8
|
%
|
Underlying operating profit
|
|
$
|
69
|
|
|
$
|
67
|
|
|
$
|
2
|
|
|
|
3.0
|
%
|
The results of operations for the nine months ended
September 30, 2006 only include five months of results from
DPSUBG (acquired in May 2006), approximately four months of
results from All American Bottling Corp. (acquired in June
2006), and four weeks of results from Seven Up Bottling Company
of San Francisco (acquired in August 2006), as compared to the
nine months ended September 30, 2007 which includes a full
nine months of results of operations for these businesses and
approximately three months of results from SeaBev (acquired in
July 2007).
The $1,079 million net sales increase was primarily due to
the bottling acquisitions described above, the transfer of the
west coast division of the Snapple Distributors segment into the
Bottling Group segment as of January 1, 2007, price increases
and a favorable sales mix of higher priced non-CSDs. The west
coast division of the Snapple Distributors segment had net sales
of $38 million in the nine months ended September 30,
2006.
The $340 million GCBM increase was due to the net sales
increase partially offset by higher cost of sales. GCBM as a
percentage of sales declined from 35.4% in the nine months ended
September 30, 2006 compared to 33.5% in the nine months
ended September 30, 2007, due mainly to higher HFCS costs.
50
UOP was $69 million in the nine months ended
September 30, 2007 compared to $67 million in the
five months after our 2006 bottling acquisitions. Bottling
Groups profitability is higher in the second and third
quarters compared to the first quarter as volumes increase
during the spring and summer months. Accordingly, the five month
post-acquisition results in 2006 relate to May through September
which were higher volume periods compared to the first quarter,
while the 2007 nine month results reflect first, second and
third quarters sales. In addition, 2007 results were impacted by
the elimination of co-packing fees previously earned on
manufacturing for the Finished Goods segment, an increase in
post-acquisition employee benefits costs and incremental bad
debt expense.
Snapple
Distributors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Dollar
|
|
|
|
|
September 30,
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
194
|
|
|
$
|
205
|
|
|
$
|
(11
|
)
|
|
|
(5.4
|
)%
|
Gross contribution before marketing
|
|
$
|
33
|
|
|
$
|
40
|
|
|
$
|
(7
|
)
|
|
|
(17.5
|
)%
|
Underlying operating profit
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
|
|
|
|
|
|
The $11 million net sales decrease primarily reflects a $21
million increase attributable to the acquisition of certain
distribution rights for Snapple in June 2006 and $6 million
from increased sales into retail channels, offset by the
transfer of the west coast division of the Snapple Distributors
segment into the Bottling Group segment as of January 1,
2007. The west coast division of the Snapple Distributors
segment had net sales of $38 million in the nine months
ended September 30, 2006.
The $7 million GCBM decrease primarily reflects a $5
million net decrease due to the transfer of the west coast
division of the Snapple Distributors segment into the Bottling
Group segment and the acquisition of distribution rights, and a
further $2 million decrease due primarily to higher cost of
sales for purchased products and a shift in mix to lower margin
sales channels.
UOP was flat compared to the prior year reflecting the transfer
of the west coast division of the Snapple Distributors segment
into the Bottling Group segment, a $6 million profit increase
due to acquisition of distribution rights, as well as a $4
million profit decrease due to higher cost of sales and trade
spend.
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Dollar Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
313
|
|
|
$
|
302
|
|
|
$
|
11
|
|
|
|
3.6
|
%
|
Gross contribution before marketing
|
|
$
|
174
|
|
|
$
|
173
|
|
|
$
|
1
|
|
|
|
0.6
|
%
|
Underlying operating profit
|
|
$
|
75
|
|
|
$
|
72
|
|
|
$
|
3
|
|
|
|
4.2
|
%
|
The $11 million net sales increase was due to volume growth
of 2.4% and increased pricing, partially offset by unfavorable
currency translation. The volume growth was due to the strong
performance of Aguafiel, Peñafiel Mineral Water and Clamato
brands which offset a decline in Peñafiel Flavors and
Squirt. Foreign currency translation negatively impacted net
sales by $5 million.
The $1 million GCBM increase was due to higher net sales,
which was mostly offset by increased HFCS costs. Foreign
currency translation negatively impacted GCBM by $3 million.
The $3 million UOP increase was due primarily to the
increased net sales and lower marketing expenses.
51
Results
of Operations for 2006 Compared to 2005
Combined
Operations
The following table sets forth our combined results of
operations for 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Net sales
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
1,530
|
|
|
|
47.7
|
%
|
Cost of sales
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
874
|
|
|
|
78.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
656
|
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
480
|
|
|
|
40.7
|
%
|
Depreciation and amortization
|
|
|
69
|
|
|
|
26
|
|
|
|
43
|
|
|
|
165.4
|
%
|
Restructuring costs
|
|
|
27
|
|
|
|
10
|
|
|
|
17
|
|
|
|
NM
|
|
Gain on disposal of property and intangible assets
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
4
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,018
|
|
|
|
906
|
|
|
|
112
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
257
|
|
|
|
210
|
|
|
|
47
|
|
|
|
22.4
|
%
|
Interest income
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(6
|
)
|
|
|
(15.0
|
)%
|
Other expense (income)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
53
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
805
|
|
|
|
787
|
|
|
|
18
|
|
|
|
2.3
|
%
|
Provision for income taxes
|
|
|
298
|
|
|
|
321
|
|
|
|
(23
|
)
|
|
|
(7.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
507
|
|
|
|
466
|
|
|
|
41
|
|
|
|
8.8
|
%
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
3
|
|
|
|
21
|
|
|
|
(18
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
510
|
|
|
|
487
|
|
|
|
23
|
|
|
|
4.7
|
%
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
33
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales.
The $1,530 million increase
was primarily due to the inclusion of our bottling acquisitions,
which contributed an additional $1,432 million. The
remaining $98 million increase was due primarily to higher
pricing, improved sales mix and favorable foreign currency
translation. Volumes declined 1.3% reflecting the impact of
higher pricing in the Finished Goods and Snapple Distributors
segments 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 the inclusion of our bottling acquisitions
in our Bottling Group segment, which contributed an additional
$566 million. The remaining $90 million increase was
primarily due to net sales growth, partially offset by higher
raw material costs, including plastic, 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 the inclusion of our bottling acquisitions,
which contributed an additional $478 million of expenses.
The remaining $2 million
52
increase was due to higher transportation costs driven by fuel
and general inflation for wages and benefits, mostly offset by
lower marketing investments as well as reduced stock option and
pension expenses.
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 Schweppes.
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.
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 favorable reversal of previously accrued income
tax for various income tax uncertainties, 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, Net of
Tax.
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.
53
Results
of Operations by Segment for 2006 Compared to 2005
The following tables set forth net sales, GCBM 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Operating Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
|
|
|
|
$
|
26
|
|
|
|
2.0
|
%
|
Finished Goods
|
|
|
1,337
|
|
|
|
1,342
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(0.4
|
)%
|
Bottling Group
|
|
|
1,701
|
|
|
|
|
|
|
|
|
|
|
|
1,701
|
|
|
|
|
|
Snapple Distributors
|
|
|
271
|
|
|
|
241
|
|
|
|
|
|
|
|
30
|
|
|
|
12.5
|
%
|
Mexico and the Caribbean
|
|
|
408
|
|
|
|
354
|
|
|
|
|
|
|
|
54
|
|
|
|
15.3
|
%
|
Adjustments and eliminations(1)
|
|
|
(312
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
(276
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
$
|
1,530
|
|
|
|
47.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists principally of eliminations of net sales made by our
Beverage Concentrates and Finished Goods segments to our
Bottling Group segment in 2006 and in 2005 to DPSUBG, which was
an unconsolidated subsidiary prior to our increase in ownership
to 100%. These eliminations totaled $310 million in 2006
and $41 million in 2005. The increase in these eliminations
was due primarily to the inclusion of our bottling acquisitions
in 2006. Adjustments in these periods were not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Gross contribution before marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,206
|
|
|
$
|
1,169
|
|
|
|
|
|
|
$
|
37
|
|
|
|
3.2
|
%
|
Finished Goods
|
|
|
686
|
|
|
|
674
|
|
|
|
|
|
|
|
12
|
|
|
|
1.8
|
%
|
Bottling Group
|
|
|
590
|
|
|
|
|
|
|
|
|
|
|
|
590
|
|
|
|
|
|
Snapple Distributors
|
|
|
53
|
|
|
|
52
|
|
|
|
|
|
|
|
1
|
|
|
|
1.9
|
%
|
Mexico and the Caribbean
|
|
|
234
|
|
|
|
208
|
|
|
|
|
|
|
|
26
|
|
|
|
12.5
|
%
|
Adjustments and eliminations(1)
|
|
|
(28
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as reported
|
|
$
|
2,741
|
|
|
$
|
2,085
|
|
|
|
|
|
|
$
|
656
|
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Eliminations consist principally of eliminations of intersegment
profit in inventory. These eliminations totaled $19 million
in 2006 and $11 million in 2005. Adjustments consist
primarily of LIFO inventory revaluation, DPSUBG purchase
accounting inventory adjustments and foreign currency
translation.
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
710
|
|
|
$
|
657
|
|
|
|
|
|
|
$
|
53
|
|
|
|
8.1
|
%
|
Finished Goods
|
|
|
172
|
|
|
|
165
|
|
|
|
|
|
|
|
7
|
|
|
|
4.2
|
%
|
Bottling Group
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
Snapple Distributors
|
|
|
46
|
|
|
|
44
|
|
|
|
|
|
|
|
2
|
|
|
|
4.5
|
%
|
Mexico and the Caribbean
|
|
|
102
|
|
|
|
96
|
|
|
|
|
|
|
|
6
|
|
|
|
6.3
|
%
|
Corporate and other(1)
|
|
|
(14
|
)
|
|
|
11
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
NM
|
|
Adjustments and eliminations(2)
|
|
|
(295
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
(109
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy as reported
|
|
$
|
805
|
|
|
$
|
787
|
|
|
|
|
|
|
$
|
18
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
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 for 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.
|
|
(2)
|
|
For 2006, adjustments consist principally of net interest
expense of $211 million, restructuring costs of
$27 million and depreciation and amortization of
$69 million. These adjustments were partially offset by the
$32 million gain on disposal of the Grandmas Molasses
brand and Slush Puppie business. For 2005, adjustments consist
principally of net interest expense of $170 million,
restructuring costs of $10 million and depreciation and
amortization of $26 million. These adjustments were
partially offset by the $36 million gain on the disposal of
the Holland House brand and foreign currency translation.
Eliminations in these periods were not material. Information on
restructuring charges by segment is available in note 12
and information on depreciation and amortization is provided in
note 15, in each case to our audited combined financial
statements.
|
The following is a discussion of the results of each of our
segments.
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
$
|
26
|
|
|
|
2.0
|
%
|
Gross contribution before marketing
|
|
$
|
1,206
|
|
|
$
|
1,169
|
|
|
$
|
37
|
|
|
|
3.2
|
%
|
Underlying operating profit
|
|
$
|
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 $37 million GCBM increase was primarily due to the net
sales growth and lower cost of sales 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 $53 million UOP growth was due to the increase in GCBM,
and a reduction in marketing investments, primarily advertising
costs. The GCBM increase was partially offset by higher selling,
general and administrative expenses relating mainly to an
increase in corporate costs following our bottling acquisitions.
55
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,337
|
|
|
$
|
1,342
|
|
|
$
|
(5
|
)
|
|
|
(0.4
|
)%
|
Gross contribution before marketing
|
|
$
|
686
|
|
|
$
|
674
|
|
|
$
|
12
|
|
|
|
1.8
|
%
|
Underlying operating profit
|
|
$
|
172
|
|
|
$
|
165
|
|
|
$
|
7
|
|
|
|
4.2
|
%
|
The $5 million net sales decrease was primarily due to
volume declines of 3.0%, which were partially offset by price
increases. Volume declines in Snapple and Yoo-Hoo more than
offset an increase in Hawaiian Punch. The impact of the price
increases were partially offset by an unfavorable sales mix.
The $12 million GCBM increase was primarily due to reduced
cost of sales. These cost of sales reductions, driven by supply
chain initiatives, include 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, plastic and glass.
The $7 million UOP increase was due to the increase in
GCBM, partially offset by higher marketing costs mainly
associated with the launch of Snapple super premium teas.
Bottling
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,701
|
|
|
|
|
|
|
$
|
1,701
|
|
|
|
|
|
Gross contribution before marketing
|
|
$
|
590
|
|
|
|
|
|
|
$
|
590
|
|
|
|
|
|
Underlying operating profit
|
|
$
|
84
|
|
|
|
|
|
|
$
|
84
|
|
|
|
|
|
Bottling Group was not a reportable segment prior to our
bottling acquisitions in 2006, and therefore we have not
presented any Bottling Group segment results of operations for
2005.
UOP from May to December 2006 was $84 million on
$590 million of GCBM and $1,701 million of net sales.
UOP included $2 million of income from payments with
respect to termination of brand distribution rights.
Snapple
Distributors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
271
|
|
|
$
|
241
|
|
|
$
|
30
|
|
|
|
12.5
|
%
|
Gross contribution before marketing
|
|
$
|
53
|
|
|
$
|
52
|
|
|
$
|
1
|
|
|
|
1.9
|
%
|
Underlying operating profit
|
|
$
|
46
|
|
|
$
|
44
|
|
|
$
|
2
|
|
|
|
4.6
|
%
|
56
The net sales increase of $30 million primarily reflects a $21
million increase attributable to the acquisition of certain
distribution rights for Snapple in June 2006. In addition, net
sales increased due to volume increases of 0.4% and price
increases.
The $1 million GCBM increase was due to higher net sales,
almost completely offset by higher cost of sales from purchased
finished beverages.
The $2 million UOP increase was due to the reasons
described above.
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
408
|
|
|
$
|
354
|
|
|
$
|
54
|
|
|
|
15.3
|
%
|
Gross contribution before marketing
|
|
$
|
234
|
|
|
$
|
208
|
|
|
$
|
26
|
|
|
|
12.5
|
%
|
Underlying operating profit
|
|
$
|
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 $26 million GCBM increase was primarily due to the net
sales growth, partially offset by increases in HFCS and plastic
costs. Foreign currency translation negatively impacted cost of
sales by $6 million.
The $6 million UOP increase was due to the higher GCBM,
partially offset by higher transportation and distribution
costs, increased selling, general and administrative expenses,
and unfavorable foreign currency translation.
57
Results
of Operations for 2005 Compared to 2004
The following table set forth our combined results of operations
for 2005 and 2004.
Combined
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Net sales
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
|
$
|
140
|
|
|
|
4.6
|
%
|
Cost of sales
|
|
|
1,120
|
|
|
|
1,051
|
|
|
|
69
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,085
|
|
|
|
2,014
|
|
|
|
71
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,179
|
|
|
|
1,135
|
|
|
|
44
|
|
|
|
3.9
|
%
|
Depreciation and amortization
|
|
|
26
|
|
|
|
10
|
|
|
|
16
|
|
|
|
NM
|
|
Restructuring costs
|
|
|
10
|
|
|
|
36
|
|
|
|
(26
|
)
|
|
|
NM
|
|
Gain on disposal of property and intangible assets
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
(35
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
906
|
|
|
|
834
|
|
|
|
72
|
|
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
210
|
|
|
|
177
|
|
|
|
33
|
|
|
|
18.6
|
%
|
Interest income
|
|
|
(40
|
)
|
|
|
(48
|
)
|
|
|
8
|
|
|
|
16.7
|
%
|
Other expense (income)
|
|
|
(51
|
)
|
|
|
2
|
|
|
|
(53
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
787
|
|
|
|
703
|
|
|
|
84
|
|
|
|
11.9
|
%
|
Provision for income taxes
|
|
|
321
|
|
|
|
270
|
|
|
|
51
|
|
|
|
18.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
466
|
|
|
|
433
|
|
|
|
33
|
|
|
|
7.6
|
%
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
21
|
|
|
|
13
|
|
|
|
8
|
|
|
|
61.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principal
|
|
|
487
|
|
|
|
446
|
|
|
|
41
|
|
|
|
9.2
|
%
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
477
|
|
|
$
|
446
|
|
|
$
|
31
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales.
The $140 million increase was
driven by volume growth primarily due to the national
introduction of Dr Pepper Soda Fountain Classics
line extensions in the Beverage Concentrates segment as well as
Motts and Hawaiian Punch due to increased promotional
activity in the Finished Goods segment. In our Mexico and the
Caribbean segment, volume and net sales grew primarily through
expanded distribution and successful product innovation. Net
sales in 2004 benefited by approximately $30 million due to
the inclusion of a
53
rd
week.
Gross Profit.
The $71 million increase
reflected the increase in net sales offset by higher cost of
sales due primarily to an increase in volume as well as
increased costs of raw materials, particularly glass.
Gross margin was 65% in 2005 and 66% in 2004. The slight
decrease in gross margin primarily reflects the impact of
increased commodity costs in 2005.
Selling, General and Administrative
Expenses.
The $44 million increase was
primarily due to higher transportation costs from increased
volume in the Finished Goods segment and increased fuel costs,
as well as higher stock option and pension expenses.
58
Depreciation and Amortization.
The
$16 million decrease was primarily due to lower
depreciation following the retirement of certain information
systems in 2004.
Restructuring Costs.
In 2005, the
$10 million expense was primarily related to continuing
costs from the restructuring of our four North American
businesses that occurred in 2004 and the further consolidation
of our back office functions. In 2004, the $36 million
expense was primarily related to restructuring of our four North
American businesses into a combined management reporting unit,
the creation of a back office operations service center which
replaced multiple operations, and the closure of our North
Brunswick plant.
Gain on Disposal of Property and Intangible
Assets.
In 2005, we recognized a $36 million
gain on the disposal of the Holland House brand. In 2004, we
recognized a $1 million gain attributed to various asset
disposals.
Income from Operations.
The $72 million
increase was primarily due to strong performances from our
Beverage Concentrates, Finished Goods, and Mexico and the
Caribbean segments, the gain from a brand disposal, and lower
restructuring costs.
Interest Expense.
The $33 million
increase was primarily due to higher interest rates on our
variable rate related party debt.
Interest Income.
The $8 million decrease
was primarily due to fluctuations in related party note
receivable balances with subsidiaries of Cadbury Schweppes.
Other expense (income).
The $53 million
increase 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.
Income Taxes.
Our effective tax rate was 39.7%
and 37.7% for 2005 and 2004, respectively. The higher effective
rate in 2005 was due to 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, Net of
Tax.
The $8 million increase in earnings of
unconsolidated subsidiaries was due primarily to our share of
higher earnings from DPSUBG.
Cumulative Effect of Change in Accounting Policy, Net of
Tax.
In 2005, we adopted
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 2005 Compared to 2004
The following tables set forth net sales, GCBM and UOP for our
segments for 2005 and 2004, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Operating Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,304
|
|
|
$
|
1,238
|
|
|
$
|
66
|
|
|
|
5.3
|
%
|
Finished Goods
|
|
|
1,342
|
|
|
|
1,287
|
|
|
|
55
|
|
|
|
4.3
|
%
|
Bottling Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
241
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
Mexico and the Caribbean
|
|
|
354
|
|
|
|
310
|
|
|
|
44
|
|
|
|
14.2
|
%
|
Adjustments and eliminations(1)
|
|
|
(36
|
)
|
|
|
(11
|
)
|
|
|
(25
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
|
$
|
140
|
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
(1)
|
|
Consists principally of eliminations of net sales made by our
Beverage Concentrates and Finished Goods segments to DPSUBG,
which was an unconsolidated subsidiary prior to our increase in
ownership to 100% in 2006. These eliminations totaled
$41 million in 2005 and $20 million in 2004.
Adjustments in these periods were due to the impact of foreign
currency translation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Gross contribution before marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,169
|
|
|
$
|
1,117
|
|
|
$
|
52
|
|
|
|
4.7
|
%
|
Finished Goods
|
|
|
674
|
|
|
|
665
|
|
|
|
9
|
|
|
|
1.4
|
%
|
Bottling Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
52
|
|
|
|
54
|
|
|
|
(2
|
)
|
|
|
(3.7
|
)%
|
Mexico and the Caribbean
|
|
|
208
|
|
|
|
184
|
|
|
|
24
|
|
|
|
13.0
|
%
|
Adjustments and eliminations(1)
|
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as reported
|
|
$
|
2,085
|
|
|
$
|
2,014
|
|
|
$
|
71
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Eliminations consist principally of eliminations of intersegment
profit in inventory. These eliminations totaled $11 million
in 2005 and $2 million in 2004. Adjustments consist
primarily of LIFO inventory revaluation, other cost of goods
sold adjustments and foreign currency translation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Underlying operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
657
|
|
|
$
|
626
|
|
|
$
|
31
|
|
|
|
5.0
|
%
|
Finished Goods
|
|
|
165
|
|
|
|
242
|
|
|
|
(77
|
)
|
|
|
(31.8
|
)%
|
Bottling Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
44
|
|
|
|
1
|
|
|
|
43
|
|
|
|
NM
|
|
Mexico and the Caribbean
|
|
|
96
|
|
|
|
83
|
|
|
|
13
|
|
|
|
15.7
|
%
|
Corporate and other(1)
|
|
|
11
|
|
|
|
(20
|
)
|
|
|
31
|
|
|
|
NM
|
|
Adjustments and eliminations(2)
|
|
|
(186
|
)
|
|
|
(229
|
)
|
|
|
43
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries and cumulative effect of change
in accounting policy as reported
|
|
$
|
787
|
|
|
$
|
703
|
|
|
$
|
84
|
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of equity in earnings of unconsolidated subsidiaries
and general and administrative expenses not allocated to the
segments. The change was primarily due to an increase in general
and administrative expenses related to our IT and procurement
functions and increases in our equity in earnings of
unconsolidated subsidiaries.
|
|
(2)
|
|
For 2005, adjustments consist principally of net interest
expense of $170 million, restructuring costs of
$10 million and depreciation and amortization of
$26 million. These adjustments were partially offset by the
$36 million gain on disposal of the Holland House brand and
foreign currency translation. For 2004, adjustments consist
principally of net interest expense of $129 million,
restructuring costs of $36 million and depreciation and
amortization of $10 million. Eliminations in these periods
were not material. Information on restructuring charges by
segment is available in note 12 and information on depreciation
and amortization by segment is provided in note 15, in each case
to our audited combined financial statements.
|
60
The following is a discussion of the results of each of our
segments.
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2005
|
|
2004
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,304
|
|
|
$
|
1,238
|
|
|
$
|
66
|
|
|
|
5.3
|
%
|
Gross contribution before marketing
|
|
$
|
1,169
|
|
|
$
|
1,117
|
|
|
$
|
52
|
|
|
|
4.7
|
%
|
Underlying operating profit
|
|
$
|
657
|
|
|
$
|
626
|
|
|
$
|
31
|
|
|
|
5.0
|
%
|
The $66 million net sales increase was due primarily to
volume growth of 3.6% and price increases. Volume growth was
primarily due to Dr Pepper following the launch of Soda
Fountain Classics line extensions, and new A&W
packaging, partially offset by declines in 7UP and Diet Rite.
Net sales in 2004 benefited by approximately $16 million
due to the inclusion of a 53rd week.
The $52 million GCBM increase was due primarily to the
growth in net sales, partially offset by higher cost of sales
from increased sweetener costs.
The $31 million UOP increase was due to the higher GCBM,
partially offset by higher transportation costs from fuel cost
increases, and by higher selling, general and administrative
expenses resulting from the change in our method of allocating
corporate costs from the Finished Goods segment to better
reflect management reporting lines. These cost increases were
partially offset by a reduction in marketing investments.
Bottler case sales were flat. Dr Pepper case sales increased 6%
primarily as a result of the successful launch of the Soda
Fountain Classics line extensions, and A&W case sales
were up due to new packaging. However, these increases were
offset by a 9% decline in 7UP and a 28% decline in Diet Rite.
The Diet Rite decline resulted from our decision not to repeat
aggressive promotional activity in 2005 at a major retailer for
Diet Rite which had favorably impacted net sales in 2004.
Finished
Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2005
|
|
2004
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,342
|
|
|
$
|
1,287
|
|
|
$
|
55
|
|
|
|
4.3
|
%
|
Gross contribution before marketing
|
|
$
|
674
|
|
|
$
|
665
|
|
|
$
|
9
|
|
|
|
1.4
|
%
|
Underlying operating profit
|
|
$
|
165
|
|
|
$
|
242
|
|
|
$
|
(77
|
)
|
|
|
(31.8
|
)%
|
The $55 million net sales increase was primarily due to
volume growth of 4.1% and price increases. The volume growth was
primarily due to Hawaiian Punch, Motts and Clamato. Net
sales in 2004 benefited by approximately $12 million due to
the inclusion of a
53
rd
week.
The $9 million GCBM increase was due to an increase in net
sales, which was mostly offset by an increase in costs of sales
from higher volumes and an increase in raw material costs,
principally glass and HFCS.
The $77 million UOP decrease was primarily due to a $55
million allocation of profit from the Finished Goods segment to
the Snapple Distributors segment for internal segment reporting
purposes. This allocation reduced the profitability of this
segment as it effectively treated net sales made to the Snapple
Distributors segment as if such net sales were made at cost
rather than on an arms length basis. In addition, higher
transportation costs resulting, primarily from higher volumes
and increased fuel costs also contributed to the UOP decrease.
This UOP decrease was partially offset by lower selling, general
and administrative expenses resulting from the change in our
method of allocating corporate costs from the Finished Goods
segment to the Beverage Concentrates and Snapple Distributors
segments to better reflect management reporting lines.
61
Bottling
Group
Bottling Group was not a reportable segment prior to our
bottling acquisitions in May 2006 and therefore we have not
presented any Bottling Group segment results of operations for
2005 and 2004.
Snapple
Distributors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2005
|
|
2004
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
241
|
|
|
$
|
241
|
|
|
|
|
|
|
|
|
|
Gross contribution before marketing
|
|
$
|
52
|
|
|
$
|
54
|
|
|
$
|
(2
|
)
|
|
|
(3.7
|
)%
|
Underlying operating profit
|
|
$
|
44
|
|
|
$
|
1
|
|
|
$
|
43
|
|
|
|
NM
|
|
Net sales declined slightly due to a small decrease in volume.
Net sales in 2004 benefited by $2 million due to the
inclusion of a
53
rd
week.
GCBM decreased by $2 million.
The $43 million UOP increase was primarily due to a $55 million
allocation of profit from the Finished Goods segment to the
Snapple Distributors segment for internal reporting purposes.
This allocation increased the profitability of this segment as
it effectively treated purchases of finished beverages from the
Finished Goods segment as if such purchases were made at cost
rather than on an arms length basis. This increase was
partially offset by a higher allocation of management costs from
the Finished Goods segment, increased bad debts, and wage and
benefit increases.
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2005
|
|
2004
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
354
|
|
|
$
|
310
|
|
|
$
|
44
|
|
|
|
14.2
|
%
|
Gross contribution before marketing
|
|
$
|
208
|
|
|
$
|
184
|
|
|
$
|
24
|
|
|
|
13.0
|
%
|
Underlying operating profit
|
|
$
|
96
|
|
|
$
|
83
|
|
|
$
|
13
|
|
|
|
15.7
|
%
|
The $44 million net sales increase was primarily due to
volume growth of 5.4%, higher pricing and improved mix.
Peñafiel and Aguafiel volumes were higher due to increased
penetration of the modern food channel, strong performance by
third-party distributors, and the launches of Peñafiel
Naturel and Aguafiel Frutal Orange, partially offset by a
decrease in Squirt volumes. In addition, business arrangements
with certain third-party distributors were revised, which
increased net sales.
The $24 million GCBM increase was due to higher net sales,
partially offset by higher cost of sales, primarily from higher
plastic and glass costs.
The $13 million UOP increase was due to higher GCBM and
lower selling, general and administrative expenses, which was
partially offset by higher transportation expenses.
The impact of foreign currency translation did not materially
impact the changes in net sales, GCBM and UOP in 2005 and 2004.
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
62
of our significant accounting policies is contained in
note 2 to our audited combined financial statements
included elsewhere in this information statement.
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
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
$2,440 million, $928 million and $861 million in
2006, 2005 and 2004, 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 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 included elsewhere in
this information statement.
63
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 information statement.
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. 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 (as defined below) 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, we have 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.
In 2004, stock compensation expense was determined based on
Accounting Principles Board Opinion No. 25,
Accounting
for Stock Issued to Employees
(APB 25) and
related interpretations. Under APB 25, compensation expense was
determined as the difference between the market price and
exercise price of the share-based award. For fixed plans,
compensation cost was determined on the date of grant. For
variable plans, compensation was remeasured at each balance
sheet date until the award vested.
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 $17 million
($10 million net of tax), $22 million
($13 million net of tax) and $7 million
($4 million net of tax) of expense in 2006, 2005 and 2004,
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 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. We
64
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.
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. These funds are funded as benefits are
paid, and thus do not have an investment strategy or target
allocations for plan assets.
Cadbury Schweppes sponsors the five multi-employer pension plans
for which our employees participate, and therefore we account
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 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
Our income taxes are computed and reported on a separate return
basis as if we were not a part of Cadbury Schweppes. Our tax
rate is based on our net income before tax, statutory tax rates
and tax planning benefits available to us in the jurisdictions
in which we operate. 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 de-recognition based
upon changes in facts, circumstances and information available
at each reporting date.
65
The cumulative effect of adopting FIN 48 was a
$16 million increase in tax reserves and a corresponding
decrease to operating retained earnings at January 1, 2007.
Upon adoption, the amount of gross unrecognized tax benefit at
January 1, 2007 was $85 million. Of this amount,
$45 million, if recognized, would impact our effective tax
rate.
Our effective tax rate for the nine months ended
September 30, 2007 was 37.8%. See note 7 to our
unaudited interim combined financial statements.
Liquidity
and Capital Resources
Trends
and Uncertainties Affecting Liquidity
Upon our separation from Cadbury Schweppes, our capital
structure, long-term commitments, and sources of liquidity will
change significantly from our historical capital structure,
long-term commitments and sources of liquidity. After the
separation, our primary source of liquidity will be cash
provided from operating activities. We believe that the
following will negatively impact liquidity:
|
|
|
|
|
We will incur significant third party debt in connection with
the separation;
|
|
|
|
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;
|
|
|
|
We will assume significant pension obligations; and
|
|
|
|
We may make further acquisitions.
|
New
Financing Arrangements
We expect to incur $ million
of third party debt in connection with the separation, as
described under Description of Indebtedness. We
intend to use proceeds of this debt to repay an aggregate of
$ of the debt, and
$ of payables, in each case, owed
by us to Cadbury Schweppes. The amount of related party debt we
currently have outstanding is not indicative of the debt we will
have outstanding following the separation.
Capital
Expenditures and Restructuring
Capital expenditures were $158 million in 2006 compared to
$44 million in 2005. The increase was primarily due to
inclusion of our bottling acquisitions and our capital
expenditures for 2006 primarily consisted of manufacturing and
distribution equipment, cold drink equipment and IT investments
for new systems. In the nine months ended September 30,
2007, our capital expenditures were $123 million, and were
for similar items. We plan to incur capital expenditures of
approximately $ million in
2008. In addition, we plan to incur capital expenditures in 2009
and beyond to implement elements of our strategy, which include
an increase in our investment in cold drink equipment and
various manufacturing improvements.
We expect to complete the restructuring and integration plans
that we have undertaken following the bottling acquisitions.
These plans are designed to improve operating efficiencies and
lower costs, and they will result in further significant
restructuring costs. We also expect to incur additional
restructuring costs as we outsource certain transactional
activities to third party service providers and integrate and
upgrade our information technology systems.
On October 10, 2007, we announced a restructuring of our
organization. The restructuring will result in a reduction of
approximately 470 employees in our corporate, sales and
supply chain functions and will include approximately
150 employees in Plano, Texas, 150 employees in
Rye Brook, New York and 80 employees in
Aspers, Pennsylvania. The remaining reductions will occur
at a number of sites located in the United States, Canada and
Mexico. The restructuring will also include the closure of two
manufacturing facilities in Waterloo, New York and Denver,
Colorado. As a result of this restructuring, we expect to
recognize a charge of approximately $70 million, primarily
in 2007, with the balance in 2008. We expect this restructuring
to generate annual cost
66
savings of approximately $70 million, most of which are
expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards.
Pension
Obligations
We are currently finalizing our pension arrangements for our
employees. We expect to assume significant unfunded employee
benefit liabilities for pension benefit and postretirement
obligations from Cadbury Schweppes for qualified and
non-qualified plans. These obligations will be reflected in our
historical financial statements when the assets and liabilities
relating to these plans are divided between Cadbury Schweppes
and us prior to the separation.
Acquisitions
We may make further acquisitions. For example, we may make
further acquisitions of regional bottling companies 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 we expect to be available under our new financing
arrangements, will be sufficient to meet our anticipated
liquidity needs over at least the next twelve months.
Net
Cash From Operating Activities
Net cash from operating activities was $757 million for the
nine months ended September 30, 2007 compared to
$521 million for the nine months ended September 30,
2006. This $236 million increase was primarily due to an
increase in our cash flows from working capital of
$167 million and increases in other non-current liabilities
of $64 million, which is attributable to implementation of
FIN 48. Changes in working capital were an increased source
of cash flow from operations for the nine months ended
September 30, 2007 as compared to the nine months ended
September 30, 2006, primarily as a result of increases in
both related parties payables of $219 million and accounts
payable and accrued expenses of $45 million. These
increases were partially offset by increases in inventories of
$50 million and other accounts receivable of $50 million.
Net cash from operating activities was $581 million in 2006
compared to $583 million in 2005. The $2 million
decrease was primarily due to an increase in net earnings of
$33 million, partially offset by a decrease in our cash
flows from working capital of $89 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 from operating activities was $583 million in 2005
compared to $610 million in 2004. The $27 million
decrease was primarily due to an increase in net earnings of
$31 million, partially offset by a decrease in our cash
flows from working capital of $6 million. Changes in
working capital were a decreased source of cash flow from
operations in 2005 compared to 2004, primarily as a result of a
$44 million increase in accounts receivable, partially
offset by a $34 million increase in accounts payables and
accrued expenses.
Net
Cash Used in Investing Activities
Net cash used in investing activities was $1,450 million
for the nine months ended September 30, 2007 compared to
$550 million in the nine months ended September 30,
2006. The increase of $900 million was primarily
attributable to the issuance of notes receivable for $1,773
million, partially offset by $515 million due to the repayment
of notes receivable and a decrease of $416 million for
acquisitions, principally the acquisition in 2006 of the
remaining 55% interest in DPSUBG.
Net cash used in investing activities was $502 million in
2006 compared to $283 million provided by investing
activities in 2005 and $184 million provided by investing
activities in 2004. 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
67
equipment, and lower proceeds from asset sales. The increase of
$99 million in 2005 was primarily due to lower purchases of
property, plant, and equipment.
Net
Cash Used in Financing Activities
Net cash provided by financing activities was $691 million
for the nine months ended September 30, 2007 compared to
$81 million for the nine months ended September 30, 2006.
The $610 million increase in 2007 was due to higher levels
of debt issuances and net investment transactions with Cadbury
Schweppes, partially offset by increases in debt repayment.
Net cash used in financing activities was $72 million in
2006 compared to $815 million in 2005 and $799 million
in 2004. 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 Schweppes.
The increase of $16 million in 2005 was primarily due to
lower levels of debt repayment and net investment transactions
with Cadbury Schweppes, partially offset by cash distributions
to Cadbury Schweppes.
Cash
and Cash Equivalents
Cash and cash equivalents were $34 million at
September 30, 2007 and decreased $1 million in the
nine months ended September 30, 2007 from $35 million
at the prior year end. The decrease was primarily due to
transactions with Cadbury Schweppes.
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,
2006. See notes 10 and 13 to our audited combined financial
statements included elsewhere in this information statement for
additional information regarding the items described in this
table.
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Fiscal Year
|
|
|
|
Total
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
After 2011
|
|
|
|
|
|
|
(In millions)
|
|
|
Long-term debt obligations(1)
|
|
$
|
3,770
|
|
|
$
|
708
|
|
|
$
|
695
|
|
|
$
|
22
|
|
|
$
|
128
|
|
|
$
|
1,982
|
|
|
$
|
235
|
|
Capital leases(2)
|
|
|
24
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
11
|
|
Interest payments(3)
|
|
|
907
|
|
|
|
218
|
|
|
|
203
|
|
|
|
174
|
|
|
|
167
|
|
|
|
110
|
|
|
|
35
|
|
Operating leases(4)
|
|
|
249
|
|
|
|
48
|
|
|
|
45
|
|
|
|
40
|
|
|
|
36
|
|
|
|
30
|
|
|
|
50
|
|
Purchase obligations(5)
|
|
|
218
|
|
|
|
98
|
|
|
|
35
|
|
|
|
23
|
|
|
|
20
|
|
|
|
11
|
|
|
|
31
|
|
Other long-term liabilities(6)
|
|
|
52
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,220
|
|
|
$
|
1,080
|
|
|
$
|
985
|
|
|
$
|
267
|
|
|
$
|
359
|
|
|
$
|
2,140
|
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts represent scheduled principal payments for long-term
debt.
|
|
(2)
|
|
Amounts represent capitalized lease obligations, net of
interest. Interest in respect of capital leases is included
under the caption Interest payments on this table.
|
|
(3)
|
|
Amounts represent our estimated interest payments based on:
(1) projected LIBOR rates; (2) specified interest
rates for fixed rate debt; (3) capital lease amortization
schedules; and (4) debt amortization schedules.
|
|
|
|
(4)
|
|
Amounts represent minimum rental commitment under
non-cancellable operating leases.
|
|
|
|
(5)
|
|
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.
|
|
(6)
|
|
Amounts represent estimated pension and postretirement benefit
payments for U.S. and non-U.S. defined benefit plans. In
addition, on January 1, 2007, we adopted the provisions of
FIN 48. The cumulative effect of adopting FIN 48 was a
$16 million increase in tax reserves. 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.
|
68
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.
Effect of
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141 (revised 2007),
Business Combinations
(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. We are currently evaluating the provisions
of SFAS 141(R) and have not determined the impact, if any,
on our combined financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). SFAS 160 improves the
relevance, comparability, and transparency of financial
information provided to investors by requiring all entities to
report noncontrolling interests in subsidiaries as equity in the
consolidated financial statements. SFAS 160 is effective
for us beginning January 1, 2009. We are currently
evaluating the provisions of SFAS 160 and have not
determined the impact, if any, on its combined financial
statements.
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. We believe the
adoption of
EITF 06-11
will not have a material impact on our 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 of 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 us January 1, 2008. We
believe that the adoption of SFAS 159 will not have a
material impact on our combined 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. A one-year deferral is in effect for non
financial assets and liabilities that are measured on a
nonrecurring basis. We believe that the adoption of
SFAS 157 will not have a material impact on our combined
financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Foreign
Exchange Risk
Historically, Cadbury Schweppes has managed foreign currency
risk on a centralized basis on our behalf. Our primary exposure
to foreign exchange rates is the Canadian dollar and Mexican
peso against the U.S. dollar. In order to manage exposures
and mitigate the impact of currency fluctuations on the
operations of our foreign subsidiaries, Cadbury Schweppes
historically has entered into foreign exchange forward contracts
for all forecasted receipts and payments. All of these hedged
transactions are against firmly committed or forecasted
exposure. Cadbury Schweppes does not hedge translation exposure
and earnings because any benefit obtained from such hedging can
only be temporary.
69
Following the separation, we currently intend to continue
Cadbury Schweppes practice of using foreign exchange
forward and option contracts to manage our exposure to changes
in foreign exchange rates.
Interest
Rate Risk
Historically, Cadbury Schweppes has managed interest rate risk
on a centralized basis on our behalf through the use of interest
rate swaps, cross currency interest rate swaps and forward rate
agreements. The objectives for the mix between fixed and
floating rate borrowings have been set to reduce the impact of
an upward change in interest rates while enabling benefits to be
enjoyed if interest rates fall.
Our historic interest rate exposure relates primarily to
intercompany loans or other amounts due to, or from, Cadbury
Schweppes. We expect to incur
$ million of third party debt
in connection with the separation, as described under
Description of Indebtedness. The third party debt
may bear fixed, floating or a combination of fixed and floating
interest rates. To the extent a portion of the debt has a fixed
rate of interest, there can be no assurance that we will be able
to refinance this debt at the same or lower rates upon maturity.
To the extent a portion of the debt has a floating rate of
interest, we will be exposed to interest rate risk. As a result,
a 25 basis point movement in the interest rate charged for
the $ million we expect to be
outstanding at separation will result in a change of interest
expense of $ per annum.
Following the separation, we currently intend to continue
Cadbury Schweppes practice of using interest rate swaps,
cross currency interest rate swaps and forward rate agreements
to manage our exposure to changes in interest rates.
Commodity
Risk
Historically, Cadbury Schweppes has managed hedging of certain
commodity costs on a centralized basis on our behalf through
forward contracts for commodities. The use of commodity forward
contracts enables Cadbury Schweppes to obtain the benefit of
guaranteed contract performance on firm priced contracts offered
by banks, the exchanges and their clearing houses.
The commodities forward contracts manage Cadbury Schweppes
exposure to adverse movements in cash flow, and gains or losses
due to the market risk arising from changes in prices for
commodities traded on commodity exchanges.
Following the separation, commodities forward contracts in
existence relating to our business will be transferred to us and
we currently intend to continue Cadbury Schweppes practice
in this area.
70
INDUSTRY
Overview
United
States
In the United States, we operate primarily within the
non-alcoholic liquid refreshment beverage market. This market
consists of CSDs, non-CSDs (including ready-to-drink teas,
juices, juice drinks and sports drinks) and bottled water. The
U.S. liquid refreshment beverage market has grown over the
last five years, with average annual volume growth of 3.9%
between 2001 and 2006 and average annual retail sales growth of
5.1% over the same period. In 2006, the market grew by 4.1% in
volume and 6.6% in retail sales. Total retail sales in 2006 in
the U.S. liquid refreshment beverage market were
$106 billion, with CSDs accounting for 66.1%, non-CSDs
accounting for 19.7% and bottled water accounting for 14.2%.
CSDs.
In 2006, CSD retail sales grew by 2.9%
despite a 0.6% decline in volume. The rise in retail sales was
primarily due to price increases in CSDs combined with strong
growth of premium-priced energy drinks. The decline in volume
was primarily attributable to a combination of increased pricing
and consumers switching to non-CSDs and bottled water. Diet
CSDs share of the overall CSD market segment increased
from 25.1% in 2001 to 29.5% in 2006.
Colas and Flavored CSDs.
Flavored CSDs have
become increasingly popular and have gained volume share versus
cola CSDs. Within the CSD market segment, colas represented
57.4% of total CSD volume in 2006. Flavored CSDs have increased
their share of the overall CSD market segment (as measured by
volume) from 40.1% in 2001 to 42.6% in 2006, and colas have lost
volume share from 59.9% in 2001 to 57.4% in 2006.
Non-CSDs.
Non-CSDs have experienced strong
market share, volume and retail sales growth over the last five
years. Non-CSD retail sales experienced an average annual growth
rate of 8.9% from 2001 to 2006, and non-CSD volume share of the
overall U.S. liquid refreshment beverage market increased from
12.7% in 2001 to 16.3% in 2006. Non-CSD volume and retail sales
increased by 13.2% and 14.8%, respectively, in 2006, with strong
growth in ready-to-drink teas, sports drinks and juice drinks.
Bottled Water.
The bottled water market
segment consists of both spring waters and purified waters in
packages of 1.5 liters or less. Bottled water pricing declined
2% in 2006 as a result of competitive pressures. Volume and
retail sales increased by 16.5% and 14.5%, respectively, in
2006. Retail sales of bottled water increased by an average
annual growth rate of 14.9% from 2001 to 2006.
All U.S. market and industry data set forth above is from
Beverage Digest. See Use of Market Data in this
Information Statement.
Canada
and Mexico
In the Canadian and Mexican markets, we operate in market
segments similar to those in which we operate in the United
States. The Canadian and Mexican markets have exhibited broadly
similar trends to those in the United States, except that the
Mexican CSD volume grew 4.9% in 2006, according to Canadean.
Total Canadian soft drink retail sales in 2006, including CSDs,
non-CSDs and bottled water, were $16.1 billion. CSDs
accounted for 41.6% of total volume in the Canadian soft drink
market, or $4.4 billion in retail sales, followed by
non-CSDs and bottled water with 37.4% and 21.0% of total volume,
and $8.3 billion and $3.4 billion in retail sales,
respectively.
Total Mexican soft drink retail sales in 2006, including CSDs,
non-CSDs and bottled water, were $20.9 billion. CSDs
accounted for 70.1% of total volume in the Mexican soft drink
market in 2006 or $13.7 billion in retail sales, followed
by non-CSDs and bottled water with 20.5% and 9.5% of total
volume, and $5.2 billion and $2.0 billion in retail
sales, respectively.
All Canadian and Mexican market and industry data set forth
above is from Canadean. See Use of Market Data in
this Information Statement.
71
Beverage
Market Trends
We believe the key trends influencing the North
American liquid refreshment beverage market include:
|
|
|
|
|
Increased health consciousness.
Consumers have
become more health conscious in their food and beverage
consumption. This trend is a result of increased consumer
awareness of health issues, media attention regarding obesity,
focus on nutrition in schools and aging trends among consumers.
We believe the main beneficiaries of this trend include diet
drinks, ready-to-drink teas, enhanced waters and bottled waters.
|
|
|
|
Changes in lifestyle.
Consumers are
increasingly looking for convenience due to hurried lifestyles,
an increasing number of women in the work force, the rise in
single-occupancy households, the increasing urbanization of
populations and the decline in formal family meals. We believe
changes in lifestyle will continue to drive increased sales of
single-serve beverages, which typically have higher margins.
|
|
|
|
Growing demographic segments in the United
States.
The growth of various U.S. demographic
segments will be increasingly important to the growth of the
U.S. liquid refreshment beverage market. For example,
according to the U.S. Census Bureau, over the next
20 years, more than 40% of the U.S. population growth
is expected to come from the Hispanic population. 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.
|
|
|
|
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.
|
|
|
|
Changing retailer landscape.
As retailers
continue to consolidate, we believe partnering with key
retailers will be instrumental for future success in the
beverage industry. We believe retailers will support consumer
product companies that can provide an attractive portfolio of
products, a strong value proposition and efficient delivery.
|
|
|
|
Recent increases in raw material costs.
The
costs of a substantial proportion of the raw materials used in
the beverage industry, such as aluminum cans and ends, glass
bottles, plastic bottles and caps, paperboard packaging, HFCS
and other sweeteners, juices and fruits, are dependent on
commodity prices for aluminum, natural gas, resins, corn, pulp
and other commodities. Recently, these costs on the whole have
increased significantly and this has exerted pressure on
industry margins.
|
Industry
Manufacturing, Sales and Distribution
The U.S. beverage industry is comprised of many
participants including brand owners, bottling companies and
distributors. Market participants adopt different business
models, ranging from being exclusively a brand owner, bottler or
distributor, to an integrated brand owner, bottler and
distributor. Retailers also participate in the beverage industry
directly through their own private label products.
Traditionally, the CSD industry has employed a licensing model
comprised of brand owners who grant licenses to bottling
companies. This structure effectively separated the management
and marketing of brands, as well as the production of beverage
concentrates, from the more capital intensive manufacturing,
bottling and distribution of finished beverages. In contrast,
brand owners of non-CSDs traditionally have manufactured a
larger percentage of
72
finished beverages themselves, which are then sold primarily to
distributors and retailers. These manufacturing and distribution
models are summarized in the following charts:
The bottled water market segment includes spring water and
purified water. Purified water is typically filtered by the
bottler, who bottles the water and sells it to a distributor or
retailer. Spring water is typically bottled at the source by the
brand owner and is distributed by both the brand owner and by
bottlers and distributors.
Brand Owners.
Brand owners own beverage
brands, formulas and the proprietary know-how required for the
preparation of their beverages, either in concentrate form or as
a finished beverage. In a traditional CSD licensing model, brand
owners manufacture the beverage concentrates, which are highly
condensed liquids or powders that contain all of the proprietary
flavors and ingredients that make up the unique taste of the
beverage. The concentrates are sold to bottling companies
pursuant to a license from the brand owner. Brand owners may
also manufacture and package the finished beverages for some of
their brands and sell the finished beverages direct to
retailers, distributors and other third parties. Brand owners
maintain strong brands by promoting brand awareness through
marketing, advertising and promotion, and by developing new and
innovative products and product line extensions that address
changes in consumer tastes and preferences.
Bottlers and Distributors.
Bottlers are
manufacturers and distributors of branded canned or bottled
beverages that are ready to be sold to retailers as finished
beverages. For CSDs, bottlers purchase beverage concentrates
from brand owners and combine it with sweeteners, carbonation
and water to create the finished beverages. For non-CSDs,
bottlers purchase finished beverages from brand owners and may
also manufacture finished beverages. Distributors are
independent companies that solely distribute the finished
beverages. Bottlers and distributors sell and distribute
finished beverages in the territories where they hold brand
licenses. These territories may be exclusive or non-exclusive
depending on the license arrangements.
73
Bottling Systems.
The U.S. bottling
industry consists of the following four systems:
|
|
|
|
|
Coca-Cola
Affiliated System.
The
Coca-Cola
affiliated system includes
Coca-Cola
Enterprises and
Coca-Cola
Bottling Co. Consolidated, both of which are partially-owned by
Coca-Cola,
as well as smaller independent
Coca-Cola
affiliated bottlers. The
Coca-Cola
affiliated system primarily manufactures, markets and
distributes
Coca-Cola
branded products, but also manufactures and distributes other
brands. For example,
Coca-Cola
Enterprises is the second largest bottler of our products and
the largest Dr Pepper bottler.
|
|
|
|
PepsiCo Affiliated System.
The PepsiCo
affiliated system includes Pepsi Bottling Group, PepsiAmericas
and Pepsi Bottling Ventures, which are partially-owned by
PepsiCo, as well as smaller independent PepsiCo affiliated
bottlers. The PepsiCo affiliated system primarily manufactures,
markets and distributes PepsiCo branded products. These bottlers
also manufacture and distribute other brands. For example, Pepsi
Bottling Group is the third largest bottler of our products and
the third largest Dr Pepper bottler.
|
|
|
|
DPS System.
The DPS system consists of our
Bottling Group segment, which is the largest bottler of our
products and the second largest Dr Pepper bottler. Our Bottling
Group is further described in this information statement.
|
|
|
|
Independent Bottler System.
The independent
bottler system includes smaller independent bottlers that are
not part of the other three systems. The independent system is
primarily involved with the bottling of our brands.
|
As the CSD industry has matured, brand owners have begun
diversifying into higher growth non-CSDs. Today brand owners
manufacture a higher percentage of finished beverages than in
the past. This has led to an increased focus on alignment of
economic interests through the entire manufacturing and
distribution chain, which in some cases has resulted in more
vertical integration of brand owners, bottlers and distributors.
Sales Channels.
The primary retail sales
channels for liquid refreshment beverages in the United States
include supermarkets, fountains, mass merchandisers, club
stores, vending machines, convenience stores, gas stations,
small groceries, drug chains, dollar stores and small retail
stores. CSD sales are largely concentrated in the supermarkets,
fountain and mass merchandisers channels. The consolidation of
retailers and the growth of club stores over the last few years
has increased the power and influence of these retailers on
price, promotional and marketing programs and delivery
requirements. The fountain channel, which constituted 23% of the
U.S. CSD market segment in 2006 according to Beverage
Digest, represents beverages sold at retail that come in
disposable cups or glasses, such as CSDs at restaurants,
convenience stores or gas stations.
Distribution of Finished Beverages.
Finished
beverages are distributed to the retail sales channels through
four main methods:
|
|
|
|
|
Direct store delivery.
Finished beverages are
delivered directly to the retail stores by bottlers or
distributors. In many cases, the bottler or distributor is
responsible for stocking and merchandising the product directly
on the retail shelf.
|
|
|
|
Warehouse delivery.
Finished beverages are
shipped to retailer warehouses, and then delivered by the
retailer through its own delivery system to its stores.
|
|
|
|
Fountain foodservice.
Fountain syrup is
delivered to fountain customers either through direct store
delivery or the customers warehouse.
|
|
|
|
Vending operations.
Finished beverages are
delivered to vending machines and stocked and filled by vending
service operators or bottlers.
|
Canada
The Canadian beverage industry is similar to the
U.S. industry. However, the Canadian industry consists
primarily of two CSD bottling systems (compared to four in the
United States): the
Coca-Cola
affiliated system and the PepsiCo affiliated system. The
Canadian beverage industry is also characterized by more
consolidated retail sales channels than in the United States.
74
Mexico
The Mexican beverage industry is similar to the
U.S. industry in its manufacturing, bottling and
distribution model. However, unlike the United States, the
Mexican retail channels are comprised largely of mom and
pop stores or traditional trade, accounting for
approximately 60% of total sales outlets in Mexico according to
Canadean. In the past few years, the traditional trade has faced
increasing competition from the expansion of the modern food
channel (including supermarkets and hypermarkets) and
convenience stores. The on-premise channel, which includes
restaurants, street stalls, kiosks, hotels and cinemas, is
another growing sales channel in Mexico.
Use of
Market Data in this Information Statement
The market and industry data in this information statement 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 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 information statement 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.
75
BUSINESS
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 (non-cola) CSDs and
non-CSDs, 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:
Our
Company
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#1 flavored CSD company in the United States
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More than 75% of our volume from brands that are either #1 or #2 in their category
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#3 North American liquid refreshment beverage business
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$4.7 billion of net sales in 2006 from the United States (88%), Canada (4%) and Mexico and the Caribbean (8%)
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$1.0 billion of income from operations in 2006
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Our
Key Brands
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#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
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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
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#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
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#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 1876
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#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
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#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
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#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
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#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
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#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
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#1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
Flavors include regular, diet and ruby red
Founded in 1938
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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
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#1 carbonated mineral water brand in Mexico
Brand includes Flavors, Twist and Naturel
Mexicos oldest mineral water, founded in 1928
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#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
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Note:
All information regarding our
companys market positions is for 2006 and from Beverage
Digest and Canadean. All information regarding our brand market
positions in the United States is for 2006 and from ACNielsen.
All information regarding our brand market positions in Canada
and Mexico is for 2006 and from Canadean. For a description of
the different methodologies used by these sources (including
sales channels covered), see Industry Use of
Market Data in this Information Statement.
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.
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:
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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.
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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.
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1999 We acquired a 40% (increased to 45% in 2005)
interest in DPSUBG, which was then our largest independent
bottler.
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2000 We acquired Snapple and other brands,
significantly increasing our share of the U.S. non-CSD market
segment.
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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).
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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.
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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 2006, 88% of our net sales were generated in the
United States, 4% in Canada and 8% in Mexico and the Caribbean.
We sold 1.5 billion equivalent 288 ounce cases in 2006.
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 manufacturer 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 18.5% share of the U.S. CSD market segment in 2006 (measured
by retail sales), which increased from 18.1% in 2005. We also
manufacture fountain syrup that we sell to the foodservice
industry directly, through bottlers or through third parties.
In the non-CSD market segment in the United States, we
participate primarily in the ready-to-drink tea, juice, juice
drinks and mixer categories. Our key non-CSD brands are Snapple,
Motts, Hawaiian Punch and Clamato, and we also sell
regional and smaller niche brands. We manufacture most of our
non-CSDs 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 non-CSD
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 2006) and had a 15.6% share of the Mexican
flavored CSD category.
In the six months ended June 30, 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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Recent
Developments
New
President and Chief Executive Officer
Larry Young was appointed President and Chief Executive Officer
of Cadbury Schweppes Americas Beverages business on
October 10, 2007. Mr. Young was previously our Chief
Operating Officer, as well as President, Bottling Group, and has
more than 30 years of experience in the bottling and
beverages industry.
Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization that is intended to create a more efficient
organization. This restructuring will result in a reduction of
approximately 470 employees in our corporate, sales and
supply chain functions and will include approximately
150 employees in Plano, Texas, 150 employees in Rye Brook,
New York and 80 employees in Aspers, Pennsylvania. The remaining
reductions will occur at a number of sites located in the United
States, Canada and Mexico. The restructuring will also include
the closure of two manufacturing facilities in Waterloo, New
York and Denver, Colorado. The employee reductions and
facilities closures are expected to be completed by June 2008.
As a result of this restructuring, we expect to recognize a
charge of approximately $70 million primarily in 2007, with
the balance in 2008. We expect this restructuring to generate
annual cost savings of approximately $70 million, most of
which are expected to be realized in 2008 with the full annual
benefit realized from 2009 onwards. As part of this
restructuring, our Bottling Group segment has assumed management
and operational control of our Snapple Distributors segment.
These operations are currently being integrated and will be
reported in our 2007 annual results as a single segment.
Accelerade
Launch
We launched our new, ready-to-drink Accelerade sports drink in
the first half of 2007. The launch represented an introduction
of a new product into a new beverage category for us and has
been supported by significant national product placement and
marketing investments, predominantly in the third quarter. Net
sales have been well below expectations despite these
investments. We incurred an operating loss of approximately
$40 million from the Accelerade launch in the nine months
ended September 30, 2007. Going forward, we intend to focus
on selling Accelerade to informed athletes, trainers and
exercisers, and targeting retailers that are frequented by these
consumers, such as health and nutrition outlets, where we expect
the product to be financially viable.
Glacéau
Termination
Following its acquisition by Coca-Cola on August 30, 2007,
Energy Brands, Inc. notified us that it was terminating our
distribution agreements for glacéau products, including
vitaminwater, fruitwater and smartwater, effective
November 2, 2007. Pursuant to the terms of the agreement,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007. Our
glacéau net sales for the nine months ended
September 30, 2007 were approximately $200 million and
are reflected in our Bottling Group and Snapple Distributors
segments.
SeaBev
Acquisition
On July 11, 2007, we acquired the Jacksonville,
Florida-based SeaBev, the second largest independent bottling
and distribution company in the United States, for approximately
$53 million. SeaBev has 2 manufacturing facilities and 16
warehouses and distribution centers located from Miami to
Atlanta. It distributes many of our CSDs and non-CSDs throughout
Florida and Northern Georgia, providing us with expanded
geographic coverage for our Bottling Group operations and a more
integrated business. SeaBevs results of operations are
reported as part of our Bottling Group segment.
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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 non-CSD 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
2006, 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 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 have 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 57.4% in 2006 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 more than 250 distribution centers
in the United States, as well as 4 manufacturing facilities
and more than 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
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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, we relaunched 7UP with 100% natural flavors and no
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 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.
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Improve operating efficiency.
We believe our
recently announced 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
We operate our business in five segments: Beverage Concentrates,
Finished Goods, Bottling Group, Snapple Distributors, 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 2006, our Beverage Concentrates
segment had net sales of $1.3 billion (before elimination
of intersegment transactions).
In 2006, Dr Pepper, our largest CSD brand, represented
approximately 50% 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 27% 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 36.4% market
share in the United States, as measured by retail sales
according to ACNielsen. We are also the third largest CSD brand
owner as measured by 2006 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 plastic and glass bottles
and aluminum cans, and sell it as a finished CSD to retailers.
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
2006, net sales to the fountain channel constituted
approximately a third of our Dr Pepper beverage concentrates and
syrup net sales and approximately 19% 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 two-thirds 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 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
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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 non-CSDs (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 2006, our
Finished Goods segment had net sales of $1.3 billion
(before elimination of intersegment transactions).
In 2006, Snapple, our largest brand in our Finished Goods
segment, represented approximately 25% of our Finished Goods
segment net sales. Motts, Hawaiian Punch and Clamato
together represented approximately 40% of our 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 non-CSDs 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, plastic 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 2006,
Wal-Mart, 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 non-CSD brands and focus on
enhancing our leading non-CSD 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
beverage concentrates purchased from brand owners (including our
Beverage Concentrates 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 2006, our Bottling Group
segment had net sales of $1.7 billion (before elimination
of intersegment transactions).
We are the fourth largest bottler in the United States by net
sales.
Approximately three-fourths of our 2006 Bottling Group net sales
of branded products come from our own brands, with the remaining
from the distribution of third-party brands such as Monster
energy drink, 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 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
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accounts across all major retail channels. In 2006, Wal-Mart
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 2006 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.
Snapple
Distributors
Our Snapple Distributors segment is a distribution business.
This segment reflects sales from the distribution of finished
beverages, primarily Snapple, in New York City and the
surrounding regions to retailers and distributors. Our Snapple
Distributors segment purchases most of its finished beverages
from our Finished Goods segment. In 2006, our Snapple
Distributors segment had net sales of $271 million.
The Snapple Distributors segment distributes our own finished
beverage brands, such as Snapple, Mistic, Stewarts,
Nantucket Nectars and Yoo-Hoo, and third-party finished beverage
brands, such as FIJI mineral water.
On October 10, 2007, we announced a restructuring of our
organization, and as part of this restructuring, our Bottling
Group segment has assumed management and operational control of
our Snapple Distributors segment. These operations are currently
being integrated and will be reported in our 2007 annual results
as a single segment.
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
2006, our Mexico and the Caribbean segment had net sales of
$408 million. In 2006, our operations in Mexico represented
90% of the net sales of this segment.
We are the #3 CSD company in Mexico (as measured by volume in
2006) behind
Coca-Cola
and PepsiCo, with a 5.2% market share according to Canadean.
In 2006, 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.
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Research
and Development
Our research and development team is focused on developing high
quality products and packaging 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,
structural packaging design, process engineering, sensory
science, nutrition, clinical research 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. We are in the
process of relocating our research and development center to our
headquarters in Plano, Texas, which we expect to be completed in
the second quarter of 2008. 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 2006, our largest retailer was Wal-Mart,
representing approximately 9.5% of our net sales.
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. 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 employ approximately 3,500 full-time manufacturing
employees in our facilities. 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 plastic cans
and bottles and a variety of package formats, including
single-serve and multi-serve packages and
bag-in-box
fountain syrup packaging.
In 2006, 87% of our manufactured volumes were related to our
brands and 13% to third-party and private-label products. We
also use third-party manufacturers to co-pack for us on a
limited basis.
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We own property, plant and equipment, net of accumulated
depreciation, totaling $681 million and $251 million
in the United States and $74 million and $75 million
in international locations as of December 31, 2006 and
January 1, 2006, respectively.
Raw
Materials
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, plastic 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, plastic
and HFCS prices increased significantly in 2006 and 2007. In
addition, we are significantly impacted by increases in fuel
costs due to the large truck fleet we operate in our
distribution businesses.
Approximately 70% of our total 2006 direct manufacturing costs
were for packaging, including aluminum cans and ends, glass
bottles, plastic bottles and caps and paperboard packaging. The
remainder of the costs were primarily for ingredients, including
HFCS, juice and fruit. Under many of our supply arrangements for
these supplies, 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 plastic 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 more than
250 distribution centers in the United States, as well as 4
manufacturing facilities and more than 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 has been provided as a corporate
service by the Cadbury Schweppes IT team and external
suppliers. We are forming our own standalone, dedicated IT
function to support our business separate from Cadbury Schweppes
and are in the process of separating our systems, services and
contracts. Our primary IT data center will be 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 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
86
level of business. In addition, in many countries outside the
United States, Canada and Mexico, our rights in many of our
brands 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
Schweppes 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 Monster energy
drink, 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 agreed to
remove Cadbury from the names of our companies after
our separation from Cadbury Schweppes. Cadbury Schweppes 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).
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. Our
research and development center is currently located in a leased
facility in Trumbull, Connecticut, but we are relocating it to
Plano in 2008. As of December 31, 2007, we owned or leased
21 manufacturing facilities across the United States. 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 more than
250 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 operated three
manufacturing facilities, one joint venture facility and more
than 25 direct distribution centers, 6 of which are owned and 21
of which are leased.
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We believe our facilities in the United States, Canada 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 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 September 30, 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.
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 three most significant pending legal matters.
Although the estimated range of loss, if any, for the three
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 are proceeding as individual
plaintiffs
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but the cases have been 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 have filed a notice to
appeal the decision and 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, and by Hernant Mehta in
the U.S. District Court, Southern District of New York. The
plaintiffs filed these cases as class actions. The plaintiffs
allege that Snapples labeling of certain of its drinks is
misleading
and/or
deceptive. The 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, we have filed motions to
dismiss the plaintiffs claims on a variety of grounds. We
believe we have meritorious defenses to the claims asserted and
will defend ourselves vigorously. However, there is no assurance
that the outcome of our motions or at trial will be in our 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 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 all
employees of one of our subsidiaries who have held a
merchandiser or delivery driver position in southern 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.
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.
We were recently formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and had no
operations prior to the separation and distribution.
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OUR
RELATIONSHIP WITH CADBURY PLC AFTER THE DISTRIBUTION
Description
of Various Separation and Transition Arrangements
Separation
Agreement
We intend to enter into a separation and distribution agreement
(the separation agreement) with Cadbury Schweppes
before the distribution of our shares of common stock to Cadbury
Schweppes shareholders. The separation agreement will set
forth our agreements with Cadbury Schweppes regarding the
principal transactions necessary to effect the separation and
distribution. It will also set forth other agreements (the
ancillary agreements) that govern certain aspects of
our relationship with Cadbury plc after completion of the
separation.
Transfer of Assets and Assumption of
Liabilities.
The separation agreement will
identify assets to be retained, transferred, liabilities to be
assumed and contracts to be assigned to each of us and Cadbury
Schweppes as part of our separation and will describe when and
how these transfers, assumptions and assignments will occur. In
particular, the separation agreement will provide 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)
will be retained by or transferred to us, subject to any
licenses between the parties;
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all assets to the extent related to Cadbury Schweppes
global confectionery business and its other beverages business
(located principally in Australia) (including stock of
subsidiaries, real property and intellectual property) will be
retained by or transferred to Cadbury Schweppes, subject to any
licenses between the parties;
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liabilities will be allocated to, and assumed by, us to the
extent they are related to our business;
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liabilities will be allocated to, and assumed by, Cadbury
Schweppes to the extent they are 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 will assume or retain 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 will
be borne by Cadbury Schweppes and after the separation will be
borne by the party incurring such costs; and
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other liabilities will be allocated to either Cadbury Schweppes
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 will be transferred on an
as is, where is basis and the respective
transferees will 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 to be assumed by one
party or for which one party will have an indemnification
obligation under the separation agreement and the other
agreements relating to the separation are, and following the
separation may continue to be, 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.
To the extent that any transfers contemplated by the separation
agreement have not been consummated on or prior to the
distribution date, the parties will agree to cooperate to effect
such transfers as promptly as practicable. In addition, each of
the parties will agree 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
90
law or contractual obligations to consummate and make effective
the transactions contemplated by the separation agreement and
the ancillary agreements.
Intercompany Balances.
On or prior to the date
of the separation and distribution, we will settle with Cadbury
Schweppes all of the outstanding intercompany balances as of the
distribution date, estimated to be
$ as
of ,
2008, other than intercompany balances arising from payables and
receivables generated in the ordinary course of business or
under agreements specifically contemplated by the separation
agreement or any ancillary agreement to remain in effect
following the separation.
Releases and Indemnification.
Except as
otherwise provided in the separation agreement or any ancillary
agreement, each party will release and forever discharge 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 will 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 will provide 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 Schweppes. 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 UK 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 will assume 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 plc.
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
Schweppes and its affiliates currently use various marks that we
own or will own following the separation (the DPS
Marks). Under the separation agreement, each party 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 one year in connection with its ongoing
business. The separation agreement also will include licenses of
certain copyrights from us to Cadbury Schweppes and its
affiliates, and from Cadbury Schweppes to us.
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Insurance.
The separation agreement will
provide 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 will
allocate among the parties the right to insurance policy
proceeds based on reported claims and the obligations to incur
deductibles under certain insurance policies.
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 will enter into a transition services agreement with Cadbury
Schweppes pursuant to which each party will provide 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 will be 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 will enter into a tax-sharing and indemnification agreement
with Cadbury Schweppes under which tax liabilities relating to
taxable periods before and after the separation and distribution
will be computed and apportioned between the parties, and
responsibility for payment of those tax liabilities (including
any subsequent adjustments to such tax liabilities) will be
allocated between the parties. In general, under the terms of
the tax-sharing and indemnification agreement, we and Cadbury
Schweppes will each be responsible for taxes imposed on its
respective business for all taxable periods, whether ending on,
before or after the date of separation and distribution, except
that taxes attributable to certain restructuring transactions
undertaken in anticipation of the separation and distribution
and various other transactions will be specially allocated to
(and indemnified against by) Cadbury Schweppes or ourselves
depending on the transaction. Furthermore, the tax-sharing and
indemnification agreement will set forth the rights of the
parties in respect of the preparation and filing of tax returns,
the handling of audits or other tax proceedings and assistance
and cooperation and other matters, in each case, for taxable
periods ending on or before or that otherwise include the date
of separation.
Under the tax-sharing and indemnification agreement, we will be
generally liable for any liabilities, taxes and other charges
that are imposed on Cadbury Schweppes as a result of the
separation and distribution (and certain related restructuring
transactions) failing to qualify for nonrecognition treatment
for U.S. federal income tax purposes, if such failure is
the result of a breach by us of any representation or covenant
made by us in the tax-sharing and indemnification agreement. The
covenants contained in the tax-sharing and indemnification
agreement 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 request
submitted to the IRS, or liquidate, merge or consolidate any of
our companies conducting such active business,
(b) undertake certain transactions pursuant to which our
stockholders would dispose of a substantial amount of our common
stock for cash, (c) take actions that would cause certain
restructuring transactions to fail to qualify for nonrecognition
treatment, and (d) take any action inconsistent with the
information and representations furnished to the IRS in
connection with the private letter ruling request.
Notwithstanding the foregoing, we will be permitted to take any
of the actions restricted by such covenants if Cadbury Schweppes
provides us with prior written consent for such action, or we
provide Cadbury Schweppes with a private letter ruling or
rulings from the IRS, or an unqualified opinion of counsel, in
each case acceptable to Cadbury Schweppes, to the effect that
such action will not affect the tax-free nature of the
separation and distribution (and certain related restructuring
transactions), but we will remain liable for any liabilities,
taxes and other charges imposed on Cadbury Schweppes as a result
of the separation and distribution (and certain related
restructuring transactions) failing to qualify as tax-free
transactions as a result of such action.
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Employee
Matters Agreement
We will enter into an employee matters agreement with Cadbury
Schweppes 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 will generally assume all liabilities and
assets relating to employee benefits for our current and former
employees, and Cadbury Schweppes will generally retain all
liabilities and assets relating to employee benefits for current
and former Cadbury Schweppes employees other than current or
former beverages employees.
On or prior to the date of separation, sponsorship of the
Cadbury Schweppes benefit plans that solely cover our current
and former employees will be transferred to us, and the Cadbury
Schweppes benefit plans that cover our current and former
employees and also cover current and former Cadbury Schweppes
employees will be split into two separate plans, one covering
Cadbury Schweppes employees and one covering our employees.
Sponsorship of the plans covering our employees will be
transferred to us.
For transferred plans that are funded, assets allocable to the
liabilities of such plans also will be transferred to related
trusts established by us. As of the date of separation, current
and former employees of us and Cadbury Schweppes will receive
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 Schweppes
to comply with our respective obligations.
In addition, we will provide for the treatment of holders of
Cadbury Schweppes ordinary shares and share options who are our
eligible current and former employees at the time of separation.
Intellectual
Property Agreements
Various agreements are in effect between us and Cadbury
Schweppes relating to the use of certain trademarks, patents and
other intellectual property. These include licenses from Cadbury
Schweppes to us for the use of the Roses trademark and
certain technology in our business, and licenses from us to
Cadbury Schweppes for the use of the Canada Dry trademark with
Cadbury Schweppes Halls product in the U.S. and the
Snapple, Motts, Clamato and Holland House trademarks in
Cadbury Schweppes beverage business located principally in
Australia.
Debt
and Payables
The following are descriptions of current related party debt
arrangements. All or some portion of the following debt will be
repaid in connection with the separation.
Cadbury Ireland Limited.
The total principal
we owed to Cadbury Ireland Limited was $40 million at
September 30, 2007 and December 31, 2006. The debt
bears interest at a floating rate based on
3-month
LIBOR. The interest rates were 5.95% and 5.36% at
September 30, 2007 and December 31, 2006,
respectively. The outstanding principal balance is due in
November 2007 and is included in the current portion of
long-term debt. We recorded $2 million and $2 million
of interest expense related to the debt for the nine months
ended September 30, 2007 and the nine months ended
September 30, 2006, respectively.
Cadbury Schweppes Finance plc.
We have a
variety of debt agreements with Cadbury Schweppes Finance plc
with maturity dates ranging from May 2008 to May 2011. These
agreements had a combined outstanding principal balance of
$566 million and $2.9 billion at September 30,
2007 and December 31, 2006, respectively. At
September 30, 2007 and December 31, 2006,
$566 million and $2.4 billion of the debt were based
upon a floating rate ranging between LIBOR plus 1.5% to LIBOR
plus 2.5%. The remaining principal balance of $550 million
at December 31, 2006 had stated fixed interest rates
ranging from 5.76% to 5.95%. We recorded $53 million and
$121 million of interest related to the debt for the nine
months ended September 30, 2007 and the nine months ended
September 30, 2006, respectively.
Cadbury Schweppes Overseas Limited.
The total
principal we owed to Cadbury Schweppes Overseas Limited was
$23 million and $22 million at September 30, 2007
and December 31, 2006, respectively. The debt bears
interest at a floating rate based on Mexican LIBOR plus 1.5% and
matures in 2009. Actual rates were 9.89% at
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September 30, 2007 and December 31, 2006. The Company
recorded $2 million and $15 million of interest
expense related to the debt for the nine months ended
September 30, 2007 and the nine months ended
September 30, 2006, respectively.
Cadbury Adams Canada, Inc.
The total principal
we owed to Cadbury Adams Canada, Inc. was $67 million and
$15 million at September 30, 2007 and
December 31, 2006, respectively and is payable on demand.
The debt bears interest at a floating rate based on 1 month
Canadian LIBOR. The interest rates were 5.15% and 4.26% at
September 30, 2007 and December 31, 2006,
respectively. The Company recorded $1 million and less than
$1 million of interest expense related to this debt for the
nine months ended September 30, 2007 and the nine months
ended September 30, 2006, respectively.
Cadbury Schweppes Americas Holding BV.
During
2007, Cadbury Schweppes Americas Holding BV issued us a variety
of debt agreements with maturity dates ranging from 2009 to
2017. These agreements had a combined outstanding principal
balance of $2.5 billion at September 30, 2007 and bear
interest at a floating interest rate ranging between
6 month USD LIBOR plus .75% and 6 month USD LIBOR plus
1.75%. We recorded $107 million of interest related to this
debt for the nine months ended September 30, 2007.
Cadbury Schweppes Treasury America.
The total
principal we owed to Cadbury Schweppes Treasury America was
$0 million and $235 million at September 30, 2007
and December 31, 2006, respectively. The debt bore interest
at a rate of 7.25% per annum. We repurchased the debt on
May 23, 2007. We recorded $7 million and
$7 million of interest expense related to this debt for the
nine months ended September 30, 2007 and the nine months
ended September 30, 2006, respectively.
The related party payable balances of $509 million and
$183 million at September 30, 2007 and
December 31, 2006, respectively, represent non-interest
bearing payable balances with companies owned by Cadbury
Schweppes and related party accrued interest payable associated
with interest bearing notes described in note 8 to our
unaudited combined financial statements. The non-interest
bearing payable balance was $448 million and
$158 million at September 30, 2007 and
December 31, 2006, respectively, and the payables are due
within one year. The accrued interest payable balance was
$61 million and $25 million at September 30, 2007
and December 31, 2006, respectively. All or some portion of
the related party payable will be repaid in connection with the
separation.
Notes
Receivable
We had a notes receivable balance from wholly owned subsidiaries
of Cadbury Schweppes with outstanding principal balances of
$1,931 million and $579 million at September 30,
2007 and December 31, 2006, respectively. We recorded
$37 million and $29 million of interest income related
to these notes for the nine months ended September 30, 2007
and the nine months ended September 30, 2006, respectively.
Allocated
Expenses
We have been allocated corporate overhead expenses from Cadbury
Schweppes and its subsidiaries for corporate-related functions
based on the most relevant allocation method to the service
provided. To the extent expenses have been paid by Cadbury
Schweppes and its subsidiaries on our behalf, 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 that management believes is reasonable, which
is primarily either revenue or headcount. We were allocated
$113 million and $104 million of overhead costs in the
nine months ended September 30, 2007 and the nine months
ended September 30, 2006, respectively.
Cash
Management
Cadbury Schweppes historically has used a centralized approach
to cash management and financing of operations. As part of this
approach, our cash is available for use by, and is regularly
swept by, Cadbury Schweppes operations in the United
States at its discretion. Cadbury Schweppes also funds our
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 our combined balance sheets.
94
Royalties
We earn royalties from other Cadbury Schweppes-owned companies
for the use of certain brands owned by us. The total royalties
we recorded were $0 and $1 million for the nine months
ended September 30, 2007 and the nine months ended
September 30, 2006, respectively.
Purchase
of Intangibles
We purchased several trademarks from Cadbury Schweppes for a
total purchase price of $19 million in the nine months
ended September 30, 2006. These purchases were on terms
substantially equivalent to those that we believe would prevail
in an arms length transaction and were determined to have
indefinite lives.
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MANAGEMENT
Executive
Officers and Directors
Set forth below is information concerning the individuals we
currently expect will serve as our executive officers and
directors upon the separation. We will identify additional
individuals who will serve on our board of directors prior to
our separation.
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Name
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Age*
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Position
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Larry D. Young
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President, Chief Executive Officer and Director
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John O. Stewart
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Executive Vice President, Chief Financial Officer and Director
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James L. Baldwin, Jr.
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Executive Vice President and General Counsel
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Rodger L. Collins
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President Bottling Group Sales
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Randall E. Gier
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Executive Vice President Marketing and R&D
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Pedro Herrán Gacha
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President Mexico and the Caribbean
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Derry L. Hobson
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Executive Vice President Supply Chain
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James J. Johnston, Jr.
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President Finished Goods and Concentrate Sales
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Lawrence N. Solomon
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Executive Vice President Human Resources
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*
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As of December 31, 2007
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Larry D. Young, President, Chief Executive Officer and
Director.
Mr. Young has served as President
and Chief Executive Officer of Cadbury Schweppes Americas
Beverages business since October 2007. Mr. Young joined
Cadbury Schweppes Americas Beverages as Chief Operating
Officer, as well as President, Bottling Group, 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.
John O. Stewart, Executive Vice President, Chief Financial
Officer and Director.
Mr. Stewart has served
as Executive Vice President and Chief Financial Officer of
Cadbury Schweppes Americas Beverages business 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.
James L. Baldwin, Jr., Executive Vice President and General
Counsel.
Mr. Baldwin has served as Executive
Vice President and General Counsel of Cadbury Schweppes
Americas Beverages business 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.
Rodger L. Collins, President Bottling Group
Sales.
Mr. Collins has served as President
of Sales for the Bottling Group segment of Cadbury
Schweppes Americas Beverages business 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.
Randall E. Gier, Executive Vice President
Marketing and R&D.
Mr. Gier has served
as Executive Vice President of Marketing and R&D of Cadbury
Schweppes Americas Beverages business since March 2004.
From 2002 to 2004, he was the Chief Marketing Officer for Yum!
Brands International. From 1997 to 2002, Mr. Gier was Chief
Marketing Officer for Pizza Hut Inc., and from 1996 to 1997 was
Chief Marketing Officer for KFC.
Pedro Herrán Gacha, President Mexico and the
Caribbean.
Mr. Herrán has served as
President of the Mexico and the Caribbean segment of Cadbury
Schweppes Americas Beverages business since January 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 Executive
Vice President of Supply Chain for Cadbury Schweppes
Americas Beverages business since October 2007. Mr. Hobson
96
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 Finished
Goods and Concentrate
Sales.
Mr. Johnston has served as President
of Finished Goods and Concentrate Sales for Cadbury
Schweppes Americas Beverages business since October 2007.
Prior to that, he was Executive Vice President of Sales, a
position he had held since January 2005. From December 2003 to
January 2005, he was Senior 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
Executive Vice President of Human Resources of Cadbury
Schweppes Americas Beverages business since July 2003.
From May 1999 to June 2003, he served as Senior Vice President
of Human Resources for
Dr Pepper/Seven
Up, prior to which he served on Cadbury Schweppes global
human resources team.
Board of
Directors
At the time of the distribution, we expect that our board of
directors will consist
of 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 intend to comply with these requirements.
Committees
of Our Board of Directors
Upon completion of the separation, the committees of our board
of directors will consist of an audit committee, nominating and
corporate governance committee and a compensation committee.
Each of these committees will be required to comply with the
requirements of the SEC and the New York Stock Exchange
applicable to companies engaging in their initial listing,
including for the audit committee the independence requirements
and the designation of an audit committee financial
expert. Our board of directors intends to adopt a written
charter for each of these committees, which will each be posted
on our website prior to our separation from Cadbury Schweppes.
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 will be 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
currently consists
of , and ,
with serving
as chair. We expect that, upon completion of the separation from
Cadbury
Schweppes, will
qualify as the audit committee financial expert.
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee will be
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. We expect that, upon completion of the separation,
our
97
nominating and corporate governance committee will consist
of , and , with serving
as chair.
Compensation
Committee
Our compensation committee will be 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.
We expect that upon completion of the separation our
compensation committee will consist
of , and , with serving
as chair.
Code
of Ethics
Prior to the completion of the separation, we will adopt 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 will be posted on our website
immediately prior to our separation from Cadbury Schweppes.
Director
Compensation
Non-executive directors will receive compensation from us for
their services on the board of directors or committees.
Executive directors will not receive compensation for their
services as a director. We expect to compensate our
non-executive directors as follows: an annual fee of
$ and an annual equity grant of
$ . In addition, the chairperson of
the board of directors and the chairperson of each committee
will receive an annual incremental fee of
$ for the chairperson of the board
of directors, $ for the
chairperson of the audit committee and
$ , for the chairperson of any
other committee. We also expect to adopt expense reimbursement
and related policies for all directors customary for similar
public companies. No director compensation was paid in 2007.
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. The remuneration committee of the board of directors
of Cadbury Schweppes is currently in the process of establishing
the compensation arrangements for our current NEOs for 2008 as
we transition to being an independent public company and to the
extent they are now established, they are described in this
information statement. Following our separation from Cadbury
Schweppes, our board of directors and its compensation committee
will establish the future compensation arrangements for our
company. As a result, we are not currently able to describe the
post separation compensation arrangements that will be
established by our board of directors and its compensation
committee.
We are also in the process of determining how existing awards
granted to our employees under Cadbury Schweppes plans
will be treated following the separation, and will describe how
they will be treated in this information statement prior to the
distribution.
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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.
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.
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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 consumer goods companies of similar
market capitalization to our business (the Comparator
Group). The Comparator Group was prepared in consultation
with PricewaterhouseCoopers and consisted of the following
companies:
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Anheuser-Busch
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ConAgra
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Hershey Foods
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Pepsi Bottling Group
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Brown-Forman
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Constellation Brands
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Kellogg
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Sara Lee
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Campbell Soup
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General Mills
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Molson Coors Brewing
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Smucker
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Coca-Cola
Enterprises
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Heinz
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PepsiAmericas
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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 Comparator Group.
100
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. Cassagne was eligible for a Target Award based
50% on the performance targets achieved by Cadbury Schweppes and
50% on the performance targets achieved by our business.
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 Schweppes 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.
The determination of the annual incentive amounts for 2007 will
be made in February 2008, after the full year results for 2007
are available, and will be paid in March 2008.
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 shares awarded in 2008 will be made in
February 2008, after the results for the 2005-2007 performance
period are available, and will be paid in March 2008.
Long Term Incentive Plan.
Under the 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
101
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 shares awarded in 2008 will be made in
February 2008, after the results for the 2005-2007 performance
period are available, and will be paid in March 2008.
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.
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
Schweppes 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 Schweppes
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 Schweppes 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.
102
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.
Summary
Compensation Table
The following table sets forth information regarding the
compensation earned by NEOs in 2007.
Summary
Compensation Table
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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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($)(4)
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($)(5)
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($)(6)
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($)(7)
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($)(8)
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($)(9)
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($)
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Larry D. Young,
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2007
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672,266
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35,000
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160,908
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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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5,000
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76,544
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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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55,000
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57,042
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Executive Vice President, Marketing and R&D
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James J. Johnston, Jr.,
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2007
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435,962
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70,000
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51,192
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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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50,000
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572,990
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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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880,000
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2,257,202
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Former President and Chief Executive Officer(2)
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John L. Belsito,
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2007
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474,000
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115,000
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70,515
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Former President, Snapple Distributors(3)
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(1)
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Mr. Young was appointed President and Chief Executive
Officer on October 12, 2007.
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(2)
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Mr. Cassagne, formerly President and Chief Executive
Officer, left the company on October 12, 2007.
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(3)
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Mr. Belsito, formerly President, Snapple Distributors, left
the company on December 19, 2007.
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(4)
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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
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reported on the 2008
Form W-2
and reflected in the Summary Compensation Table in our 2009
proxy statement.
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(5)
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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 to our
audited financial statements for 2007. For further information
on the stock awards granted in 2007, see the Grants of
Plan-Based Awards Table.
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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 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 2007 or prior
years. Assumptions used to calculate these amounts (disregarding
forfeiture assumptions) are included in note
to our audited financial statements for 2007. No option awards
were granted to the NEOs in 2007.
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(7)
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The amounts shown in this column represent the annual incentive
awards for 2007 that will be paid to our NEOs in March 2008
pursuant to the annual incentive plan.
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(8)
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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
to our audited financial statements for 2007 and include amounts
that the NEOs may not be currently entitled to receive because
such amounts are not vested.
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(9)
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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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26,308
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19,000
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4,214
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27,002
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84,383
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160,908
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Mr. Stewart
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19,800
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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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76,544
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Mr. Gier
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19,800
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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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57,042
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Mr. Johnston
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13,760
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14,000
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2,965
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17,549
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2,918
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51,192
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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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473,157
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572,990
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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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13,750
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21,000
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18,688
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17,077
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70,515
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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, $84,383 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, $2,918 for
sporting events; for Mr. Herrán, $23,450 for education
expenses, $84,155 for security expenses, $164,056 for tax
equalization expenses, $43,156 for location allowance, $54,250
for foreign service premium, $101,789 for housing allowance dues
and $2,300 for tax preparation 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 $15,002 for merit bonus. For additional information
about further amounts payable to Mr. Cassagne and
Mr. Belsito, see Separation Arrangements
Related to Mr. Cassagne and Mr. Belsito.
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104
Grants of
Plan-Based Awards
The following table sets forth information regarding equity plan
awards and non-equity incentive plan awards by Cadbury Schweppes
to our NEOs for 2007.
Grants of
Plan-Based Awards
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Grant Date
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Fair Value of
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Estimated Future Payouts Under
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Estimated Future Payouts Under
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Equity
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Non-Equity Incentive Plan Awards(1)
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Equity Incentive Plan Awards(2)
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Incentive
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Grant
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Threshold
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Target
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Maximum
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Threshold
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Target
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Maximum
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Plan Awards
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Name
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Date
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|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(3)($)
|
|
|
|
|
|
Larry D. Young
|
|
|
2/15/07
|
|
|
|
200,000
|
|
|
|
800,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,968
|
|
|
|
|
|
|
|
63,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,745
|
|
|
|
|
|
|
|
59,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
|
2/15/07
|
|
|
|
85,514
|
|
|
|
342,055
|
|
|
|
513,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,616
|
|
|
|
|
|
|
|
32,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
3,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall E. Gier
|
|
|
2/15/07
|
|
|
|
74,588
|
|
|
|
298,350
|
|
|
|
447,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,764
|
|
|
|
|
|
|
|
35,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
|
|
|
|
18,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J. Johnston, Jr.
|
|
|
2/15/07
|
|
|
|
71,500
|
|
|
|
286,000
|
|
|
|
429,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,320
|
|
|
|
|
|
|
|
34,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
|
|
|
|
5,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
|
2/15/07
|
|
|
|
70,525
|
|
|
|
282,100
|
|
|
|
423,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,178
|
|
|
|
|
|
|
|
33,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
|
|
|
|
12,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
|
2/15/07
|
|
|
|
175,073
|
|
|
|
700,290
|
|
|
|
1,050,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,322
|
|
|
|
|
|
|
|
27,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John L. Belsito
|
|
|
2/15/07
|
|
|
|
94,319
|
|
|
|
377,275
|
|
|
|
565,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,632
|
|
|
|
|
|
|
|
15,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
2,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
(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.
|
105
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
|
|
|
|
|
|
|
|
Market
|
|
Equity Incentive
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
Number
|
|
Value of
|
|
Plan Awards:
|
|
Market or Payout
|
|
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
of Shares
|
|
Shares
|
|
Number of
|
|
Value of
|
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
or Units
|
|
or Units
|
|
Unearned Shares,
|
|
Unearned
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
of Stock
|
|
of Stock
|
|
Units, or Other
|
|
Shares, Units, or
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
That Have
|
|
That Have
|
|
Rights That Have
|
|
Other Rights
|
|
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Price
|
|
Expiration
|
|
Not Vested
|
|
Not Vested
|
|
Not Vested
|
|
That Have Not
|
|
|
Name
|
|
Exercisable (#)
|
|
Unexercisable (#)
|
|
Options (#)
|
|
($)(1)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
(#)
|
|
Vested($)(2)
|
|
Grant Date
|
|
Larry D. Young
|
|
|
|
|
|
|
96,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,354
|
|
|
|
54,004
|
|
|
|
6,531
|
|
|
|
81,006
|
|
|
|
3/4/05
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,973
|
|
|
|
24,492
|
|
|
|
2,960
|
|
|
|
36,714
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
92,652
|
|
|
|
11,205
|
|
|
|
138,978
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,206
|
|
|
|
275,426
|
|
|
|
4/8/05
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,352
|
|
|
|
16,769
|
|
|
|
2,028
|
|
|
|
25,154
|
|
|
|
3/4/05
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
|
|
31,814
|
|
|
|
3,848
|
|
|
|
47,728
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
29,160
|
|
|
|
3,527
|
|
|
|
43,746
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,024
|
|
|
|
260,766
|
|
|
|
4/8/05
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,092
|
|
|
|
224,399
|
|
|
|
4/8/05
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,626
|
|
|
|
342,652
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,930
|
|
|
|
420,842
|
|
|
|
3/29/07
|
(5)
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
Market
|
|
Equity Incentive
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
Number
|
|
Value of
|
|
Plan Awards:
|
|
Market or Payout
|
|
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
of Shares
|
|
Shares
|
|
Number of
|
|
Value of
|
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
or Units
|
|
or Units
|
|
Unearned Shares,
|
|
Unearned
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
of Stock
|
|
of Stock
|
|
Units, or Other
|
|
Shares, Units, or
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
That Have
|
|
That Have
|
|
Rights That Have
|
|
Other Rights
|
|
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Price
|
|
Expiration
|
|
Not Vested
|
|
Not Vested
|
|
Not Vested
|
|
That Have Not
|
|
|
Name
|
|
Exercisable (#)
|
|
Unexercisable (#)
|
|
Options (#)
|
|
($)(1)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
(#)
|
|
Vested($)(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,084
|
|
|
|
695,623
|
|
|
|
3/15/02
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,748
|
|
|
|
716,262
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,369
|
|
|
|
847,997
|
|
|
|
4/8/05
|
(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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,004
|
|
|
|
458,969
|
|
|
|
3/15/02
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
10,890
|
|
|
|
1,318
|
|
|
|
16,347
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,720
|
|
|
|
455,447
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,074
|
|
|
|
497,047
|
|
|
|
4/8/05
|
(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 and Mr. Johnston were each granted an award
subject to a performance period from January 1, 2005 to
December 31, 2007 and a vesting date of March 2008;
|
|
|
|
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.
|
107
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
|
|
|
3/4/05
|
|
|
|
10,885
|
|
|
|
|
3/4/06
|
|
|
|
4,933
|
|
|
|
|
3/4/07
|
|
|
|
18,675
|
|
Mr. Johnston
|
|
|
3/4/05
|
|
|
|
3,380
|
|
|
|
|
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
|
|
|
|
5,258
|
|
|
|
|
3/4/07
|
|
|
|
2,196
|
|
|
|
|
(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. Young, Mr. Gier, Mr. Johnston,
Mr. Herrán, Mr. Cassagne and Mr. Belsito
were each granted an award subject to a three-year performance
period from January 1, 2005 to December 31, 2007 and a
vesting date of March 2008;
|
|
|
|
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;
|
|
|
|
|
|
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; and
|
|
|
|
|
|
Mr. Cassagne and Mr. Belsito were each granted an
award, subject initially to a three-year performance period from
January 1, 2003 to December 31, 2005, and subsequently
extended in accordance with the plan rules to a five-year
performance period ending December 31, 2007 and a vesting
date of March 2008.
|
|
|
|
(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.
|
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
Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(4)
|
|
|
258,780
|
|
Randall E. Gier
|
|
|
|
|
|
|
|
|
|
|
20,151
|
(5)
|
|
|
204,686
|
|
James J. Johnston, Jr.
|
|
|
|
|
|
|
|
|
|
|
19,531
|
(5)
|
|
|
198,389
|
|
|
|
|
|
|
|
|
|
|
|
|
2,384
|
(6)
|
|
|
24,216
|
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
200,931
|
|
|
|
16,489
|
(5)
|
|
|
167,489
|
|
Gilbert M. Cassagne
|
|
|
|
|
|
|
|
|
|
|
65,959
|
(5)
|
|
|
669,987
|
|
John L. Belsito
|
|
|
20,000
|
|
|
|
28,440
|
|
|
|
38,309
|
(5)
|
|
|
389,128
|
|
|
|
|
(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 that vested in 2007 under the long term
incentive plan.
|
|
(6)
|
|
The amount shown reflects the number of Cadbury Schweppes
ordinary shares that vested in 2007 under the bonus share
retention plan.
|
109
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.
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
15.08
|
|
|
|
235,000
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
|
Personal Pension Account Plan
|
|
|
|
10.39
|
|
|
|
135,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
10.39
|
|
|
|
220,000
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
|
Personal Pension Account Plan
|
|
|
|
25.74
|
|
|
|
680,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
25.74
|
|
|
|
3,430,000
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
|
25.74
|
|
|
|
450,000
|
|
|
|
|
|
John L. Belsito
|
|
|
Personal Pension Account Plan
|
|
|
|
20.20
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
20.20
|
|
|
|
595,000
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts shown reflect the actuarial present value of
benefits accumulated under the respective plans in accordance
with the assumptions included in note to our
audited financial statements for 2007. These amounts assume that
each NEO retires at age 65. The discount rate used to
determine the present value of accumulated benefits is 6.25%.
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
|
|
|
2
|
3
/
4
%
|
|
|
5
|
1
/
2
%
|
35 but less than 45
|
|
|
3
|
3
/
4
%
|
|
|
7
|
1
/
2
%
|
45 but less than 55
|
|
|
4
|
1
/
2
%
|
|
|
9
|
%
|
55 but less than 65
|
|
|
6
|
%
|
|
|
11
|
%
|
65 but less than 75
|
|
|
8
|
%
|
|
|
13
|
%
|
75 or more
|
|
|
10
|
%
|
|
|
15
|
%
|
110
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 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 sponsors 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 is to restore to PEP participants any PPA
Plan benefits that are limited by statutory restrictions imposed
by the Internal Revenue Code that are 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 sponsors a savings incentive plan (the
SIP), a tax-qualified 401(k) defined contribution
plan. The plan permits 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 matches 100% of the first 4% of base salary that is
deferred to the SIP by a participant. Employees participating in
the SIP are 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
111
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
|
|
Aggregate
|
|
|
|
|
Contributions in
|
|
Contributions in
|
|
Aggregate Earnings
|
|
Withdrawals/
|
|
Aggregate Balance
|
|
|
Last Year
|
|
Last Year
|
|
in Last Year
|
|
Distributions
|
|
at Last 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
|
|
|
37,737
|
|
|
|
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. 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
112
under the PEP automatically vested. Such NEO will also be
entitled to have his accrued and unvested 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 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:
|
|
|
|
|
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 in the
employment agreements of each NEO and are described below in the
section entitled Employment Agreements.
|
|
|
|
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.
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
Termination
|
|
|
|
|
for Cause
|
|
|
|
Without Cause
|
|
|
|
|
or Resignation
|
|
|
|
or Resignation
|
|
|
|
|
without
|
|
|
|
for
|
Name
|
|
Compensation Element
|
|
Good Reason
|
|
Death/Disability
|
|
Good Reason
|
|
Larry D. Young
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,600,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
$
|
800,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Equity Vesting
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
183,112
|
|
|
$
|
183,112
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
940,190
|
|
|
$
|
940,190
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
1,208,249
|
|
|
$
|
1,208,249
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
125,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
3,131,551
|
|
|
$
|
5,657,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
900,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
500,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Equity Vesting
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
53,607
|
|
|
$
|
53,607
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
283,116
|
|
|
$
|
283,116
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
115,995
|
|
|
$
|
115,995
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
28,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
852,718
|
|
|
$
|
2,280,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall E. Gier
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
568,013
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
344,250
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
298,350
|
|
|
$
|
223,763
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Equity Vesting
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
78,204
|
|
|
$
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
656,838
|
|
|
$
|
656,838
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
820,226
|
|
|
$
|
820,226
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
114,246
|
|
|
$
|
114,246
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
164,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,967,864
|
|
|
$
|
2,969,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
Termination
|
|
|
|
|
for Cause
|
|
|
|
Without Cause
|
|
|
|
|
or Resignation
|
|
|
|
or Resignation
|
|
|
|
|
without
|
|
|
|
for
|
Name
|
|
Compensation Element
|
|
Good Reason
|
|
Death/Disability
|
|
Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J.
Johnston, Jr.
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
544,500
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
330,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
286,000
|
|
|
$
|
214,500
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Equity Vesting
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
78,204
|
|
|
$
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
302,713
|
|
|
$
|
302,713
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
795,767
|
|
|
$
|
795,767
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,462,684
|
|
|
$
|
2,284,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
537,075
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
325,500
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
282,100
|
|
|
$
|
211,575
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
78,204
|
|
|
$
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
392,947
|
|
|
$
|
392,947
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
690,600
|
|
|
$
|
690,600
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
266,856
|
|
|
$
|
266,856
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,710,706
|
|
|
$
|
2,521,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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 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.
|
115
|
|
|
(4)
|
|
The amount shown 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.
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
Medical, Dental
|
|
Outplacement
|
|
Pension
|
|
|
|
|
and Vision Benefits
|
|
Services
|
|
Benefit
|
|
|
|
|
($)(a)
|
|
($)
|
|
($)(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.
|
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.
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
116
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.
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|
|
|
|
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Separation from
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Name
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|
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)
|
|
|
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
227,868
|
|
|
|
Long Term Incentive Plan(6)
|
|
$
|
3,686,262
|
|
|
|
Integration Success Share
Plan(7)
|
|
$
|
612,717
|
|
|
|
Other(9)
|
|
$
|
90,756
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,217,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
49,586
|
|
|
|
Long Term Incentive Plan(6)
|
|
$
|
2,219,987
|
|
|
|
Integration Success Share
Plan(7)
|
|
$
|
124,588
|
|
|
|
Bonus Share Retention Plan(8)
|
|
$
|
304,729
|
|
|
|
Other(9)
|
|
$
|
23,006
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,428,295
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount shown represents salary continuation in an amount
equal to (x) the annual base salary and (y) Target
Award.
|
|
(2)
|
|
The amount shown represents a lump sum cash payment equal to the
annual base salary.
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117
|
|
|
(3)
|
|
The amount shown represents a lump sum payment under the annual
incentive plan equal to the Target Award.
|
|
|
|
(4)
|
|
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.
|
|
|
|
(5)
|
|
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.
|
|
|
|
(6)
|
|
The amount shown represents the value of the unvested equity
awards under the long term incentive plan through the employment
termination date.
|
|
|
|
(7)
|
|
The amount shown represents the value of the unvested award
under the integration success share plan pro-rated through the
employment termination date.
|
|
|
|
(8)
|
|
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.
|
|
|
|
(9)
|
|
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 intend to adopt the following plans:
the Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan
of 2008 (the stock incentive plan), the Dr Pepper
Snapple Group, Inc. Annual Cash Incentive Plan (the cash
incentive plan) and the Dr Pepper Snapple Group, Inc.
employee stock purchase plan (the ESPP).
Omnibus Stock Incentive Plan of 2008
Prior to the separation, we intend to adopt the Dr Pepper
Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008, which
will allow 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 expected terms of the stock incentive plan, which is
qualified in its entirety to the provisions of the stock
incentive plan that may be approved by the Cadbury Schweppes
share incentive committee.
Common Stock Available for Awards.
The maximum
number of shares of common stock available for issuance under
the stock incentive plan will
be shares.
In the discretion of our compensation
committee, 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. Because participation and the types of awards under
the stock 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 stock incentive
plan is approved, are not currently determinable.
Administration.
Prior to the separation, the
remuneration committee of the board of directors of Cadbury
Schweppes will administer the stock incentive plan. After the
separation, our compensation committee will administer the stock
incentive plan. Subject to the terms of the stock incentive
plan, the administrator of the plan
118
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 of
restricted stock and restricted stock 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.
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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 and
earnings per share);
|
|
|
|
|
|
expense measures (including those relating to costs of goods
sold, selling, general and administrative expenses and overhead
costs);
|
|
|
|
|
|
operating measures (including those relating to volume, margin,
productivity and market share);
|
|
|
|
|
|
cash flow measures (including those relating to net cash flow
from operating activities and working capital);
|
|
|
|
|
|
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);
|
119
|
|
|
|
|
leverage measures (including those relating to debt-to-equity
ratio and net debt);
|
|
|
|
|
|
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);
|
|
|
|
|
|
corporate value measures (including those relating to
compliance, safety, environmental and personnel
matters); and
|
|
|
|
|
|
other measures such as those relating to acquisitions,
dispositions or customer satisfaction.
|
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.
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 will be the date of the
separation. 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
.
|
|
|
|
|
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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120
|
|
|
|
|
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.
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|
|
|
|
|
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.
|
|
|
|
|
|
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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|
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|
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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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|
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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.
|
121
Cash
Incentive Plan
Prior to the separation, we intend to adopt the Dr Pepper
Snapple Group, Inc. Annual Cash Incentive Plan, which will allow
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, which is
qualified in its entirety to the provisions of the cash
incentive plan that may be approved by Cadbury Schweppes.
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.
Prior to the separation, the
remuneration committee of the board of directors of Cadbury
Schweppes will administer the cash incentive plan. After the
separation, 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.
Our compensation committee will determine the terms, conditions
and limitations applicable to the awards. With respect to
individuals participating in the cash incentive plan for 2008,
the weighting of the performance goals will be based 60% on our
underlying operating profit and 40% on our growth in revenue in
2008. 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 will be the date of the separation.
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.
Employee
Stock Purchase Plan
Prior to the separation, we intend to adopt the Dr Pepper
Snapple Group, Inc. Employee Stock Purchase Plan that provides
for the purchase of shares of our common stock by eligible
employees. The following is a summary of
122
the expected terms of the ESPP, which is qualified in its
entirety to the provisions of the ESPP that may be approved by
the Cadbury Schweppes share incentive committee.
Reserved Shares Available for
Purchase.
Subject to adjustment, the maximum
number of shares available for purchase under the ESPP
is shares.
Eligibility.
Eligible employees may include
certain employees of the company or its subsidiaries that meet
certain requirements defined by our compensation committee
(excluding otherwise eligible employees whose participation in
the ESPP would cause them to own common stock equaling 5% or
more of the combined voting power or value of all classes of our
stock).
Participation.
Participation in the ESPP will
be voluntary and dependent upon each eligible employees
election to contribute a portion of his or her compensation to
an ESPP account, subject to limits set forth in the Internal
Revenue Code.
Administration.
Our compensation committee
will administer the ESPP. Subject to the terms of the ESPP, our
compensation committee will have the authority to interpret
provisions of the plan and make all factual and legal
determinations regarding the plan.
Stock Purchases.
At the determination of our
compensation committee, subject to limits set forth in the
Internal Revenue Code, shares of our common stock may be
purchased on the last business day of the purchase period at
between 85% to 100% of the fair market value of the common stock
on any of (1) the first business day of the purchase
period, (2) the last business day of the purchase period or
(3) the lower of the first or last business day of the
purchase period, as determined by our compensation committee.
Our compensation committee may specify the maximum number of
shares of common stock that each participant may purchase during
any purchase period. A purchase period shall be the
12-month
period commencing on each January 1, or such other period
as may be determined by our compensation committee not to exceed
27 months.
Withdrawal of Participation / Termination of
Employment.
A participant may elect to cease
participation in the ESPP at any time and withdraw all
contributions credited to his or her ESPP account. If a
participants employment with us terminates for any reason,
the participant will automatically cease to participate in the
ESPP and we will refund all contributions credited to his or her
ESPP account without interest.
Adjustments.
If, during a purchase period, 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 right to purchase shares during
any purchase period, the maximum number and price of the shares
of common stock that may be purchased and the number of shares
authorized under the ESPP may be adjusted in order to prevent
enlargement or dilution of the benefits or potential benefits
intended to be made available under the ESPP.
Amendment and Termination.
Our board or our
compensation committee may amend, modify, suspend or terminate
the ESPP; provided, however, that no such action will be taken
without shareholder approval, to the extent shareholder approval
is legally required.
Federal Income Tax Consequences of Awards.
The
ESPP is intended to qualify as an Employee Stock Purchase
Plan under Section 423 of the Internal Revenue Code
(Section 423). Under Section 423, a
participant who purchases common stock through the ESPP will not
recognize any income at the time of the purchase for the
difference between the fair market value of the common stock at
the time of purchase and the purchase price. If a participant
disposes of common stock purchased through the ESPP two or more
years after the first day of the purchase period or one year or
more after the date the purchase right is exercised, whichever
is later, the participant will recognize ordinary income equal
to the lesser of (1) the amount by which the fair market
value of the common stock when purchased exceeds the purchase
price, and (2) the amount, if any, by which the common
stocks fair market value at the time of disposition
exceeds the purchase price. The participants tax basis in
the common stock will be increased by the amount recognized as
ordinary income and any further gain recognized on the
disposition will be treated as long- term capital gain or loss.
In general, we will not be entitled to a tax deduction with
respect to the disposition of common stock described in this
paragraph.
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If the participant disposes of shares of common stock acquired
under the ESPP within two years after the first day of the
purchase right period or within one year after the date the
purchase right is exercised, whichever is later, the participant
will recognize ordinary income, and we will be entitled to a tax
deduction in an amount equal to the excess of the fair market
value of the common stock on the last day of the purchase right
period over the purchase price of the common stock under the
ESPP. The participants tax basis in the common stock will
be increased by the amount recognized as ordinary income. In
addition, upon disposition of the common stock, the participant
will recognize ordinary income or loss equal to the difference
between the price at which the common stock is disposed of and
the cost basis of the common stock, as so increased. We will be
entitled to any tax deduction with respect to the amount
recognized by the participant as ordinary income.
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OWNERSHIP
OF OUR COMMON STOCK
The following table sets forth the expected beneficial ownership
of our common stock calculated as
of ,
2008, based upon the distribution
of shares
of our common stock for each Cadbury Schweppes ordinary share,
by:
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each stockholder who is expected following the distribution to
beneficially own more than 5% of our common stock;
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each named executive officer;
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each of our directors; and
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all of our executive officers and directors as a group.
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To the extent our directors and executive officers own ordinary
shares of Cadbury Schweppes at the time of the distribution,
they will participate in the distribution on the same terms as
other holders of ordinary shares of Cadbury Schweppes.
Following the distribution, we will have an aggregate of
approximately million
shares of common stock outstanding, based on
approximately million
ordinary shares of Cadbury Schweppes outstanding
on ,
2008. Following the distribution, we will have
approximately
holders of our common stock, based upon such number of Cadbury
Schweppes shareholders as
of ,
2008. The percentage ownership of each beneficial owner of
Cadbury Schweppes will be the same in DPS after the distribution.
The number of shares beneficially owned by each stockholder,
director or officer is determined according to the rules of the
SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. The mailing address
for each of the directors and executive officers listed below is
c/o Dr
Pepper Snapple Group, Inc., 5301 Legacy Drive, Plano, Texas
75024.
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Shares of Common Stock
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Beneficially Owned
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Name of Beneficial Owner
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Number
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Percent
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Larry D. Young
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John O. Stewart
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James L. Baldwin, Jr.
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Rodger L. Collins
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Randall E. Gier
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Pedro Herrán Gacha
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Derry L. Hobson
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James J. Johnston, Jr.
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Lawrence N. Solomon
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All executive officers and directors as a group
( persons)
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DESCRIPTION
OF INDEBTEDNESS
New
Financing Arrangements
We intend to enter into new financing arrangements prior to the
separation. We will describe the terms of these new financing
arrangements when they have been negotiated with the lenders,
which will be prior to the distribution. The description will
address, among other terms, the extent to which the financing
arrangements will be secured by our assets or guaranteed by our
subsidiaries and will describe any applicable affirmative and
negative covenants.
126
DESCRIPTION
OF CAPITAL STOCK
Our certificate of incorporation and by-laws will be amended
and restated prior to the separation. The following description
of the material terms of our capital stock contained in the
amended and restated certificate of incorporation and by-laws is
only a summary. You should refer to our amended and restated
certificate of incorporation and by-laws, which are included as
exhibits to the registration statement of which this information
statement is a part, along with the applicable provisions of
Delaware law.
General
Our authorized capital stock consists
of shares
of common stock, par value $0.01 per share,
and shares
of preferred stock, all of which shares of preferred stock are
undesignated. Our board of directors may establish the rights
and preferences of the preferred stock from time to time. After
the distribution, there will
be shares
of our common stock issued and outstanding and no shares of
preferred stock issued and outstanding.
Common
Stock
Each holder of our common stock is entitled to one vote for each
share on all matters to be voted upon by the common stockholders
and there are no cumulative voting rights. Subject to any
preferential rights of any outstanding preferred stock, holders
of our common stock will be entitled to receive ratably the
dividends, if any, as may be declared from time to time by the
board of directors out of funds legally available. If there is a
liquidation, dissolution or winding up of our company, holders
of our common stock would be entitled to share in our assets
remaining after the payment of liabilities and any preferential
rights of any outstanding preferred stock.
Holders of our common stock have no preemptive or conversion
rights or other subscription rights and there are no redemption
or sinking fund provisions applicable to the common stock. After
the distribution, all outstanding shares of our common stock
will be fully paid and non-assessable. The rights, preferences
and privileges of the holders of our common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock which we may
designate and issue in the future.
Preferred
Stock
Under the terms of our amended and restated certificate of
incorporation, our board of directors is authorized, subject to
limitations prescribed by the Delaware General Corporation Law
(DGCL), and by our amended and restated certificate
of incorporation, to issue preferred stock in one or more series
without stockholder approval. Our board of directors has the
discretion, subject to limitations prescribed by the DGCL and by
our amended and restated certificate of incorporation, to
determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, of each
series of preferred stock.
Anti-Takeover
Effects of Various Provisions of Delaware Law and Our
Certificate of Incorporation and By-laws
Provisions of the DGCL and our amended and restated certificate
of incorporation and by-laws could make it more difficult to
acquire us by means of a tender offer, a proxy contest or
otherwise, or to remove incumbent officers and directors. These
provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and takeover bids our board
of directors may consider inadequate and to encourage persons
seeking to acquire control of us to first negotiate with us. We
believe that the benefits of increased protection of our ability
to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages
of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an
improvement of their terms.
Delaware Anti-Takeover Statute.
We are subject
to Section 203 of the DGCL, an anti-takeover statute. In
general, Section 203 of the DGCL prohibits a publicly-held
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years following the time the person became an
127
interested stockholder, unless (with certain exceptions) the
business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together
with affiliates and associates, owns (or within three years
prior to the determination of interested stockholder status did
own) 15% or more of a corporations voting stock. The
existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved
in advance by the board of directors, including discouraging
attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.
No Cumulative Voting.
The DGCL provides that
stockholders are denied the right to cumulate votes in the
election of directors unless our certificate of incorporation
provides otherwise. Our certificate of incorporation does not
provide for cumulative voting.
Limitations on Liability and Indemnification of Officers and
Directors.
The DGCL authorizes corporations to
limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for
breaches of directors fiduciary duties as directors. Our
certificate of incorporation includes provisions that indemnify,
to the fullest extent allowable under the DGCL, the personal
liability of directors or officers for monetary damages for
actions taken as a director or officer of our company, or for
serving at our request as a director or officer or another
position at another corporation or enterprise, as the case may
be. Our certificate of incorporation also provides that we must
indemnify and advance reasonable expenses to our directors and
officers, subject to our receipt of an undertaking from the
indemnified party as may be required under the DGCL. We are also
expressly authorized to carry directors and officers
insurance to protect our company, our directors, officers and
certain employees for some liabilities.
The limitation of liability and indemnification provisions in
our certificate of incorporation may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders.
However, this provision does not limit or eliminate our rights,
or those of any stockholder, to seek non-monetary relief such as
injunction or rescission in the event of a breach of a
directors duty of care. The provisions will not alter the
liability of directors under the federal securities laws. In
addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs
of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. There is currently
no pending material litigation or proceeding against any of our
directors, officers or employees for which indemnification is
sought.
Authorized but Unissued Shares.
Our authorized
but unissued shares of common stock and preferred stock will be
available for future issuance without your approval. We may use
additional shares for a variety of purposes, including future
public offerings to raise additional capital, to fund
acquisitions and as employee compensation. The existence of
authorized but unissued shares of common stock and preferred
stock could render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
Listing
We intend to apply to have our common stock authorized for
listing on the New York Stock Exchange under the symbol
DPS.
Transfer
Agent and Registrar
After the distribution, the transfer agent and registrar for our
common stock will be Computershare Trust Company, N.A.
128
THE
DISTRIBUTION
Background
and Reasons for the Distribution
On March 15, 2007, Cadbury Schweppes announced that it
intended to separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). The board of directors of
Cadbury Schweppes initially determined to simultaneously explore
the potential for both a sale of our company to a third party
and a distribution of our common stock to Cadbury Schweppes
shareholders as alternatives for the separation of the
businesses. After determining that difficult debt market
conditions would not facilitate an acceptable sale process for
the foreseeable future, Cadbury Schweppes announced on
October 10, 2007 that it intended to focus on the
separation of its Americas Beverages business through the
distribution of the common stock of Dr Pepper Snapple Group,
Inc. to Cadbury Schweppes shareholders.
On ,
2008, Cadbury Schweppes board of directors approved the
distribution of our common stock to the shareholders of Cadbury
Schweppes. Cadbury Schweppes believes that the separation of its
Americas Beverages business from its global confectionery
business and its other beverages business (located principally
in Australia) will enhance value for stockholders of
Dr Pepper Snapple Group, Inc. and shareholders of Cadbury
plc, the new parent company of Cadbury Schweppes, by creating
significant opportunities and benefits, including:
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Enhancing focus.
The management of each
company will be allowed to focus on its own business and
strategic priorities. We will be able to continue building our
beverage brands by adding scale through new products and
strengthening its route-to-market. Cadbury plc will be able to
focus on priorities in its global confectionery business and its
other beverages business (located principally in Australia).
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Enabling more efficient capital
allocation.
The separation will enable each
company to allocate its capital more efficiently.
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Providing direct access to capital.
The
separation will provide us with direct access to the debt and
equity capital markets to finance expansion and growth
opportunities.
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Improving ability to pursue strategic
transactions.
Our ability to use our shares as
consideration will improve our ability to pursue our own
strategic initiatives, including acquisitions, joint ventures
and investments.
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Enhancing market recognition with
investors.
Following the separation, investors
will be able to better assess our strengths and more accurately
evaluate our performance compared to companies in the same or
similar industry.
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Increasing ability to attract and retain
employees.
The separation will enable us to offer
key employees equity-based compensation tied directly to the
performance of our business. Incentive compensation arrangements
for key employees tied directly to the market performance of our
common stock will enhance our ability to attract and retain
qualified personnel.
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Neither we nor Cadbury plc can assure you that any of these
benefits will be realized to the extent anticipated, or at all.
We do not anticipate any material changes to our operations as a
result of the distribution. The Americas Beverages operations
conducted by Cadbury Schweppes immediately before the
distribution will be the same as the operations conducted by us
immediately after the distribution. However, our capital
structure and expenses will be different after the distribution.
See Capitalization, Unaudited Pro Forma
Combined Financial Data and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Reorganization
of Cadbury Schweppes and Distribution of Shares of Our Common
Stock
On March 15, 2007, Cadbury Schweppes announced its
intention to separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). On October 10, 2007,
Cadbury Schweppes further announced that it was focusing on a
distribution of the common stock of the Americas Beverages
business to the shareholders of Cadbury Schweppes as the method
by which it would separate the Americas Beverages business from
its global confectionery business and its other beverages
129
business (located principally in Australia). The distribution
will be effected through a series of steps, which ultimately
will result in shareholders of Cadbury Schweppes owning:
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shares of common stock in Dr Pepper Snapple Group, Inc., which
will be listed on the New York Stock Exchange; and
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shares in Cadbury plc, which will be listed on the London Stock
Exchange, with American depositary receipts representing Cadbury
plc ordinary shares listed on the New York Stock Exchange.
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Cadbury Schweppes has scheduled an extraordinary general meeting
of shareholders
for ,
2008 to consider proposals related to the reorganization,
separation and the distribution. Approval by 75% of votes cast
at the shareholder meeting is necessary. Immediately before the
extraordinary general meeting, there will be a shareholder
meeting convened by the High Court of Justice of England and
Wales (the U.K. Court), at which meeting the minimum
vote required for the approval of the proposals is not less than
75% of votes (by value) cast at such meeting.
Following these shareholder meetings, Cadbury Schweppes
currently intends to effect the separation and the distribution
through the following steps:
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Scheme of Arrangement.
Cadbury Schweppes
intends to implement a corporate reorganization pursuant to
which a new company, Cadbury plc, will become the parent company
of Cadbury Schweppes. This corporate reorganization is known as
a scheme of arrangement under UK law. Pursuant to
the scheme of arrangement, all outstanding Cadbury Schweppes
ordinary shares will be cancelled and holders will receive
Cadbury plc ordinary shares, which will be the ongoing ownership
interest in the global confectionery business and its other
beverages business (located principally in Australia), and
Cadbury plc beverage shares, which, ultimately, will
entitle the holders, if the Cadbury plc reduction of capital
becomes effective, to receive shares of our common stock in
connection with the distribution.
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Reduction of Capital and the Distribution of Our Common
Stock
. Shortly after the scheme of arrangement
becomes effective, Cadbury plc will cancel the Cadbury plc
beverage shares (known as a reduction of
capital) and transfer its Americas Beverages business to
DPS. In return for the transfer of the Americas Beverages
business to it, we will distribute shares of its common stock to
holders of Cadbury plc beverage shares.
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The scheme of arrangement, the reduction of capital, the
distribution and the other conditions to the completion of the
distribution are explained in more detail below.
Scheme
of Arrangement and the Issue of Cadbury plc Shares
Cadbury Schweppes intends to implement a corporate
reorganization pursuant to which Cadbury plc, a new company
incorporated under the laws of England and Wales, will become
the holding company of Cadbury Schweppes. This corporate
reorganization will be effected by way of a formal procedure
under the United Kingdom Companies Act of 1985 known as a
scheme of arrangement under UK law.
If the scheme of arrangement becomes effective, the following
will occur:
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Cadbury Schweppes will become a wholly owned subsidiary of
Cadbury plc.
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Cadbury Schweppes ordinary shares will be cancelled and each
holder of Cadbury Schweppes ordinary shares will be entitled to
receive:
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Cadbury plc ordinary shares for
every Cadbury
Schweppes ordinary shares that they hold at the Scheme Record
Time (as defined below); and
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Cadbury plc beverage shares for
every Cadbury
Schweppes ordinary shares that they hold at the Scheme Record
Time. The Cadbury plc beverage shares will be
non-transferable and each will represent the right to
receive shares
of our common stock if the Cadbury plc reduction of capital is
approved by the U.K. Court.
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The number of Cadbury plc ordinary shares and Cadbury plc
beverage shares to be received may change. The
Scheme Record Time will be 6:00 p.m. on the business day
immediately preceding the date on which the scheme of
arrangement becomes effective. The Scheme Record Time is
expected to be 6:00 p.m. (United Kingdom time)
on ,
2008.
The scheme of arrangement is subject to various conditions,
including, among others, the approval by Cadbury Schweppes
shareholders at an extraordinary general meeting and at the U.K.
Court convened shareholder meeting, approval by the U.K. Listing
Authority and London Stock Exchange to admit the Cadbury plc
ordinary shares to trading on the London Stock Exchange, the
approval of the U.K. Court and approval by the NYSE to list the
Cadbury plc ADRs.
The U.K. Court hearing for the scheme of arrangement is
scheduled
for ,
2008.
Cadbury
plc Reduction of Capital and the Issue of Shares of Our Common
Stock
Shortly after the scheme of arrangement becomes effective,
Cadbury plc intends to implement a reduction of capital,
pursuant to which, ultimately, the shares of our common stock
will be distributed.
If the capital reduction is implemented, the following will
occur:
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the share capital of Cadbury plc will be reduced by decreasing
the nominal value of each Cadbury plc ordinary share
from
to
in order to create distributable reserves in Cadbury plc;
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the Cadbury plc beverage shares will be
cancelled; and
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the holders of the Cadbury plc beverage shares will
receive shares
of our common stock for
every
Cadbury plc beverage share that they hold at the Cadbury plc
Reduction of Capital Record Time. The shares of our common stock
will be distributed by us in consideration of the transfer by
Cadbury plc of its Americas Beverages business to us.
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The record date for the cancellation of the Cadbury plc
beverage shares and the distribution of shares of
our common stock will be at 6:00 p.m. on the business day
immediately preceding the date on which the order of the U.K.
Court confirming the Cadbury plc reduction of capital is
registered by the U.K. Registrar of Companies, which is expected
to be
on ,
2008. This date is referred to as the Cadbury plc Reduction of
Capital Record Time.
The reduction of capital is subject to various conditions,
including, among others, the scheme of arrangement having become
effective and the approval of the U.K. Court.
The U.K. Court hearing for the Cadbury plc reduction of capital
is scheduled
for ,
2008.
Conditions
to the Distribution
We expect that the distribution will be completed in the second
quarter of 2008;
provided
that, among other things, the
following conditions have been satisfied or, to the extent
possible, waived by Cadbury Schweppes:
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the SEC has declared effective our registration statement on
Form 10 under the Exchange Act, of which this information
statement forms a part, and no stop orders relating to this
registration statement are in effect;
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Cadbury Schweppes, Cadbury plc and we have received all permits,
registrations and consents required under the securities or blue
sky laws of states or other political subdivisions of the United
States or of foreign jurisdictions in connection with the
distribution;
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Cadbury Schweppes, Cadbury plc and we have received all material
permits, registrations, clearances and consents from
governmental authorities and third persons necessary to permit
the operation of our businesses thereafter;
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the New York Stock Exchange has approved our common stock for
listing, subject to official notice of issuance;
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Cadbury plc has completed the contribution to us of the assets
and operations of its Americas Beverages business described in
this information statement;
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no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the transactions
related thereto, including the transfers of assets and
liabilities contemplated by the separation and distribution
agreement, is in effect;
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the scheme of arrangement having become effective;
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the Cadbury plc reduction of capital having become effective;
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we have completed the financing described in Description
of Indebtedness, and
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no other events or developments shall have occurred that, in the
judgment of the board of directors of Cadbury Schweppes, in its
sole and absolute discretion, would result in the distribution
having a material adverse effect on Cadbury Schweppes or its
shareholders.
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You will not be required to take any further action in order to
receive our common stock, nor will you be required to make any
payment for the shares of our common stock you receive.
Manner of
Effecting the Distribution
The general terms and conditions of the distribution will be set
forth in the separation agreement to be entered into by Cadbury
Schweppes and us. For a description of the expected terms of
that agreement, see Our Relationship with Cadbury plc
After the Distribution Description of Various
Separation and Transition Arrangements Separation
Agreement.
Cadbury Schweppes will contribute the subsidiaries that operate
its Americas Beverages business to us, and we will issue our
common stock to holders of the Cadbury plc beverage
shares. The distribution will be made in book-entry form
on the basis
of shares
of our common stock for each Cadbury plc beverage
share held at the Cadbury plc Reduction of Capital Record
Time. Fractional shares of our common stock will not be
delivered. Instead, the distribution agent will, as soon as is
practicable on or after the distribution date, aggregate into
whole shares of common stock all the fractional shares of our
common stock that otherwise would have been distributed and sell
them in the open market at the prevailing market prices. The
distribution agent, in its sole discretion, without any
influence by Cadbury plc or us, will determine when, through
which broker-dealer and at what price to sell these whole
shares. Any broker-dealer used by the distribution agent will
not be an affiliate of either Cadbury plc or us. Following the
sale, the distribution agent will distribute the aggregate sale
proceeds ratably to holders who were entitled to a fractional
interest in our common stock. The amount of this payment will
depend on the prices at which the aggregated fractional shares
of our common stock are sold by the distribution agent in the
open market. We will be responsible for any payment of brokerage
fees. For a description of our common stock that you will
receive in the distribution, see Description of Capital
Stock.
A book-entry account statement reflecting your ownership of
shares of our common stock will be mailed to you, or your
brokerage account will be credited for the shares, on or
about , 2008.
We will not issue actual stock certificates.
Results
of the Distribution
Following the distribution, we will be an independent,
publicly-traded company owning and operating what had previously
been Cadbury Schweppes Americas Beverages business. We
expect that
approximately shares
of our common stock will be issued and outstanding immediately
following the distribution, based upon the distribution
of shares
of our common stock for each Cadbury Schweppes ordinary share,
and the anticipated number of outstanding Cadbury Schweppes
ordinary shares prior to the Scheme Record Time. The actual
number of shares to be distributed will be determined based on
the number of Cadbury plc beverage shares outstanding at the
Cadbury plc Reduction of Capital Record Time.
On ,
2008, the distribution was approved by a vote of Cadbury
Schweppes ordinary shareholders. You will not be required to
take any further action in order to receive shares of our common
stock in the distribution, nor will you be required to make any
payment for the shares of our common stock you receive. The
distribution remains contingent on the approval of the scheme of
arrangement by the U.K. Court and the subsequent confirmation by
the U.K. Court of the Cadbury plc reduction of capital.
132
Cadbury
Schweppes American Depositary Receipts
Certain holders of Cadbury Schweppes ordinary shares
beneficially own their ordinary shares of Cadbury Schweppes
through Cadbury Schweppes ADRs. Pursuant to the scheme of
arrangement, the holders of Cadbury Schweppes ADRs will receive
new Cadbury plc ADRs. Holders of Cadbury Schweppes ADRs at the
Scheme Record Time will be entitled to the Cadbury plc ordinary
shares and the Cadbury plc beverage shares to which
the Cadbury Schweppes ordinary shares underlying their ADRs are
entitled. These Cadbury plc ordinary shares and Cadbury plc
beverage shares will be held on their behalf by
JPMorgan Chase Bank, N.A., the ADR Depositary. Pursuant to the
Cadbury plc capital reduction, the Cadbury plc beverage
shares will be cancelled, as described above, and the
Depositary will be entitled to receive the shares of our common
stock. In lieu of distributing our shares to the Depositary, the
Depositary will provide our transfer agent with records to
enable such transfer agent to distribute the shares of our
common stock to the former holders of Cadbury Schweppes ADRs
entitled thereto. The Depositary will not be responsible for the
distribution of any of our shares.
Pursuant to the separation and distribution, holders of Cadbury
Schweppes ADRs who own their Cadbury Schweppes ADRs at the
Scheme Record Time will:
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receive ADRs of Cadbury plc, which will be listed
on the New York Stock Exchange for each Cadbury Schweppes
ADR; and
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be entitled to receive shares of our common
stock, which will be listed on the New York Stock Exchange, for
each Cadbury Schweppes ADR.
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Market
for Our Common Stock
There is currently no trading market for our common stock. We
intend to apply to have our common stock authorized for listing
on the New York Stock Exchange under the symbol DPS.
We have not and will not set the initial price of our common
stock. The initial price will be established by the public
markets.
We cannot predict the price at which our common stock will trade
after the distribution. In fact, the combined trading prices
after the separation of the shares of our common stock and the
Cadbury plc ordinary shares that each Cadbury Schweppes
shareholder will receive in the separation may not equal the
trading price of a Cadbury Schweppes ordinary share immediately
prior to the separation. The price at which our common stock
trades is likely to fluctuate significantly, particularly until
an orderly public market develops. Trading prices for our common
stock will be determined in the public markets and may be
influenced by many factors. See Risk Factors
Risks Related to Our Common Stock Our common stock
has no existing public market and the price of our common stock
may be subject to volatility.
Shares of our common stock distributed to holders of Cadbury plc
beverage shares in connection with the distribution
will be transferable without registration under the Securities
Act except for shares received by persons who may be deemed to
be our affiliates. Persons who may be deemed to be our
affiliates after the distribution generally include individuals
or entities that control, are controlled by or are under common
control with us, which may include certain of our executive
officers, directors or principal stockholders. Securities held
by our affiliates will be subject to resale restrictions under
the Securities Act. Our affiliates will be permitted to sell
shares of our common stock only pursuant to an effective
registration statement or an exemption from the registration
requirements of the Securities Act, such as the exemption
afforded by Rule 144 under the Securities Act.
Reason
for Furnishing this Information Statement
This information statement is being furnished solely to provide
information to shareholders of Cadbury Schweppes who will
receive shares of our common stock in connection with the
distribution. It is not provided as an inducement or
encouragement to buy or sell any of our securities. You should
not assume that the information contained in this information
statement is accurate as of any date other than the date set
forth on the cover. Changes to the information contained in this
information statement may occur after that date, and we
undertake no obligation to update the information.
133
MATERIAL
TAX CONSIDERATIONS
The following is a discussion, subject to the limitations and
qualifications set forth therein, of the material U.K. and
material U.S. federal tax consequences of the receipt of
Cadbury plc beverage shares and Cadbury plc ordinary
shares or Cadbury plc ADRs and the receipt, ownership and
disposition of our common stock and is for general information
only and is subject to the qualifications and limitations set
forth herein. This discussion is based upon current U.K. and
U.S. federal tax law, regulations, administrative practice,
rulings and court decisions, the current
U.S.-U.K.
income tax treaty and the current
U.S.-U.K.
estate tax treaty and interpretations thereof, all as they exist
as of the date of this information statement. All of the
foregoing may be repealed, revoked or modified at any time,
possibly with retroactive effect, so as to result in U.K. and
U.S. federal tax consequences different from those
discussed below. This discussion assumes that the transaction
will be consummated in accordance with the separation and
distribution agreement, this information statement and the
private letter ruling request submitted to the IRS.
U.K.
Holders
The following is a discussion for U.K. Holders, as defined
below, of the material U.K. and U.S. federal tax
consequences of the receipt of Cadbury plc beverage
shares and Cadbury plc ordinary shares and their receipt,
ownership and disposition of our common stock. A U.K. Holder for
this purpose is a beneficial owner of Cadbury Schweppes ordinary
shares that is, for U.K. tax purposes, resident or, in the case
of individuals, ordinarily resident in (and only in) the United
Kingdom for tax purposes and who holds our common stock and
Cadbury plc ordinary shares as an investment (and not as
securities to be realized in the course of a trade). This
discussion is for general information only and does not purport
to be a complete description of the consequences of the receipt
of Cadbury plc beverage shares and Cadbury plc
ordinary shares and the receipt, ownership and disposition of
our common stock nor does it address the effects of any non-U.K.
and
non-U.S. tax
laws. The tax treatment of a U.K. Holder may vary depending upon
such U.K. Holders particular situation, and certain U.K.
Holders (including, but not limited to, dealers in securities,
broker-dealers, insurance companies, collective investment
schemes and persons who have acquired (or are deemed for U.K.
tax purposes to have acquired) our common stock and Cadbury plc
ordinary shares by reason of an office or employment) may be
subject to special rules not discussed below.
U.K.
Holders are urged to consult their own tax advisors as to the
specific tax consequences to them of the receipt of Cadbury plc
beverage shares and Cadbury plc ordinary shares and
the receipt, ownership and disposition of our common stock,
including the effect of any non-U.K. and
non-U.S.
tax
laws.
Receipt
of Cadbury plc Beverage Shares, Cadbury plc Ordinary
Shares and Our Common Stock
U.K. Tax Consequences.
U.K. Holders should not
be treated as making a disposal or part disposal of their
Cadbury Schweppes ordinary shares as a result of receiving
Cadbury plc beverage shares and Cadbury plc ordinary
shares in exchange for Cadbury Schweppes ordinary shares
pursuant to the scheme of arrangement, and so no chargeable gain
or allowable loss should arise for U.K. tax purposes. Cadbury
plc beverage shares and Cadbury plc ordinary shares
should be treated as the same asset, and having been acquired at
the same time and for the same consideration, as those Cadbury
Schweppes ordinary shares from which they are derived.
Furthermore, U.K. Holders should not be treated as making a
disposal or part disposal of their beverage shares
as a result of receiving our common stock in exchange for
beverage shares pursuant to the Cadbury plc
reduction of capital, and so no chargeable gain or allowable
loss should arise for U.K. tax purposes. Our common stock should
be treated as the same asset, and having been acquired at the
same time and for the same consideration, as those Cadbury plc
beverage shares from which they are derived.
In summary, our common stock and Cadbury plc ordinary shares
that will be held by a U.K. Holder following the separation
should be treated as the same asset, and having been acquired at
the same time and for the same consideration, as Cadbury
Schweppes ordinary shares.
Accordingly, following the separation, a U.K. Holders
original base cost in their Cadbury Schweppes ordinary shares
should be apportioned between our common stock and their Cadbury
plc ordinary shares by reference to the market quotations of our
common stock and the Cadbury plc ordinary shares on the first
day of dealings in such shares.
134
In the case of any U.K. Holder who, alone or together with
persons connected with him, holds more than 5 per cent of,
or any class of, shares in or debentures of Cadbury Schweppes,
it is a condition for the treatment described in each of the
first two paragraphs above that the transactions are being
effected for bona fide commercial reasons and do not form part
of a scheme or arrangement of which the main purpose, or one of
the main purposes, is an avoidance of liability to U.K.
corporation tax or capital gains tax.
A U.K. Holder who receives cash in lieu of a fractional share of
our common stock or Cadbury plc ordinary shares will normally be
treated as having (i) received that fractional share and
then (ii) sold the fractional share for cash, thereby
making a part disposal of his holding of common stock or Cadbury
plc ordinary shares, as the case may be, which will in effect be
treated as a part disposal of his original holding of Cadbury
Schweppes ordinary shares. However, where the amount of cash
received is small as compared to the value of his
holding, a U.K. Holder may, under current practice of the U.K.
H.M. Revenue and Customs (HMRC), treat the cash
received as a deduction from the base cost of the U.K.
Holders holding of our common stock or Cadbury plc
ordinary shares, as the case may be, rather than as a partial
disposal of such holding. HMRC considers the amount of cash
received to be small when such amount is 5% or less
of the value of such holding or is less than £3,000.
U.S. Federal Income Tax Consequences.
A
U.K. Holder generally will not be subject to U.S. federal
income tax with respect to the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or our
common stock including, any cash received in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock. See U.K. Holders Taxation of
Dispositions of Our Common Stock for a discussion of the
circumstances under which a U.K. Holder would be subject to
U.S. federal income tax with respect to cash received in
lieu of a fractional share of our common stock.
Taxation
of Dividends on Our Common Stock
U.K. Tax Consequences.
No amounts in respect
of U.K. tax will be withheld at source from any dividend
payments on our common stock made to U.K. Holders.
Holders of our common stock who are resident for tax purposes in
the U.K. will, in general, be subject to UK income tax or
corporation tax on the gross amount of dividends paid on our
common stock, rather than on the amount actually received net of
any U.S. withholding tax. Dividends received by such
holders who are within the charge to U.K. corporation tax will
be taxed at the prevailing U.K. corporation tax rate. An
individual will generally be chargeable to U.K. income tax on
dividends paid on our common stock at the dividend ordinary rate
(currently 10%) or, to the extent that the amount of the gross
dividend when treated as the top slice of his or her income
exceeds the threshold for higher rate tax, at the dividend upper
rate (currently 32.5%).
Credit will generally be available for U.S. tax required to
be deducted or withheld from the dividends paid on our common
stock against U.K. income tax or U.K. corporation tax to which
the holder of our common stock is liable, broadly limited to the
amount of such tax attributable to the dividends. As a result,
individual U.K. Holders who are chargeable to U.K. income tax at
the dividend ordinary rate on the whole of such dividends and
who claim such credit through their tax return should have no
further U.K. tax to pay in respect of those dividends.
Individual U.K. Holders who are chargeable to U.K. income tax on
all or any portion of the dividends at the dividend upper rate
and who claim that credit through their tax return should be
able to offset the amount of the available credit against their
U.K. income tax liability. U.K. Holders who are chargeable to
U.K. corporation tax on the dividends and who claim that credit
should generally be able to offset the amount of the available
credit against their U.K. corporation tax liability.
U.K. Holders should be aware that the U.K. government is
presently consulting on changes to the tax regime for foreign
dividends.
U.S. Federal Income Tax Consequences.
If
we make distributions on our common stock, such distributions
will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles. To the extent not paid from our current
or accumulated earnings and profits, distributions on our common
stock will constitute a tax-free return of capital and will
first be applied against and reduce a U.K. Holders
adjusted basis in our common stock, but not below zero, and then
the excess, if any, will be treated as gain from the sale of
common stock. Dividends paid on our common stock to a U.K.
Holder (who is not otherwise subject to U.S. federal income tax)
generally will be subject to withholding of U.S. federal
income tax at a 30% rate. However, assuming such a U.K. Holder
satisfies the
135
requirements of the
U.S.-U.K.
income tax treaty, the rate of withholding on dividends
generally is 15%. In order for a U.K. Holder to claim benefits
under the
U.S.-U.K.
income tax treaty in respect of dividends paid by us, the U.K.
Holder generally will be required to complete IRS
Form W-8BEN
and certify under penalties of perjury that it is not a
U.S. person for U.S. federal income tax purposes.
Special certification and other requirements apply to certain
U.K. Holders that are
pass-through
entities and to U.K. Holders whose stock is held through certain
non-U.S. intermediaries.
A U.K. Holder that is eligible for the reduced rate of
U.S. withholding tax pursuant to the U.S.-U.K. income tax
treaty generally may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim with the IRS.
Taxation
of Dispositions of Our Common Stock
U.K. Tax Consequences.
A subsequent disposal
or deemed disposal of our common stock by a stockholder who is
resident or, in the case of individuals, ordinarily resident in
the U.K. may, depending on individual circumstances (including
the availability of exemptions and reliefs), give rise to a
chargeable gain or allowable loss for the purposes of U.K.
taxation on chargeable gains.
A stockholder who is an individual and who is resident or
ordinarily resident in the U.K. but not domiciled in the U.K.,
will be liable to U.K. capital gains tax only to the extent that
chargeable gains made on the disposal of our common stock are
remitted or deemed to be remitted to the U.K.
U.S. Federal Income Tax Consequences.
A
U.K. Holder generally will not be subject to U.S. federal
income tax with respect to any gain realized on the sale or
other disposition of our common stock unless: (i) the gain
is effectively connected with the conduct of a trade or business
in the United States and, if the
U.S.-U.K.
income tax treaty applies, is attributable to a
U.S. permanent establishment of the U.K. Holder (in this
case, the U.K. Holder will be subject to U.S. federal
income tax on the net gain derived from the disposition in the
same manner as if the U.K. Holder was U.S. person for
U.S. federal income tax purposes, and if the U.K. Holder is
a corporation, it may be subject to the additional branch
profits tax at a 30% rate or a lower rate specified by
U.S.-U.K.
income tax treaty, if applicable); (ii) the U.K. Holder is
an individual present in the United States for 183 days or
more in the taxable year in which the disposition occurs and
certain other conditions are met (in this case, the individual
U.K. Holder will be subject to a flat 30% U.S. federal
income tax on the gain derived from the disposition, which tax
may be offset by U.S. source capital losses); or
(iii) we are or have been a United States real
property holding corporation for U.S. federal income
tax purposes at any time during the shorter of the U.K.
Holders holding period for our common stock and the
five-year period ending on the date of disposition and one or
more other conditions are satisfied. We are not and do not
anticipate becoming a United States real property holding
corporation.
U.S.
Federal Estate Tax Considerations
An individual who is domiciled in the U.K. for purposes of the
U.S.-U.K.
estate tax treaty and who is not a national of or domiciled in
the United States for purposes of the
U.S.-U.K.
estate tax treaty generally will not be subject to
U.S. federal estate tax with respect to our common stock on
the individuals death provided that any applicable U.K.
inheritance tax liability is paid unless the common stock is
part of the business property of a permanent establishment of
the individual in the United States or pertains to a fixed base
of the individual in the United States used for the performance
of independent personal services. In the case where the common
stock is subject to both U.S. federal estate tax and U.K.
inheritance tax, the
U.S.-U.K.
estate tax treaty generally provides for the U.S. federal
estate tax paid to be credited against tax payable in the U.K.
or for the tax paid in the U.K. to be credited against the
U.S. federal estate tax payable based on priority rules set
out in the
U.S.-U.K.
estate tax treaty.
U.S.
Information Reporting and Backup Withholding
Dividends paid to a U.K. Holder may be subject to information
reporting and backup withholding of U.S. federal income
tax. A U.K. Holder will be exempt from backup withholding if
such U.K. Holder properly provides IRS
Form W-8BEN
certifying that such U.K. Holder is a
non-U.S. person
or otherwise meets documentary
136
evidence requirements for establishing that such U.K. Holder is
a
non-U.S. person
or otherwise qualifies for an exemption.
The gross proceeds from the disposition of our common stock may
be subject to information reporting and backup withholding. If a
U.K. Holder sells its common stock outside the United States
through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to such U.K. Holder outside the
United States, then backup withholding and information reporting
requirements generally will not apply to that payment. However,
information reporting but not backup withholding generally will
apply to a payment of sale proceeds, even if that payment is
made outside the United States, if a U.K. Holder sells our
common stock through a
non-U.S. office
of a broker that: (i) is a U.S. person for
U.S. federal income tax purposes; (ii) derives 50% or
more of its gross income in specific periods from the conduct of
a trade or business in the United States; (iii) is a
controlled foreign corporation for U.S. federal
income tax purposes; or (iv) is a
non-U.S. partnership,
if at any time during its tax year (A) one or more of its
partners are U.S. persons who in the aggregate hold more
than 50% of the income or capital interests in the partnership;
or (B) the
non-U.S. partnership
is engaged in a U.S. trade or business, unless, in each
case, the broker has documentary evidence in its files that the
non-U.S. holder
is a
non-U.S. person
and certain other conditions are met, or the
non-U.S. holder
otherwise establishes an exemption.
If a U.K. Holder receives payments of the proceeds of a sale of
our common stock to or through a U.S. office of a broker,
the payment is subject to both information reporting and backup
withholding unless such U.K. Holder properly provides IRS
Form W-8BEN
certifying that such U.K. Holder is a
non-U.S. person
or otherwise establishes an exemption. A U.K. Holder generally
may obtain a refund of any amounts withheld under the backup
withholding rules that exceed such U.K. Holders
U.S. federal income tax liability by timely filing an
appropriate claim with the IRS.
U.K.
Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty or stamp duty reserve tax should be payable
by a U.K. Holder as a result of the cancellation of Cadbury
Schweppes ordinary shares and the issue of Cadbury plc
beverage shares and Cadbury plc ordinary shares
under the scheme of arrangement or as a result of the issue of
our common stock in connection with the separation.
No U.K. stamp duty will be payable by a U.K. Holder on the
transfer of our common stock, provided that any instrument of
transfer is not executed in the United Kingdom and does not
relate to any property situated, or to any matter or thing done
or to be done, in the United Kingdom.
No U.K. stamp duty reserve tax will be payable by a
U.K. Holder in respect of any agreement to transfer our
common stock unless they are registered in a register kept in
the United Kingdom by or on our behalf. It is not intended that
such a register will be kept in the United Kingdom.
Where Cadbury plc ordinary shares are issued or transferred:
(i) to, or to a nominee for, a person whose business is or
includes the provision of clearance services; or (ii) to,
or to a nominee or agent for, a person whose business is or
includes issuing depositary receipts, stamp duty (in the case of
a transfer to such persons) or stamp duty reserve tax may be
payable at the higher rate of 1.5% of the amount or value of the
consideration payable or, in certain circumstances, the value of
the Cadbury plc ordinary shares or, in the case of an issue to
such persons, the issue price of the Cadbury plc ordinary shares
(rounded up to the next £5 in the case of stamp duty). This
liability for stamp duty or stamp duty reserve tax will strictly
be payable by the depositary or clearance service operator or
their nominee, as the case may be, but will in practice
generally be reimbursed by participants in the clearance service
or depositary receipt scheme. Clearance services may opt, under
certain circumstances, for the normal rate of stamp duty or
stamp duty reserve tax (0.5% of the consideration paid) to apply
to issues or transfers of Cadbury plc ordinary shares into, and
to transactions within, such services instead of the higher rate
of 1.5% generally applying to an issue or transfer of Cadbury
plc ordinary shares into the clearance service and the exemption
from stamp duty and stamp duty reserve tax on transfer of
Cadbury plc ordinary shares while in the service.
U.K. Holders who hold their Cadbury Schweppes ordinary
shares in the form of Cadbury Schweppes American Depositary
Shares should not suffer a 1.5% charge on the issue of Cadbury
plc ordinary shares to the Cadbury plc depository and the
receipt of Cadbury plc American Depositary Shares.
137
U.S.
Holders
The following is a discussion of the material U.S. federal
and U.K. tax consequences of the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or
Cadbury plc ADRs and the receipt, ownership and disposition of
our common stock to U.S. Holders that is for general
information only and is subject to the qualifications and
limitations set forth herein. A U.S. Holder for
this purpose is a beneficial owner of Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs that is, for U.S. federal
income tax purposes (i) a citizen or resident of the United
States, (ii) a corporation (or an entity treated for
U.S. federal tax purposes as a corporation) created or
organized under the laws of the United States or of any state
thereof or the District of Columbia, (iii) an estate the
income of which is subject to U.S. federal income tax
regardless of its source, or (iv) a trust if (a) (I) a
court within the United States is able to exercise primary
supervision over the trust, and (II) one or more
U.S. persons have authority to control all substantial
decisions of the trust, or (b) the trust has made an
election under applicable Treasury regulations to be treated as
a U.S. person.
This discussion is for general information only and does not
purport to be a complete description of the consequences of the
receipt of Cadbury plc beverage shares and Cadbury
plc ordinary shares or Cadbury plc ADRs and the receipt,
ownership and disposition of our common stock nor does it
address the effects of any state, local or, except as set forth
herein,
non-U.S. tax
laws. This discussion does not address the tax consequences to a
U.S. Holder (i) that is a resident in, or in the case
of individuals, ordinarily resident in the United Kingdom for
U.K. tax purposes, (ii) where the holding of our common
stock is effectively connected with the conduct of a trade or
business in the U.K., and, if the
U.S.-U.K.
income tax treaty applies, is attributable to a U.K. permanent
establishment of the U.S. Holder, or (iii) that owns
or controls, directly or indirectly (including by attribution
from or through related parties), at least 10% of the voting
stock of Cadbury Schweppes or Cadbury plc. The tax treatment of
a U.S. Holder may vary depending upon such
U.S. Holders particular situation, and certain
U.S. Holders (including, but not limited to, insurance
companies, tax-exempt organizations, financial institutions,
broker-dealers, partners in partnerships that hold Cadbury
Schweppes ordinary shares or ADRs, pass-through entities,
traders in securities who elect to apply a mark-to-market method
of accounting, U.S. Holders who hold their Cadbury
Schweppes ordinary shares or ADRs as part of a
hedge, straddle, conversion,
or constructive sale transaction, individuals who
received Cadbury Schweppes ordinary shares upon the exercise of
employee stock options or otherwise as compensation) may be
subject to special rules not discussed below. The discussion
assumes that U.S. Holders hold their Cadbury Schweppes
ordinary shares or Cadbury Schweppes ADRs and our common stock
as capital assets within the meaning of Section 1221 of the
Internal Revenue Code.
Under general U.S. federal income tax principles, a
U.S. Holder of Cadbury Schweppes ADRs or Cadbury plc ADRs
should be treated as the beneficial owner of the corresponding
number of Cadbury Schweppes ordinary shares or Cadbury plc
ordinary shares held by the ADR depositary and this summary is
based on such treatment.
U.S.
Holders are urged to consult their own tax advisors as to the
specific tax consequences to them of the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or
Cadbury plc ADRs and the receipt, ownership and disposition of
our common stock, including the effect of any state, local or
non-U.S.
tax
laws.
Receipt
of Cadbury plc beverage shares, Cadbury plc Ordinary
Shares or Cadbury plc ADRs and Our Common Stock
U.S. Federal Income Tax
Consequences.
Cadbury Schweppes has requested a
private letter ruling from the IRS that, subject to the facts,
representations and qualifications contained therein, the
receipt of Cadbury plc ordinary shares and our common stock by
Cadbury Schweppes stockholders (along with certain related
restructuring transactions) will qualify for non-recognition
treatment under Sections 355 and 368(a)(1)(F) of the
Internal Revenue Code, except for cash received in exchange for
fractional shares of Cadbury plc ordinary shares or our common
stock, which cash generally will be treated as capital gain. Any
eventual private letter ruling will be based on various facts
and representations, including that certain conditions necessary
to obtain favorable tax treatment under the Internal Revenue
Code have been satisfied, but the private letter ruling will not
represent an independent determination by the IRS that these
conditions have in fact been satisfied. However, as a matter of
practice, the IRS generally will revoke a private letter ruling
only in situations involving an omission or material
138
misstatement of a controlling fact or a change of law. Thus, if
one or more of the controlling facts or representations
contained in any eventual private letter ruling is incorrect in
any material respect, our ability to rely on the private letter
ruling would be jeopardized and the private letter ruling could
be revoked or modified retroactively by the IRS and the receipt
of our common stock found taxable. Cadbury Schweppes is not
aware of any facts or circumstances that would cause the facts
or representations set forth in the request for the private
letter ruling to be untrue or incomplete in any material
respect. In addition, we have covenanted to refrain from taking
certain actions following the distribution that would cause the
distribution to fail to qualify for non-recognition treatment
under Section 355 of the Internal Revenue Code; however, if
one or more of these covenants are breached, the distribution of
our common stock could be taxable to U.S. Holders.
The approach in the private letter ruling request submitted to
the IRS is to disregard the issuance and subsequent cancellation
of the Cadbury plc beverage shares as transitory and
without effect for U.S. federal income tax purposes.
Following this approach and assuming that the receipt of Cadbury
plc ordinary shares or Cadbury plc ADRs and our common stock by
holders of Cadbury Schweppes ordinary shares or Cadbury
Schweppes ADRs (and certain related restructuring transactions)
qualifies for non-recognition treatment under Sections 355
and 368(a)(1)(F) of the Internal Revenue Code, the following
will result for U.S. federal income tax purposes:
(1) No gain or loss will be recognized by (and no amount
will be included in the income of) a U.S. Holder upon the
receipt of Cadbury plc ordinary shares or Cadbury plc ADRs and
our common stock;
(2) Subject to clause (3) below, the aggregate tax
basis of the Cadbury plc ordinary shares or Cadbury plc ADRs in
the hands of a U.S. Holder immediately after the receipt of
the Cadbury plc ordinary shares will be the same as the tax
basis at which the U.S. Holder held its Cadbury Schweppes
ordinary shares or Cadbury Schweppes ADRs immediately before the
receipt of the Cadbury plc ordinary shares or Cadbury plc ADRs;
(3) The aggregate tax basis of the Cadbury plc ordinary
shares or Cadbury plc ADRs (as determined pursuant to
clause (2) above) and our common stock in the hands of a
U.S. Holder immediately after the receipt of our common
stock, including any fractional share interest for which cash is
received, will be the same as the tax basis at which the
U.S. Holder held its Cadbury plc ordinary shares or Cadbury
plc ADRs immediately before the receipt of our common stock, and
such aggregate tax basis will be allocated between the Cadbury
plc ordinary shares or Cadbury plc ADRs and our common stock
based upon their respective fair market values immediately after
the receipt of our common stock;
(4) The holding period for each of the Cadbury plc ordinary
shares or Cadbury plc ADRs and our common stock received by a
U.S. Holder will include the period during which the
U.S. Holder held its Cadbury Schweppes ordinary shares or
Cadbury Schweppes ADRs; and
(5) A U.S. Holder who receives cash in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock will be treated as having sold such fractional share for
cash and generally will recognize capital gain or loss for
U.S. federal income tax purposes in an amount equal to the
difference between the amount of cash received and the
U.S. Holders tax basis in the fractional share. That
capital gain or loss generally will be U.S. source
long-term capital gain or loss if the U.S. Holders
holding period for its Cadbury Schweppes ordinary shares or
Cadbury Schweppes ADRs exceeds one year. The deductibility of
capital losses is subject to limitations under the Internal
Revenue Code. Any cash received from sales of fractional shares
of Cadbury plc ordinary shares in pounds sterling will be
included in income in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the day the
disposition proceeds are received by a U.S. Holder,
regardless of whether the pounds sterling are converted into
U.S. dollars at that time. Gain or loss, if any, recognized
on the sale or disposition of pounds sterling generally will be
ordinary U.S. source income or loss. However, if cash
received in pounds sterling is converted into U.S. dollars
on the day received, a U.S. Holder generally will not be
required to recognize foreign currency gain or loss in respect
of such cash; and
(6) Neither we nor Cadbury plc will recognize gain or loss
in respect of the issuance and distribution of our common stock.
Treasury regulations governing Sections 355 and
368(a)(1)(F) of the Internal Revenue Code require that certain
U.S. Holders with significant ownership in Cadbury
Schweppes that receive Cadbury plc ordinary shares
139
and our common stock attach a statement to their
U.S. federal income tax return for the taxable year in
which such receipt occurs, providing certain information with
respect to the receipt of Cadbury plc ordinary shares and our
common stock. To the extent required by Treasury regulations,
U.S. Holders will be provided with the information
necessary to comply with this requirement. U.S. Holders
should consult their tax advisors in respect to the foregoing
requirement.
If, in contrast to the statement above, the receipt of our
common stock by holders of Cadbury plc ordinary shares or
Cadbury plc ADRs did not qualify for non-recognition treatment
under Section 355 of the Internal Revenue Code, then
contrary to such statements, each U.S. Holder that receives
our common stock will have: (1) a taxable dividend
(provided, as is expected, Cadbury plc has sufficient current
and accumulated earnings and profits (including the current and
accumulated earnings and profits of Cadbury Schweppes) as
determined for U.S. federal income purposes, or, if not so
determined, dividend treatment will be presumed) in an amount
equal to the fair market value of our common stock that was
distributed to such U.S. Holder and the amount of cash
received in lieu of a fractional share of our common stock
(without reduction for any portion of such
U.S. Holders tax basis in its Cadbury plc ordinary
shares or Cadbury plc ADRs); and (2) a tax basis in
our common stock received equal to the fair market value of such
common stock on the date of receipt, and the holding period for
that stock would begin the day after the date of receipt.
Further, there would be no adjustment in tax basis for a
U.S. Holders Cadbury plc ordinary shares or Cadbury
plc ADRs and the tax basis of the Cadbury plc ordinary shares or
Cadbury plc ADRs would equal the U.S. Holders tax
basis in its Cadbury Schweppes ordinary shares or Cadbury
Schweppes ADRs.
Under current law, assuming certain holding period and other
requirements are met, U.S. Holders that are individual
citizens or residents of the United States are subject to
preferential U.S. federal income tax rates on dividends.
U.K. Tax Consequences.
A U.S. Holder will
incur no U.K. tax upon the receipt of Cadbury plc beverage
shares Cadbury plc ordinary shares or Cadbury plc ADRs, or
our common stock, including cash received in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock, if such U.S. Holder is neither resident nor, in the
case of individuals, ordinarily resident in the United Kingdom.
Taxation
of Dividends on Our Common Stock
U.S. Federal Income Tax Consequences.
If
we make distributions on our common stock, such distributions
will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles. To the extent not paid from our current
or accumulated earnings and profits, distributions on our common
stock will constitute a tax-free return of capital and will
first be applied against and reduce a U.S. Holders
adjusted basis in our common stock, but not below zero, and then
the excess, if any, will be treated as gain from the sale of
common stock. Dividends received by a corporate U.S. Holder
will be eligible for the dividends received deduction if the
U.S. Holder meets certain holding period and other
applicable requirements. Dividends received by a non-corporate
U.S. Holder will qualify for reduced rates of taxation if
the U.S. Holder meets certain holding period and other
applicable requirements.
Taxation
of Dispositions of Our Common Stock
U.S. Federal Income Tax Consequences.
A
U.S. Holder generally will recognize capital gain or loss
on the sale or other taxable disposition of our common stock
equal to the difference between (i) the sum of any cash
received and the fair market value of any other property
received, and (ii) the U.S. Holders adjusted tax
basis in the common stock. Any capital gain or loss that a U.S.
Holder recognizes will be long-term capital gain or loss if the
U.S. Holder has held the stock for more than one year.
Long-term capital gain of a non-corporate U.S. Holder is
eligible for a reduced rate of taxation. The deductibility of
capital losses is subject to limitations under the Internal
Revenue Code.
U.K. Tax Consequences.
A U.S. Holder who
is neither resident nor, in the case of individuals, ordinarily
resident for tax purposes in the U.K. will not be liable for
U.K. tax on chargeable gains on the disposal of our common stock
unless the U.S. Holder carries on a trade, profession or
vocation in the U.K. through a branch or agency or, in the case
of a company, a permanent establishment and our common stock has
been used, held or acquired for the purpose of such branch,
agency or permanent establishment.
140
U.K.
Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty or stamp duty reserve tax should be payable
by a U.S. Holder as a result of the cancellation of Cadbury
Schweppes ordinary shares and the issue of Cadbury plc
beverage shares and Cadbury plc ordinary shares
under the scheme of arrangement or as a result of the issue of
our common stock in connection with the separation.
A U.S. Holder will not be subject to U.K. stamp duty
reserve tax on the disposition of our common stock, nor will it
generally be necessary to pay stamp duty on any such
disposition, provided that any instrument of transfer of our
common stock is executed outside the U.K. and does not relate to
any property situated, or to any matter or thing done or to be
done, in the U.K.
No U.K. stamp duty reserve tax will be payable by a
U.S. Holder in respect of any agreement to transfer our
common stock unless they are registered in a register kept in
the United Kingdom by or on our behalf. It is not intended that
such a register will be kept in the United Kingdom.
Where Cadbury plc ordinary shares are issued or transferred:
(i) to, or to a nominee for, a person whose business is or
includes the provision of clearance services; or (ii) to,
or to a nominee or agent for, a person whose business is or
includes issuing depositary receipts, stamp duty (in the case of
a transfer to such persons) or stamp duty reserve tax may be
payable at the higher rate of 1.5% of the amount or value of the
consideration payable or, in certain circumstances, the value of
the Cadbury plc ordinary shares or, in the case of an issue to
such persons, the issue price of the Cadbury plc ordinary shares
(rounded up to the next £5 in the case of stamp duty). This
liability for stamp duty or stamp duty reserve tax will strictly
be payable by the depositary or clearance service operator or
their nominee, as the case may be, but will in practice
generally be reimbursed by participants in the clearance service
or depositary receipt scheme. Clearance services may opt, under
certain circumstances, for the normal rate of stamp duty or
stamp duty reserve tax (0.5% of the consideration paid) to apply
to issues or transfers of Cadbury plc ordinary shares into, and
to transactions within, such services instead of the higher rate
of 1.5% generally applying to an issue or transfer of Cadbury
plc ordinary shares into the clearance service and the exemption
from stamp duty and stamp duty reserve tax on transfer of
Cadbury plc ordinary shares while in the service.
U.S. Holders who hold their Cadbury Schweppes ordinary
shares in the form of Cadbury Schweppes ADRs should not suffer a
1.5% charge on the issue of Cadbury plc ordinary shares to the
Cadbury plc depository and the receipt of Cadbury plc ADRs.
U.S.
Information Reporting and Backup Withholding
Information reporting requirements will generally apply to
U.S. Holders in respect of distributions on our common
stock and the proceeds from a sale of our common stock, unless a
U.S. Holder is a corporation or other person that is exempt
from information reporting requirements. In addition, backup
withholding of U.S. federal income tax will apply to those
payments if a U.S. Holder fails to provide a taxpayer
identification number and certain other information, or a
certification of exempt status, or if the U.S. Holder fails
to report in full interest and dividend income. Any amounts
withheld under the backup withholding rules will be allowed as a
refund or credit against a U.S. Holders
U.S. federal income tax liability provided the required
information is timely furnished to the IRS.
The foregoing discussion of the material U.K. and
U.S. federal tax consequences of the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or
Cadbury plc ADRs and the receipt, ownership and disposition of
our common stock under current U.K. and U.S. federal tax
law is for general information only and is subject to the
qualifications and limitations set forth above. The foregoing
does not purport to address all U.K. and U.S. federal tax
consequences or tax consequences that may arise under the tax
laws of other jurisdictions or that may apply to particular
categories of holders of Cadbury Schweppes ordinary shares or
Cadbury Schweppes ADRs. Holders are urged to consult their own
tax advisors as to the particular tax consequences of the
receipt of Cadbury plc beverage shares, Cadbury plc
ordinary shares or Cadbury plc ADRs and the receipt, ownership
and disposition of our common stock to them, including the
effect of any non-UK and
non-U.S. tax
laws, and the effect of any repeals, revocations or
modifications in tax laws that may affect the tax consequences
described above.
141
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form 10 under the Exchange Act, of which this information
statement forms a part, with respect to our shares of common
stock that holders of ordinary shares and ADRs of Cadbury
Schweppes will receive in the distribution. This information
statement 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 additional information relating
to us, reference is made to the registration statement and the
exhibits to the registration statement, which are on file with
the SEC.
You may inspect and copy the registration statement and the
exhibits to the registration statement that we have filed with
the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room. In
addition, the SEC maintains an Internet site at www.sec.gov,
from which you can electronically access the registration
statement, including the exhibits and schedules to the
registration statement.
Statements contained in this information statement as to the
contents of any contract or other document referred to are not
necessarily complete and in each instance, if the contract or
document is filed as an exhibit, reference is made to the copy
of the contract or other documents filed as an exhibit to the
registration statement. Each statement is qualified in all
respects by the relevant reference.
As a result of the distribution, we will be required to comply
with the full informational and reporting requirements of the
Exchange Act. We will fulfill our obligations with respect to
these requirements by filing Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Proxy Statements and Current Reports on
Form 8-K
and other information with the SEC.
We plan to make available, on our
website , our Annual Reports
on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Proxy Statements, Current Reports on
Form 8-K,
reports filed pursuant to Section 16 and amendments to
those reports as soon as reasonably practicable after we
electronically file or furnish such materials with the SEC. In
addition, we will post the charters of our Audit Committee,
Compensation Committee and Nominating and Corporate Governance
Committee and our Code of Ethics on our website. These charters
and Code of Ethics are not incorporated by reference in this
information statement. We also will provide a copy of these
documents free of charge to stockholders upon request by
contacting Investor Relations at the address or telephone set
forth in Information Statement Summary
Questions and Answers About the Distribution Who do
I contact for information regarding Dr Pepper Snapple
Group, Inc. and the distribution?
142
DR PEPPER
SNAPPLE GROUP, INC.
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
Combined Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Unaudited Interim Condensed Combined Financial Statements:
|
|
|
|
|
|
|
|
F-51
|
|
|
|
|
F-52
|
|
|
|
|
F-53
|
|
|
|
|
F-54
|
|
|
|
|
F-55
|
|
F-1
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, 2006 and
January 1, 2006, and the related combined statements of
operations, cash flows and changes in invested equity for the
fiscal years ended December 31, 2006, January 1, 2006
and January 2, 2005. 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, 2006 and January 1, 2006,
and the results of its operations and its cash flows for the
fiscal years ended December 31, 2006, January 1, 2006
and January 2, 2005 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 to the combined financial
statements, in 2005 the Company changed its method of accounting
for stock based employee compensation to conform to FASB
Statement No. 123(R),
Share-Based Payment
.
/s/ Deloitte & Touche LLP
Dallas, Texas
November 12, 2007
F-2
DR PEPPER
SNAPPLE GROUP, INC.
COMBINED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
(U.S. Dollars in millions)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 2)
|
|
$
|
35
|
|
|
$
|
28
|
|
Accounts receivable (Note 2):
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $14 and $10, respectively)
|
|
|
562
|
|
|
|
287
|
|
Other
|
|
|
18
|
|
|
|
65
|
|
Related party receivable
|
|
|
5
|
|
|
|
3
|
|
Note receivable from related parties (Note 16)
|
|
|
579
|
|
|
|
669
|
|
Inventories (Notes 2 and 4)
|
|
|
300
|
|
|
|
176
|
|
Deferred tax assets (Notes 2 and 9)
|
|
|
61
|
|
|
|
20
|
|
Prepaid and other current assets
|
|
|
72
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,632
|
|
|
|
1,331
|
|
Property, plant and equipment, net (Notes 2 and 6)
|
|
|
755
|
|
|
|
326
|
|
Investments in unconsolidated subsidiaries (Note 7)
|
|
|
12
|
|
|
|
245
|
|
Goodwill, net (Notes 2 and 8)
|
|
|
3,180
|
|
|
|
2,444
|
|
Other intangible assets, net (Notes 2 and 8)
|
|
|
3,651
|
|
|
|
2,949
|
|
Other non-current assets
|
|
|
107
|
|
|
|
131
|
|
Non-current deferred tax assets (Notes 2 and 9)
|
|
|
9
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,346
|
|
|
$
|
7,433
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Invested Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (Note 5)
|
|
$
|
788
|
|
|
$
|
533
|
|
Related party payable
|
|
|
183
|
|
|
|
189
|
|
Current portion of long-term debt payable to related parties
(Note 10)
|
|
|
708
|
|
|
|
404
|
|
Income taxes payable (Notes 2 and 9)
|
|
|
12
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,691
|
|
|
|
1,136
|
|
Long-term debt payable to third parties (Note 10)
|
|
|
543
|
|
|
|
519
|
|
Long-term debt payable to related parties (Note 10)
|
|
|
2,541
|
|
|
|
2,339
|
|
Deferred tax liabilities (Notes 2 and 9)
|
|
|
1,292
|
|
|
|
986
|
|
Other non-current liabilities
|
|
|
29
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,096
|
|
|
|
5,007
|
|
Commitments and contingencies (Notes 11)
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
3,249
|
|
|
|
2,416
|
|
Accumulated other comprehensive income
|
|
|
1
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
9,346
|
|
|
$
|
7,433
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-3
DR PEPPER
SNAPPLE GROUP, INC.
COMBINED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
(U.S. Dollars in millions)
|
|
|
Net sales
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
Cost of sales
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
2,014
|
|
Selling, general and administrative expenses
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
1,135
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
26
|
|
|
|
10
|
|
Restructuring costs (Notes 2 and 12)
|
|
|
27
|
|
|
|
10
|
|
|
|
36
|
|
Gain on disposal of property and intangible assets
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,018
|
|
|
|
906
|
|
|
|
834
|
|
Interest expense
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
Interest income
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
Other expense (income)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
805
|
|
|
|
787
|
|
|
|
703
|
|
Provision for income taxes (Notes 2 and 9)
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
507
|
|
|
|
466
|
|
|
|
433
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
3
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
510
|
|
|
|
487
|
|
|
|
446
|
|
Cumulative effect of change in accounting policy, net of tax
(Note 14)
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-4
DR PEPPER
SNAPPLE GROUP, INC.
COMBINED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
(U.S. Dollars in millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
Amortization expense
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
Provision for doubtful accounts
|
|
|
4
|
|
|
|
1
|
|
|
|
9
|
|
Employee stock-based compensation expense
|
|
|
17
|
|
|
|
22
|
|
|
|
7
|
|
Excess tax benefit on stock-based compensation
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
14
|
|
|
|
56
|
|
|
|
72
|
|
Gain on disposal of property and intangible assets
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
(3
|
)
|
|
|
(21
|
)
|
|
|
(13
|
)
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
10
|
|
|
|
|
|
Other, net
|
|
|
(6
|
)
|
|
|
8
|
|
|
|
5
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in trade accounts receivable
|
|
|
(42
|
)
|
|
|
8
|
|
|
|
23
|
|
(Increase) decrease in related party receivables
|
|
|
(2
|
)
|
|
|
14
|
|
|
|
8
|
|
Decrease (increase) in other accounts receivable
|
|
|
46
|
|
|
|
(40
|
)
|
|
|
(5
|
)
|
Decrease (increase) decrease in inventories
|
|
|
13
|
|
|
|
18
|
|
|
|
(26
|
)
|
Decrease (increase) in prepaid expenses other current assets
|
|
|
8
|
|
|
|
(29
|
)
|
|
|
11
|
|
Increase in other non-current assets
|
|
|
(3
|
)
|
|
|
(19
|
)
|
|
|
(28
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(104
|
)
|
|
|
34
|
|
|
|
(50
|
)
|
Increase in related party payables
|
|
|
13
|
|
|
|
17
|
|
|
|
89
|
|
Increase (decrease) in income taxes payable
|
|
|
2
|
|
|
|
1
|
|
|
|
(21
|
)
|
Increase (decrease) in other non-current liabilities
|
|
|
8
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
581
|
|
|
|
583
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
Purchases of investments and intangible assets
|
|
|
(53
|
)
|
|
|
(35
|
)
|
|
|
(1
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
53
|
|
|
|
36
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
16
|
|
|
|
5
|
|
|
|
8
|
|
Payments on notes receivables
|
|
|
166
|
|
|
|
680
|
|
|
|
617
|
|
Issuances of notes receivables
|
|
|
(91
|
)
|
|
|
(359
|
)
|
|
|
(369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
2,086
|
|
|
|
124
|
|
|
|
1,333
|
|
Repayment of long-term debt
|
|
|
(2,056
|
)
|
|
|
(279
|
)
|
|
|
(1,557
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
Cash distributions
|
|
|
(80
|
)
|
|
|
(381
|
)
|
|
|
|
|
Change in Cadbury Schweppes net investment
|
|
|
(23
|
)
|
|
|
(282
|
)
|
|
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
(799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
7
|
|
|
|
51
|
|
|
|
(5
|
)
|
Currency translation
|
|
|
|
|
|
|
(42
|
)
|
|
|
0
|
|
Cash and cash equivalents at beginning of period
|
|
|
28
|
|
|
|
19
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transfers of property, plant and equipment to other
Cadbury Schweppes companies
|
|
$
|
15
|
|
|
$
|
14
|
|
|
$
|
34
|
|
Non-cash transfers of operating assets and liabilities to other
Cadbury Schweppes companies
|
|
|
16
|
|
|
|
22
|
|
|
|
10
|
|
Non-cash
conversion of debt to equity contribution
|
|
|
|
|
|
|
300
|
|
|
|
|
|
Non-cash reduction in long-term debt from Cadbury Schweppes net
investment
|
|
|
383
|
|
|
|
|
|
|
|
|
|
Cadbury Schweppes or related entities acquisition payments
reflected through Cadbury Schweppes net investment
|
|
|
23
|
|
|
|
27
|
|
|
|
4
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
204
|
|
|
$
|
165
|
|
|
$
|
130
|
|
Income taxes paid
|
|
|
14
|
|
|
|
14
|
|
|
|
18
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-5
DR PEPPER
SNAPPLE GROUP, INC.
COMBINED
STATEMENTS OF CHANGES IN INVESTED EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadbury
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Schweppes
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Net
|
|
|
Comprehensive
|
|
|
Invested
|
|
|
Comprehensive
|
|
|
|
Investment
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
(U.S. Dollars in millions)
|
|
|
Balance at December 28, 2003
|
|
$
|
2,272
|
|
|
$
|
|
(5)
|
|
$
|
2,267
|
|
|
|
|
|
Net income
|
|
|
446
|
|
|
|
|
|
|
|
446
|
|
|
$
|
446
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
(602
|
)
|
|
|
|
|
|
|
(602
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2005
|
|
|
2,116
|
|
|
|
(9
|
)
|
|
|
2,107
|
|
|
|
|
|
Net income
|
|
|
477
|
|
|
|
|
|
|
|
477
|
|
|
$
|
477
|
|
Distributions
|
|
|
(381
|
)
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
204
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
2,416
|
|
|
|
10
|
|
|
|
2,426
|
|
|
|
|
|
Net income
|
|
|
510
|
|
|
|
|
|
|
|
510
|
|
|
$
|
510
|
|
Distributions
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
403
|
|
|
|
|
|
|
|
403
|
|
|
|
|
|
Adoption of FAS 158 (Note 13)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
3,249
|
|
|
$
|
1
|
|
|
$
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-6
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
As of December 31, 2006 and January 1, 2006 and for the fiscal
years
ended December 31, 2006, January 1, 2006 and January 2, 2005
(U.S. Dollar amounts in millions except per share
amounts)
|
|
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 prior to the
distribution of all its outstanding shares of common stock to
shareholders of Cadbury Schweppes. The initial capitalization
was two dollars. Prior to its ownership of Cadbury
Schweppes Americas Beverages business, the Company does
not have any operations. The Company conducts operations in the
United States, Canada, Mexico and 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,
Margaritaville and Roses.
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 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 including
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.
F-7
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The fiscal years presented are the
52-week
period ended December 31, 2006, which is referred to as
2006, the
52-week
period ended January 1, 2006, which is referred to as
2005, and
53-week
period ended January 2, 2005, which is referred to as
2004. The year end dates represent the Sunday
closest to December 31 of each year. Effective 2006, the
Companys fiscal year ends on December 31 of each
year.
|
|
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 we believe 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 most significant estimates and judgments
that the Company makes 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 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
$2,440 million, $928 million and $861 million in
2006, 2005 and 2004, respectively. Net sales are also reported
net of sales taxes and other similar taxes.
Transportation
and Warehousing Costs
The Companys transportation and warehousing costs are
primarily 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
F-8
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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 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 net sales for any period presented and no single
customer accounted for 10% or more of the Companys trade
receivables.
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, plastic bottles and caps,
paperboard packaging, high fructose corn syrup and other
sweeteners, juice, fruit, electricity, fuel and water. Some raw
materials we use 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance, beginning of the year
|
|
$
|
10
|
|
|
$
|
12
|
|
|
$
|
8
|
|
Net charge to costs and expenses
|
|
|
4
|
|
|
|
1
|
|
|
|
9
|
|
Acquisition of subsidiaries
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Write-offs
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
14
|
|
|
$
|
10
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined for all U.S. inventories by the
last-in,
first-out (LIFO) method and for
non-U.S. inventories
by the
first-in,
first-out (FIFO) method. Inventories include raw
materials,
work-in-process,
finished goods, advertising materials, spare parts and other
supplies. The costs of finished goods inventories include raw
materials, direct labor and indirect production and overhead
costs.
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
F-9
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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.
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.
Expenditures for maintenance and repairs 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.
Depreciation is provided on a straight-line basis over the
estimated useful lives of depreciable assets, which range from 3
to 40 years. 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
|
Estimated useful lives are periodically reviewed and, when
warranted, changes are made to them. Long-lived assets are
reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be
recoverable. An impairment loss would be determined when
estimated undiscounted future pre-tax cash flows from the use of
the asset or group of assets, as defined, are less than its
carrying amount. Measurement of an impairment loss is based on
the excess of the carrying amount of the asset or group of
assets over the long-live asset fair value. Fair value is
generally measured using discounted cash flows.
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.
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
F-10
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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.
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
|
|
5-15 years
|
Bottler agreements and distribution rights
|
|
5 years
|
Customer relationships and contracts
|
|
5 -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 and amounted to
$100 million and $129 million, net of accumulated
amortization, for 2006 and 2005, 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 $16 million, $17 million and $17 million for
2006, 2005 and 2004, 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, $11 million and
$10 million for 2006, 2005 and 2004, respectively, and was
recorded as a deduction from net sales.
Research
and Development
Research and development costs are expensed when incurred and
amounted to $24 million, $21 million and
$12 million for 2006, 2005 and 2004, 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 $374 million, $377 million and
$388 million for 2006, 2005 and 2004, respectively. These
expenses are recorded in selling, general and
administrative expenses.
F-11
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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, in
accordance with SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146). Refer to Note 12.
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.
The following table sets forth exchange rate information for the
periods and currencies indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Mexican Peso to US Dollar Exchange Rate
|
|
Year End
|
|
|
Yearly
|
|
|
2006
|
|
|
10.79
|
|
|
|
10.86
|
|
2005
|
|
|
10.64
|
|
|
|
10.88
|
|
2004
|
|
|
11.15
|
|
|
|
11.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Canadian Dollar to US Dollar Exchange Rate
|
|
Year End
|
|
|
Yearly
|
|
|
2006
|
|
|
1.17
|
|
|
|
1.13
|
|
2005
|
|
|
1.17
|
|
|
|
1.21
|
|
2004
|
|
|
1.20
|
|
|
|
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
operations are disposed of.
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 $5 million, $2 million and $6 million
in 2006, 2005 and 2004, respectively.
For all periods prior to December 29, 2003, cumulative
translation adjustments have been presented as a component of
Cadbury Schweppes Net Investment and has not been set forth
separately due to the complex nature of preparing these combined
financial statements for operations that were legally held by
different subsidiaries of Cadbury Schweppes.
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, 2006
and January 1, 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.
F-12
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Companys long-term debt was subject to variable and
fixed interest rates that approximated market rates in 2006,
2005 and 2004. 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 has
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 APB 25
(as defined below) historical compensation cost from equity to
liability and to recognize the difference between this and the
fair value liability through the statement of operations.
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.
In 2004, stock compensation expense was determined based on
Accounting Principles Board (APB) Opinion
No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations. Under APB
25, compensation expense was determined as the difference
between the market price and exercise price of the share-based
award. For fixed plans, compensation cost was determined on the
date of grant. For variable plans, compensation was remeasured
at each balance sheet date until the award vested.
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 our 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. 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
F-13
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
of service, compensation, benefits and claims paid and employer
contributions. These funds are funded as benefits are paid, and
thus do not have an investment strategy or target allocations
for plan assets.
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 February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159,
The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of 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 believes that the adoption of SFAS 159
will not have a material impact on its combined 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 beginning January 1, 2008. The Company believes
that the adoption of SFAS 157 will not have a material
impact on its combined financial statements.
In September 2006, the Securities and Exchange Commission staff
published Staff Accounting Bulletin (SAB)
No. 108,
Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements
(SAB 108).
SAB 108 addresses quantifying the financial statement
effects of misstatements, specifically, how the effects of prior
year uncorrected errors must be considered in quantifying
misstatements in the current year financial statements.
SAB 108 is effective for fiscal years ending after
November 15, 2006. The adoption of SAB 108 by the
Company in 2006 did not have a material impact on its combined
financial statements.
In July 2006, the FASB issued FASB Interpretation
(FIN) No. 48,
Accounting for Uncertainty in
Income Taxes
(FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with SFAS 109. 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. For the Company, FIN 48
was effective beginning January 1, 2007. The cumulative
effect of adopting FIN 48 was a $16 million increase
in tax reserves and a corresponding decrease to operating
retained earnings at January 1, 2007. Upon adoption, the
Companys amount of gross unrecognized tax benefit at
January 1, 2007 was $85 million. Of this amount,
$45 million if recognized, would impact its effective tax
rate.
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 operating 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.
F-14
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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.
The acquisition was accounted for as a purchase under
SFAS No. 141
Business Combinations
(SFAS 141). The following table summarizes
the allocation of the purchase price to approximately 55% of
DPSUBGs assets and liabilities:
|
|
|
|
|
|
|
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 10 years and
5 years, respectively; 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. 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 and
Seven Up Bottling Company of San Francisco
(Easley) for $51 million on August 7,
2006. Goodwill of
F-15
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
$11 million and identifiable intangible assets of
$54 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 $186 million, $322 million and $233 million,
respectively. The goodwill represents benefits of the
acquisitions that are in addition to the fair 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 DPSUBG, AABC, and
Easley, the following liabilities were assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DPSUBG
|
|
|
AABC
|
|
|
Easley
|
|
|
Fair value of assets acquired
|
|
$
|
1,189
|
|
|
$
|
64
|
|
|
$
|
99
|
|
Cash paid by the Company
|
|
|
(347
|
)
|
|
|
(58
|
)
|
|
|
(51
|
)
|
Cash paid by Cadbury Schweppes
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
819
|
|
|
$
|
6
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the 2005 purchase of 5% of DPSUBGs
common stock, Cadbury Schweppes paid $27 million. This
investment was transferred to the Company.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
105
|
|
|
$
|
77
|
|
Work in process
|
|
|
5
|
|
|
|
4
|
|
Finished goods
|
|
|
214
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
Inventories at FIFO cost
|
|
|
324
|
|
|
|
197
|
|
Reduction to LIFO cost
|
|
|
(24
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
300
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
Percent of inventory accounted for by:
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
91
|
%
|
|
|
86
|
%
|
FIFO
|
|
|
9
|
%
|
|
|
14
|
%
|
|
|
5.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Trade accounts payable
|
|
$
|
256
|
|
|
$
|
161
|
|
Customer rebates
|
|
|
184
|
|
|
|
188
|
|
Accrued compensation
|
|
|
96
|
|
|
|
69
|
|
Other current liabilities
|
|
|
252
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
788
|
|
|
$
|
533
|
|
|
|
|
|
|
|
|
|
|
F-16
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Land
|
|
$
|
79
|
|
|
$
|
12
|
|
Buildings and improvements
|
|
|
265
|
|
|
|
164
|
|
Machinery and equipment
|
|
|
472
|
|
|
|
445
|
|
Vending machines
|
|
|
258
|
|
|
|
10
|
|
Software
|
|
|
105
|
|
|
|
95
|
|
Construction-in-progress
|
|
|
75
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
1,254
|
|
|
|
744
|
|
Less: accumulated depreciation and amortization
|
|
|
(499
|
)
|
|
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
755
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, the amount reflected in
buildings and improvements and machinery and
equipment at cost includes $21 million and
$1 million of assets under capital lease, respectively.
There were no assets under capital lease at January 1,
2006. At December 31, 2006 and January 1, 2006, the
net book value of assets under capital lease was
$21 million and $0 million, respectively.
Depreciation expense amounted to $94 million,
$48 million and $53 million in 2006, 2005 and 2004,
respectively.
Capitalized interest was $7 million, $5 million and
$5 million for 2006, 2005 and 2004, respectively.
|
|
7.
|
Investments
in Unconsolidated Subsidiaries
|
The Company has the following investments in companies accounted
for under the equity method:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Dr Pepper/Seven Up Bottling Group
(Ownership of 45% at January 1, 2006)
|
|
$
|
|
|
|
$
|
235
|
|
Other
|
|
|
12
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
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.
F-17
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
At April 30, 2006 and at January 1, 2006, the Company
owned approximately 45% of DPSUBG. At January 2, 2005, the
investment in DPSUBG was approximately 40%. The following
schedules summarize DPSUBGs reported financial information:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
2006 to
|
|
|
For the Years Ended
|
|
|
|
April 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net sales
|
|
$
|
708
|
|
|
$
|
2,042
|
|
|
$
|
1,873
|
|
Cost of goods sold
|
|
|
469
|
|
|
|
1,298
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
239
|
|
|
$
|
744
|
|
|
$
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
32
|
|
|
$
|
134
|
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2
|
|
|
$
|
45
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of the goodwill for the fiscal
years ended December 31, 2006 and January 1, 2006 by
reporting unit are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage
|
|
|
Finished
|
|
|
Bottling
|
|
|
Mexico and
|
|
|
|
|
|
|
Concentrates
|
|
|
Goods
|
|
|
Group
|
|
|
the Caribbean
|
|
|
Total
|
|
|
Balance at January 2, 2005
|
|
$
|
1,415
|
|
|
$
|
989
|
|
|
$
|
|
|
|
$
|
36
|
|
|
$
|
2,440
|
|
Acquisitions (disposals)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Changes due to currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
1,415
|
|
|
|
989
|
|
|
|
2
|
|
|
|
38
|
|
|
|
2,444
|
|
Acquisitions (disposals)
|
|
|
318
|
|
|
|
233
|
|
|
|
186
|
|
|
|
|
|
|
|
737
|
|
Changes due to currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
188
|
|
|
$
|
37
|
|
|
$
|
3,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The gross carrying amount and accumulated amortization of the
Companys intangible assets other than goodwill as of
December 31, 2006 and January 1, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Acquisitions/
|
|
|
Changes Due
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2006
|
|
(years)
|
|
|
Amount
|
|
|
(Disposals)
|
|
|
to Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
2,929
|
|
|
$
|
168
|
|
|
$
|
(1
|
)
|
|
$
|
3,096
|
|
|
$
|
|
|
|
$
|
3,096
|
|
Bottler agreements
|
|
|
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
404
|
|
Distributor Rights
|
|
|
|
|
|
|
7
|
|
|
|
17
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
7
|
|
|
|
19
|
|
|
|
10
|
|
|
|
|
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
17
|
|
Customer relationships
|
|
|
7
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
(8
|
)
|
|
|
65
|
|
Bottler agreements
|
|
|
5
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
|
|
(7
|
)
|
|
|
45
|
|
Pension asset
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,957
|
|
|
$
|
722
|
|
|
$
|
(1
|
)
|
|
$
|
3,678
|
|
|
$
|
(27
|
)
|
|
$
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Acquisitions/
|
|
|
Changes due
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of January 1, 2006
|
|
(years)
|
|
|
Amount
|
|
|
(Disposals)
|
|
|
to Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
2,892
|
|
|
$
|
34
|
|
|
$
|
3
|
|
|
$
|
2,929
|
|
|
$
|
|
|
|
$
|
2,929
|
|
Distributor rights
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
5
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
(8
|
)
|
|
|
11
|
|
Pension asset
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,920
|
|
|
$
|
34
|
|
|
$
|
3
|
|
|
$
|
2,957
|
|
|
$
|
(8
|
)
|
|
$
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets was $19 million,
$3 million and $4 million in 2006, 2005 and 2004,
respectively. No impairment expense was recognized in 2006, 2005
and 2004. Amortization expense of these intangible assets over
the next five years is expected to be the following:
|
|
|
|
|
|
|
Aggregate
|
|
|
Amortization
|
Year
|
|
Expense
|
|
2007
|
|
$
|
27
|
|
2008
|
|
|
27
|
|
2009
|
|
|
23
|
|
2010
|
|
|
23
|
|
2011
|
|
|
10
|
|
F-19
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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 (benefit) 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 Holdings (U.S.) (the
Partnership) and subsidiaries. The provision for
income taxes attributable to continuing operations has the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
220
|
|
|
$
|
176
|
|
|
$
|
147
|
|
State
|
|
|
40
|
|
|
|
32
|
|
|
|
34
|
|
Non-U.S.
|
|
|
23
|
|
|
|
51
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
283
|
|
|
|
259
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
10
|
|
|
|
44
|
|
|
|
48
|
|
State
|
|
|
7
|
|
|
|
26
|
|
|
|
10
|
|
Non-U.S.
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
15
|
|
|
|
62
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
298
|
|
|
$
|
321
|
|
|
$
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, 2005 and 2004, 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.
The major temporary differences that give rise to the net
deferred tax liabilities are intangible assets and fixed asset
depreciation.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statutory federal income tax at 35%
|
|
$
|
283
|
|
|
$
|
283
|
|
|
$
|
251
|
|
State income taxes, net
|
|
|
28
|
|
|
|
30
|
|
|
|
29
|
|
Impact of
non-U.S.
operations
|
|
|
(18
|
)
|
|
|
7
|
|
|
|
4
|
|
Other
|
|
|
5
|
|
|
|
1
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
298
|
|
|
$
|
321
|
|
|
$
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
36.9
|
%
|
|
|
39.7
|
%
|
|
|
37.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
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,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
$
|
10
|
|
|
$
|
8
|
|
Compensation accruals
|
|
|
26
|
|
|
|
15
|
|
Inventory
|
|
|
10
|
|
|
|
5
|
|
Credit and net operating loss carryforwards
|
|
|
9
|
|
|
|
10
|
|
Accrued liabilities
|
|
|
40
|
|
|
|
4
|
|
Other
|
|
|
23
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(104
|
)
|
|
|
(56
|
)
|
Intangible assets
|
|
|
(1,234
|
)
|
|
|
(953
|
)
|
Other
|
|
|
(2
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,340
|
)
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(1,222
|
)
|
|
$
|
(959
|
)
|
|
|
|
|
|
|
|
|
|
The Company has approximately $102 million of
U.S. state and foreign net operating loss carryforwards at
December 31, 2006. Of this total, $85 million are
state net operating losses. Net operating losses generated in
the U.S. state jurisdictions, if unused, will expire from
2007 to 2026. The
non-U.S. net
operating loss carryforwards of $17 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.
Income before income taxes and cumulative effect of change in
accounting policy comprised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
U.S.
|
|
$
|
698
|
|
|
$
|
706
|
|
|
$
|
640
|
|
Non-U.S.
|
|
|
110
|
|
|
|
102
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
808
|
|
|
$
|
808
|
|
|
$
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Long-term
Obligations
|
Debt
Payable to Related Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Loans payable to related parties, with various fixed and
floating interest rates(a)
|
|
$
|
3,249
|
|
|
$
|
2,743
|
|
Less Current portion
|
|
|
(708
|
)
|
|
|
(404
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to related parties
|
|
$
|
2,541
|
|
|
$
|
2,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Debt agreements with related parties are as follows:
|
F-21
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Cadbury
Ireland Limited (CIL)
Total principal owed to CIL was $40 million for both 2006
and 2005. The debt bears interest at a floating rate based on
3-month
LIBOR. Actual rates were 5.36% and 4.54% at December 31,
2006 and January 1, 2006, respectively. The outstanding
principal balance was due in February 2007 and is included in
the current portion of long-term debt. Subsequent to February
2007, the debt remains outstanding and is subject to extension
on a three-month basis. The Company recorded $2 million and
$1 million of interest expense related to these notes for
the fiscal years ended December 31, 2006 and
January 1, 2006, respectively.
Cadbury
Schweppes Finance plc, (CSFPLC)
The Company has a variety of debt agreements with CSFPLC with
maturity dates ranging from February 2007 to May 2011. These
agreements had a combined outstanding principal balance of
$2,937 million and $1,885 million at December 31,
2006 and January 1, 2006, respectively. At
December 31, 2006 and January 1, 2006,
$2,186 million and $1,135 million of the debt were
based upon a floating rate ranging between LIBOR plus 1.5% to
LIBOR plus 2.5%. The remaining principal balance of
$750 million and $750 million at December 31,
2006 and January 1, 2006, respectively had a stated fixed
rate ranging from 5.48% to 5.95%. The Company recorded
$175 million and $99 million of interest expense
related to these notes for the fiscal years ended
December 31, 2006 and January 1, 2006, respectively.
Cadbury
Schweppes Treasury America (CSTA)
Total principal owed to CSTA was $235 million and
$0 million at December 31, 2006 and January 1,
2006, respectively. The note carries a stated rate of 7.25% per
annum and matures in 2013. The Company recorded $11 million
and $0 million of interest expense related to these notes
for the fiscal years ended December 31, 2006 and
January 1, 2006, respectively.
Cadbury
Schweppes Overseas Limited (CSOL)
Total principal owed to CSOL was $22 million and
$413 million at December 31, 2006 and January 1,
2006, respectively. The debt bears interest at a floating rate
based on Mexican LIBOR plus 1.5% and matures in 2009. Actual
rates were 9.89% at December 31, 2006 and January 1,
2006. The Company recorded $15 million and $40 million
of interest expense related to these notes for the fiscal years
ended December 31, 2006 and January 1, 2006,
respectively.
Bruton
Lane Finance Company LLC (BLFCLLC)
The Company had two debt agreements with BLFCLLC with maturity
dates between December 2008 and December 2009, which bore
interest at a floating rate between LIBOR plus .75% to 1.00%.
Total principal owed was $376 million at January 1,
2006 and the Company paid the debt off in September 2006. The
Company recorded $13 million and $21 million of
interest expense related to these notes for the fiscal years
ended December 31, 2006 and January 1, 2006,
respectively.
Cadbury
Adams Canada, Inc. (CACI)
Total principal owed to CACI was $15 million and
$29 million at December 31, 2006 and January 1,
2006, respectively and payable on demand. The debt bears
interest at a floating rate based on 1 month Canadian
LIBOR. Actual rates were 4.26% and 3.30% at December 31,
2006 and January, 1, 2006, respectively. The Company recorded
less than $1 million of interest expense related to this
debt for the fiscal years ended December 31, 2006 and
January 1, 2006, respectively.
F-22
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Debt
Payable to Third Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .325%, due April 2008, payable in
Canadian Dollars)
|
|
$
|
114
|
|
|
$
|
114
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .45%, due April 2010, payable in Canadian
Dollars)
|
|
|
129
|
|
|
|
128
|
|
Bonds payable, 4.90% fixed interest rate. Interest payments due
semiannually. Principal due December 2008. Payable in Canadian
Dollars
|
|
|
278
|
|
|
|
277
|
|
Capital Leases
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
545
|
|
|
|
519
|
|
Less current installments
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to third parties
|
|
$
|
543
|
|
|
$
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
Long
Term Debt Maturities
Long-term debt maturities, excluding capital leases, for the
next five years are as follows:
|
|
|
|
|
2007
|
|
$
|
708
|
|
2008
|
|
|
695
|
|
2009
|
|
|
22
|
|
2010
|
|
|
128
|
|
2011
|
|
|
1,982
|
|
Thereafter
|
|
|
235
|
|
|
|
|
|
|
|
|
$
|
3,770
|
|
|
|
|
|
|
Lines
of Credit
As of December 31, 2006, the Company had available credit
lines totaling $45 million. The Company had unused letters
of credit totaling $7 million outstanding under its
existing credit line facilities. Accordingly, the Companys
maximum borrowing base under these facilities was
$38 million. The Company also had additional unused letters
of credit totaling $24 million for its Bottling Group
operations that were not related to any existing credit
facilities.
F-23
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Lease
Commitments
The Company has leases for certain facilities and equipment
which expire at various dates through 2020. Operating lease
expense was $39 million, $21 million and
$26 million in 2006, 2005 and 2004, respectively, and was
not offset by any sublease rental income. Future minimum lease
payments under capital and operating leases with initial or
remaining noncancellable lease terms in excess of one year as of
December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2007
|
|
$
|
48
|
|
|
$
|
5
|
|
2008
|
|
|
45
|
|
|
|
5
|
|
2009
|
|
|
40
|
|
|
|
5
|
|
2010
|
|
|
36
|
|
|
|
5
|
|
2011
|
|
|
30
|
|
|
|
4
|
|
Thereafter
|
|
|
50
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
249
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest at rates ranging from 6.5% to 12.6%
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
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. There is $22 million
included in long-term debt payable to third parties,
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 relating to our business. The Company does not
believe that the outcome of any 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.
The following is a description of the Companys three most
significant pending legal matters and one recently settled legal
matter:
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 a notice to appeal 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.
F-24
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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.
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 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.
California
Wage Audit
In 2007, one of the Companys subsidiaries, Seven
Up/RC
Bottling Company Inc., was sued by Nicolas Steele 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 class, which has not yet been
certified, consists of all employees of one of the
Companys subsidiaries who have held one of the
approximately 400 merchandiser positions 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 class, the plaintiff claims 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 does not know what the results of an audit
would be and cannot predict the outcome.
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 2) and was fully
reserved at 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-25
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring charges during 2006, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Beverage Concentrates
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
12
|
|
Finished Goods
|
|
|
3
|
|
|
|
3
|
|
|
|
11
|
|
Bottling Group
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Mexico and the Caribbean
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
Corporate
|
|
|
8
|
|
|
|
5
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring Costs
|
|
$
|
27
|
|
|
$
|
10
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 workforce,
integrating back office operations and outsourcing certain
transactional activities. When the Company implements these
programs, we incur various charges, including severance and
other employment-related costs.
The charges recorded during 2006 are primarily related to the
following:
|
|
|
|
|
The 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:
|
|
|
|
|
The implementation of additional phases of the Companys
back office operations service center initiated in 2004; and
|
|
|
|
The closure of its North Brunswick plant initiated in 2004.
|
The charges recorded during 2004 are primarily related to the
following:
|
|
|
|
|
The creation of a back office operations service center
initiated in 2003;
|
|
|
|
Costs of restructuring of the Companys four North American
businesses initiated in 2003; and
|
|
|
|
The closure of the North Brunswick plant initiated in 2004.
|
The Company expects to incur $53 million of total pre-tax,
non-recurring charges primarily related to Bottling Group
integrations upon completion. Approximately $45 million of
these additional charges are expected to be incurred in 2007.
F-26
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Asset
|
|
|
External
|
|
|
Closure
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Write-off
|
|
|
Consulting
|
|
|
Costs
|
|
|
Other
|
|
|
Total
|
|
|
Balance at December 28, 2003
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
12
|
|
2004 Charges
|
|
|
18
|
|
|
|
3
|
|
|
|
5
|
|
|
|
7
|
|
|
|
3
|
|
|
|
36
|
|
2004 Cash Payments
|
|
|
(17
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
(40
|
)
|
2004 Non-Cash Write-offs
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Due to/from Cadbury Schweppes
|
|
|
(1
|
)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2005
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
7
|
|
2005 Charges
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
2005 Cash Payments
|
|
|
(7
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Due to/from Cadbury Schweppes
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
2006 Charges
|
|
|
9
|
|
|
|
3
|
|
|
|
9
|
|
|
|
1
|
|
|
|
5
|
|
|
|
27
|
|
2006 Cash Payments
|
|
|
(7
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(26
|
)
|
Due to/from Cadbury Schweppes
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges recorded by each operating segment were as
follows:
Beverage
Concentrates
Beverage Concentrates recorded restructuring costs of
$5 million, $1 million and $12 million, in 2006,
2005 and 2004, respectively. During 2006, the costs primarily
related to the integration of the Bottling Group. The Beverage
Concentrates segment expects to incur additional charges related
to this restructuring plan of approximately $19 million
over the next two years.
During 2004, the costs primarily related to the restructuring of
the Companys four North American businesses initiated in
2003. The cumulative amount related to this activity incurred to
date was $10 million and was significantly completed in
2005.
Finished
Goods
Finished Goods recorded restructuring costs of $3 million,
$3 million and $11 million in fiscal 2006, 2005 and
2004, respectively. During 2006, the costs primarily related to
the integration of the Bottling Group. No significant additional
costs related to this activity are expected to be incurred by
Finished Goods.
During 2004 and 2005, the costs primarily related to the closure
of the North Brunswick plant announced in 2004 and the
restructuring of the Companys four North American
businesses initiated in 2003. The cumulative amount related to
these activities incurred was $14 million, and the
activities were completed in 2005.
Bottling
Group
During 2006, the Bottling Group recorded restructuring costs of
$8 million 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
$26 million over the next two years.
F-27
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Mexico
and the Caribbean
Mexico and the Caribbean recorded restructuring costs of
$3 million, $1 million and $1 million in 2006,
2005 and 2004, respectively. The costs primarily related to
restructuring actions initiated in 2003 to outsource the
activities of Mexico and the Caribbeans warehousing and
distribution processes. The cumulative amount related to this
activity incurred to date is $6 million. The Company
expects to incur additional costs related to this restructuring
plan of approximately $7 million in the next two years.
Corporate
The Company recorded corporate costs of $8 million,
$5 million and $12 million in 2006, 2005 and 2004,
respectively. During 2006, the costs primarily related to
restructuring actions initiated in 2006, and the human resource
outsourcing program that was initiated in 2005. The Company has
incurred $6 million of costs to date related to the data
center outsourcing restructuring plan and additional charges of
approximately $1 million are expected to be incurred in
2007. The Company has incurred cumulative costs of
$5 million to date and does not expect to incur any
significant additional costs related to the global shared
business service outsource plan.
During 2005, the costs mainly related to the outsourcing of
human resources activities in Mexico and the Caribbean and the
global outsourcing of shared business services that were both
initiated in 2005. The human resource outsourcing program was
significantly complete in 2005.
During 2004, the costs primarily related to the creation of a
shared business services center initiated in 2003. The
cumulative amount related to this activity incurred to date was
$15 million and was completed 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.
F-28
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
As discussed in Note 2, the Company adopted SFAS 158
on December 31, 2006. The impact of this adoption on the
individual line items in the December 31, 2006 Combined
Balance Sheet is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
Adjustments
|
|
After
|
|
|
Application of
|
|
Increase
|
|
Application of
|
|
|
FAS No. 158
|
|
(Decrease)
|
|
FAS No. 158
|
|
Intangible assets (excluding goodwill)
|
|
$
|
3,653
|
|
|
$
|
(2
|
)
|
|
$
|
3,651
|
|
Total assets
|
|
|
9,348
|
|
|
|
(2
|
)
|
|
|
9,346
|
|
Accounts payable and accrued expenses
|
|
|
787
|
|
|
|
1
|
|
|
|
788
|
|
Other non-current liabilities
|
|
|
30
|
|
|
|
(1
|
)
|
|
|
29
|
|
Deferred tax liabilities
|
|
|
1,290
|
|
|
|
2
|
|
|
|
1,292
|
|
Total liabilities
|
|
|
6,094
|
|
|
|
2
|
|
|
|
6,096
|
|
Accumulated other comprehensive income
|
|
|
5
|
|
|
|
(4
|
)
|
|
|
1
|
|
Total invested equity
|
|
|
3,254
|
|
|
|
(4
|
)
|
|
|
3,250
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the U.S. post-retirement
plans was less than $0.5 million for 2006, 2005 and 2004.
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 2007 are each
less than $0.5 million.
The following table summarizes the projected benefit obligation
for U.S. plans as of December 31, 2006 and
January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
As at beginning of year
|
|
$
|
21
|
|
|
$
|
19
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Acquired in business combinations
|
|
|
35
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Actuarial gain/(loss)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at end of year
|
|
$
|
58
|
|
|
$
|
21
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
57
|
|
|
$
|
21
|
|
|
$
|
5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The principal assumptions related to the U.S. defined
benefit plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plan
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted-average discount rate
|
|
|
5.72%
|
|
|
|
5.50%
|
|
|
|
5.70%
|
|
|
|
5.90%
|
|
|
|
5.50%
|
|
|
|
5.70%
|
|
Expected long-term rate of return on assets
|
|
|
7.53%
|
|
|
|
7.30%
|
|
|
|
7.50%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
2.01%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
The following table is a reconciliation of the U.S. defined
benefit pension plans assets:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As at beginning of year
|
|
$
|
19
|
|
|
$
|
15
|
|
Actual return of plan assets
|
|
|
2
|
|
|
|
2
|
|
Employer contribution
|
|
|
2
|
|
|
|
3
|
|
Acquired in business combinations
|
|
|
34
|
|
|
|
|
|
Actuarial gain/loss
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
As at end of year
|
|
$
|
56
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the U.S. post-retirement plans were less
than $0.5 million for both years. 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 2006 and 2005 and January 1, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
|
December 31,
|
|
|
January 1,
|
|
Asset Category
|
|
2006
|
|
|
2006
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
60
|
%
|
Fixed income and other investments
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
F-30
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the Companys funded status
for the U.S. plans as of December 31, 2006 and
January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(58
|
)
|
|
$
|
(21
|
)
|
|
$
|
(6
|
)
|
|
$
|
(4
|
)
|
Plan assets at fair value
|
|
|
56
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
(6
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(4
|
)
|
The following table summarizes amounts recognized in the balance
sheets related to the U.S. plans as of December 31,
2006 and January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Intangible asset
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Other assets
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Non-current liabilities
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Accumulated other comprehensive income
|
|
|
8
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
(7
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in accumulated
other comprehensive income for the U.S. plans as of
December 31, 2006 and January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net gains (losses)
|
|
|
6
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive income (loss)
|
|
$
|
8
|
|
|
$
|
5
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
|
|
December 31,
|
|
January 1,
|
|
December 31,
|
|
January 1,
|
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
Information for plans with an ABO in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
22
|
|
|
$
|
21
|
|
|
$
|
6
|
|
|
$
|
4
|
|
Accumulated benefit obligation
|
|
|
22
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
20
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
F-31
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the expected cash activity for
the U.S. defined benefit plans and postretirement benefit plans
in the future:
|
|
|
|
|
|
|
|
|
Year
|
|
Pension
|
|
Postretirement
|
|
Company contributions 2007
|
|
$
|
3
|
|
|
$
|
1
|
|
Benefit payments
|
|
|
|
|
|
|
|
|
2007
|
|
|
3
|
|
|
|
1
|
|
2008
|
|
|
3
|
|
|
|
1
|
|
2009
|
|
|
3
|
|
|
|
1
|
|
2010
|
|
|
3
|
|
|
|
1
|
|
2011
|
|
|
3
|
|
|
|
|
|
2012 - 2016
|
|
|
19
|
|
|
|
1
|
|
For measuring the expected postretirement benefit obligation for
the U.S. plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2006
|
|
10%
|
2007 - 2011
|
|
1% reduction each year
to an ultimate rate of 5%
in 2011
|
The effect of a 1% increase or decrease in health care trend
rates on the U.S. post-retirement 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
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 2006, 2005 and 2004.
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 2007 are
each less than $0.5 million.
F-32
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the projected benefit obligation
for foreign plans as of December 31, 2006 and
January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
As at beginning of year
|
|
$
|
18
|
|
|
$
|
15
|
|
|
$
|
4
|
|
|
$
|
5
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Curtailments
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain/(loss)
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
Benefits paid
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at end of year
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal assumptions related to the foreign defined benefit
plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plan
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted-average discount rate
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
|
|
6.59
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
|
|
6.59
|
%
|
Expected long-term rate of return on assets
|
|
|
7.61
|
%
|
|
|
7.74
|
%
|
|
|
7.76
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
4.13
|
%
|
|
|
4.27
|
%
|
|
|
4.27
|
%
|
|
|
4.50
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
The following table is a reconciliation of the foreign defined
benefit pension plans assets:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As at beginning of year
|
|
$
|
14
|
|
|
$
|
13
|
|
Actual return of plan assets
|
|
|
2
|
|
|
|
1
|
|
Employer contribution
|
|
|
1
|
|
|
|
1
|
|
Benefits paid
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
As at end of year
|
|
$
|
16
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the foreign postretirement plans were less
than $0.5 million for 2006 and 2005.
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 43% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 57% with fixed income
managers, with an expected long-term rate of return of about
6.7%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
F-33
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The asset allocation for the foreign defined benefit pension
plans as of December 31, 2006 and January 1, 2006 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
|
December 31,
|
|
|
January 1,
|
|
Asset Category
|
|
2006
|
|
|
2006
|
|
|
Equity securities
|
|
|
43
|
%
|
|
|
45
|
%
|
Fixed income and other investments
|
|
|
57
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys funded status
for the foreign plans as of December 31, 2006 and
January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(18
|
)
|
|
$
|
(18
|
)
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
Plan assets at fair value
|
|
|
16
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
The following table summarizes amounts recognized in the
Combined Balance Sheets related to the foreign plans as of
December 31, 2006 and January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Other assets
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Non-current liabilities
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
6
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in other
comprehensive income for the foreign defined benefit plans as of
December 31, 2006 and January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
Net gains (losses)
|
|
|
6
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive income (loss)
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
|
|
December 31,
|
|
January 1,
|
|
December 31,
|
|
January 1,
|
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
Information for plans with an ABO in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
15
|
|
|
$
|
16
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Accumulated benefit obligation
|
|
|
15
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
The following table summarizes the expected cash activity for
the foreign defined benefit plans and postretirement benefit
plans in the future:
|
|
|
|
|
|
|
|
|
Year
|
|
Pension
|
|
Postretirement
|
|
Company contributions 2007
|
|
$
|
1
|
|
|
$
|
|
|
Benefit payments
|
|
|
|
|
|
|
|
|
2007
|
|
|
2
|
|
|
|
|
|
2008
|
|
|
1
|
|
|
|
|
|
2009
|
|
|
1
|
|
|
|
|
|
2010
|
|
|
1
|
|
|
|
|
|
2011
|
|
|
1
|
|
|
|
|
|
2012 - 2016
|
|
|
6
|
|
|
|
1
|
|
For measuring the expected postretirement benefit obligation for
the foreign plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2006
|
|
10%
|
2007 - 2011
|
|
1% reduction each year
to an ultimate rate of 5%
in 2011
|
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.
F-35
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Service cost
|
|
$
|
12
|
|
|
$
|
15
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
15
|
|
|
|
14
|
|
|
|
14
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of actuarial gain
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
22
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated prior service cost for the
U.S. multi-employer plans that will be amortized from
accumulated other comprehensive loss into periodic benefit cost
in 2007 is less than $0.5 million. The estimated net loss
for the defined benefit pension plans that will be amortized
from accumulated other comprehensive loss into periodic benefit
cost in 2007 is $5 million.
Each individual component of and total periodic benefit cost for
the foreign multi-employer plans were less than
$0.5 million for all periods presented in the Combined
Statements of Operations. The Company does not expect any prior
service costs for the foreign multi-employer plans to be
amortized from accumulated other comprehensive loss into
periodic benefit cost in 2007. The estimated net loss for the
foreign multi-employer plans that will be amortized from
accumulated other comprehensive loss into periodic benefit cost
in 2007 is less than $0.5 million.
Contributions paid into the U.S. and foreign multi-employer
plans on the Companys behalf by Cadbury Schweppes were
$98 million and $73 million as of December 31,
2006 and January 1, 2006, 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
$6 million in each of 2006, 2005 and 2004. The
Companys contributions for 2007 are estimated to be
approximately $6 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 compensation expense was
$17 million ($10 million net of tax), $22 million
($13 million net of tax) and $7 million
($4 million net of tax) in 2006, 2005 and 2004,
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 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
F-36
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
date until the award became vested. Stock compensation expense
for 2005 and 2006 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 has
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.
The pro-forma effect had the Company adopted the fair-value
recognition for periods prior to the adoption of
SFAS 123(R) is provided below:
|
|
|
|
|
|
|
2004
|
|
|
Net income, as reported
|
|
$
|
446
|
|
Add: Stock-based compensation included in reported net income,
net of related tax effects
|
|
|
3
|
|
Deduct: Total stock-based employee compensation expense
determined under fair-value-based method for awards, net of
related tax effects
|
|
|
(4
|
)
|
|
|
|
|
|
Net income, as adjusted
|
|
$
|
445
|
|
|
|
|
|
|
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 share-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 in Cadbury Schweppes
Consolidated Balance Sheets. 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 $5 million,
$7 million and $2 million for 2006, 2005 and 2004,
respectively. As of December 31, 2006, there was
$13 million of total unrecognized before-tax compensation
cost related to nonvested share-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 $13 million, $17 million
and $5 million for 2006, 2005 and 2004, 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
F-37
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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.
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 2006, awards for the
2006-2008
performance cycles were made to senior executives. One half of
the conditional shares that vest are transferred immediately.
The transfer of the remaining half is deferred for two years and
is contingent on the participants employment with the
Company not being terminated for cause during that period.
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
|
|
Awards Made for
|
|
|
to 2004
|
|
2004 Forward
|
|
Face value of conditional share award made
|
|
80% of base salary
|
|
120% of base salary (2004 and 2005). 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
|
|
The extent to which some, all or none of the award vests
depends
|
F-38
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
Awards Made Prior
|
|
Awards Made for
|
|
|
to 2004
|
|
2004 Forward
|
|
|
|
on our TSR relative to the Comparator Group:
|
|
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.
|
|
|
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.
|
|
|
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 UK 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-39
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
|
Six Continents*
|
|
Danone
|
|
France
|
Tate & Lyle
|
|
General Mills
|
|
US
|
Unilever
|
|
Heinz
|
|
US
|
Uniq*
|
|
Hershey Foods
|
|
US
|
Whitbread*
|
|
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
|
|
|
Suedzucker*
|
|
Germany
|
|
|
Wrigley+
|
|
US
|
|
|
|
*
|
|
indicates a company dropped from the Comparator Group in 2004
|
|
+
|
|
indicates a company added to the Comparator Group for 2004
forward
|
|
#
|
|
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 2006,
2005 and 2004. 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, $2 million and $0 million in 2006,
2005 and 2004, respectively.
F-40
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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 (UEP) Over the Three Year
|
|
Percentage of Matching Shares
|
Deferral Period Equivalent to:
|
|
Awarded at the End of the Period
|
|
Below 4%
|
|
40% (Threshold)
|
4%
|
|
40%
|
8%
|
|
70%
|
12% or more
|
|
100% (Maximum)
|
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, 3 million and 1 million
in 2006, 2005 and 2004, respectively. 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 2004 and 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,
$2 million and $0 million in 2006, 2005 and 2004,
respectively.
F-41
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Discretionary
Share Option Plans (DSOP)
No option grants were made to Executive Directors in 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 2006. 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, 2004
|
|
After May 21, 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
$10 million, $17 million and $5 million in 2006,
2005 and 2004, 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.
(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
F-42
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
discretionary options. Approximately 540 Cadbury Schweppes
employees were granted awards in 2006. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
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%
|
|
|
|
100%
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
4.8%
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
50%
|
|
|
|
85%
|
|
|
|
N/A
|
|
F-43
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
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
|
|
|
|
4.7%-5.0%
|
|
|
|
4.4%-5.0%
|
|
Expected dividend yield
|
|
|
2.7%
|
|
|
|
3.0%
|
|
|
|
3.0%
|
|
|
|
2.7%-3.2%
|
|
Fair value per award (% of share price at date of grant)
|
|
|
185.8%(1)
|
|
|
|
91.4%UEPS
|
|
|
|
23.3%
|
|
|
|
91.6%-99.2%
|
|
|
|
|
|
|
|
|
49.5%TSR
|
|
|
|
|
|
|
|
|
|
Possibility of ceasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employment before vesting
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
|
|
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 at December 31,
2006, and changes during the year ended December 31, 2006,
is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
|
(000)
|
|
|
Fair Value
|
|
|
Non-vested at January 2, 2006
|
|
$
|
899
|
|
|
$
|
5.57
|
|
Granted
|
|
|
1,310
|
|
|
|
7.89
|
|
Vested
|
|
|
(100
|
)
|
|
|
6.32
|
|
Forfeitures
|
|
|
(242
|
)
|
|
|
6.16
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2006
|
|
$
|
1,867
|
|
|
|
6.92
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of shares vested during the year
was $1 million in each of 2006, 2005 and 2004.
F-44
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
A summary of option activity during 2006, 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
|
|
|
25,752
|
|
|
$
|
7.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,644
|
)
|
|
|
7.64
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(439
|
)
|
|
|
8.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
22,669
|
|
|
$
|
8.62
|
|
|
|
6.0 years
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
14,805
|
|
|
$
|
8.23
|
|
|
|
4.9 years
|
|
|
$
|
37
|
|
The Company presents segment information in accordance with
SFAS No. 131,
Disclosures about Segments of an
Enterprise and Related Information
(SFAS 131),
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, gross contribution before marketing
(GCBM) 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, 2006, the Companys operating
structure consisted of the following five 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
non-CSD 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 Snapple Distributors segment reflects sales from the
distribution of finished beverages primarily Snapple, in New
York City and the surrounding regions.
|
|
|
|
The Mexico and Caribbean segment reflects sales from the
manufacture, bottling and/or distribution of both concentrates
and finished beverages in those geographies.
|
Under management reporting, transactions between segments are
eliminated except to the Bottling Group.
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.
The Company has significant intersegment transactions. For
example, the Bottling Group segment purchases concentrates from
the Beverage Concentrates segment. In addition, the Snapple
Distributors segment purchases
F-45
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
finished beverages from the Finished Goods segment. These sales
are eliminated in preparing the Companys combined results
of operations.
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, Snapple Distributors 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 2006, 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
$
|
1,238
|
|
Finished Goods
|
|
|
1,337
|
|
|
|
1,342
|
|
|
|
1,287
|
|
Bottling Group
|
|
|
1,701
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
271
|
|
|
|
241
|
|
|
|
241
|
|
Mexico and the Caribbean
|
|
|
408
|
|
|
|
354
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
5,047
|
|
|
|
3,241
|
|
|
|
3,076
|
|
Adjustments and eliminations
|
|
|
(312
|
)
|
|
|
(36
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Contribution Before Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,206
|
|
|
$
|
1,169
|
|
|
$
|
1,117
|
|
Finished Goods
|
|
|
686
|
|
|
|
674
|
|
|
|
665
|
|
Bottling Group
|
|
|
590
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
53
|
|
|
|
52
|
|
|
|
54
|
|
Mexico and the Caribbean
|
|
|
234
|
|
|
|
208
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
2,769
|
|
|
|
2,103
|
|
|
|
2,020
|
|
Adjustments and eliminations
|
|
|
(28
|
)
|
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as reported
|
|
$
|
2,741
|
|
|
$
|
2,085
|
|
|
$
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
710
|
|
|
$
|
657
|
|
|
$
|
626
|
|
Finished Goods
|
|
|
172
|
|
|
|
165
|
|
|
|
242
|
|
Bottling Group
|
|
|
84
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
46
|
|
|
|
44
|
|
|
|
1
|
|
Mexico and the Caribbean
|
|
|
102
|
|
|
|
96
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
1,114
|
|
|
|
962
|
|
|
|
952
|
|
Corporate and other
|
|
|
(14
|
)
|
|
|
11
|
|
|
|
(20
|
)
|
Adjustments and eliminations
|
|
|
(295
|
)
|
|
|
(186
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings
of unconsolidated subsidiaries and cumulative effect of change
in accounting policy
|
|
$
|
805
|
|
|
$
|
787
|
|
|
$
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
14
|
|
Finished Goods
|
|
|
21
|
|
|
|
22
|
|
|
|
24
|
|
Bottling Group
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Mexico and the Caribbean
|
|
|
11
|
|
|
|
10
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
94
|
|
|
|
49
|
|
|
|
51
|
|
Corporate and other
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
Adjustments and eliminations
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation as reported
|
|
$
|
94
|
|
|
$
|
48
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
81
|
|
|
$
|
80
|
|
|
|
|
|
Finished Goods
|
|
|
122
|
|
|
|
122
|
|
|
|
|
|
Bottling Group
|
|
|
457
|
|
|
|
|
|
|
|
|
|
Snapple Distributors
|
|
|
19
|
|
|
|
21
|
|
|
|
|
|
Mexico and the Caribbean
|
|
|
71
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
750
|
|
|
|
294
|
|
|
|
|
|
Corporate and other
|
|
|
23
|
|
|
|
26
|
|
|
|
|
|
Adjustments and eliminations
|
|
|
(18
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net as reported
|
|
|
755
|
|
|
|
326
|
|
|
|
|
|
Current assets as reported
|
|
|
1,632
|
|
|
|
1,331
|
|
|
|
|
|
All other non-current assets as reported
|
|
|
6,959
|
|
|
|
5,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as reported
|
|
$
|
9,346
|
|
|
$
|
7,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Reconciliation
of Segment Information
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment. These sales
amounted to $310 million in 2006 and are eliminated in the
Combined Statement of Operations.
Total segment GCBM in 2006 and in 2005 includes gross
contribution attributable to Beverage Concentrates and Finished
Goods sales to the Bottling Group segment. The portion
attributed to these sales was $19 million and was
eliminated in the Combined Statements of Operations. The other
significant adjustment to reconcile GCBM to gross
profit was related to inventory purchase accounting
adjustments at Bottling Group.
The significant adjustments to reconcile UOP to income
before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy are interest expense and restructuring
charges.
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 2006,
2005 and 2004 is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,151
|
|
|
$
|
2,675
|
|
|
$
|
2,596
|
|
International
|
|
|
584
|
|
|
|
530
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2006
|
|
|
2006
|
|
|
Property, plant and equipment net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
681
|
|
|
$
|
251
|
|
International
|
|
|
74
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
$
|
755
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
Major
Customers
None of the Companys customers accounted for 10% or more
of total net sales.
|
|
16.
|
Related
Party Transactions
|
Allocated
Expenses
The Company has been allocated corporate overhead expenses from
Cadbury Schweppes and its subsidiaries for corporate-related
functions based on the most relevant allocation method to the
service provided. To the extent expenses have been paid by
Cadbury Schweppes and its subsidiaries 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 that management
believes is reasonable, primarily either as a percentage of
revenue or headcount of the Company as a percentage of
headcount. The Company was allocated $142 million,
$115 million and $154 million of overhead costs in
2006, 2005 and 2004, respectively.
F-48
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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 U.S. 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, $9 million and
$8 million for 2006, 2005 and 2004, respectively.
Purchase
of Intangibles
The Company purchased certain trademarks from Cadbury Schweppes
for a total purchase price of $34 million and
$34 million in 2006 and 2005, respectively. These purchases
were substantially equivalent to those that prevail in an
arms length transaction. In both years, these trademarks
were determined to be perpetual trademarks with indefinite lives.
Notes
Receivable
The Company holds note receivable balances with CSFPLC (a
wholly-owned subsidiary of the Cadbury Schweppes) for which
CSFPLC owed the Company $579 million and $669 million
in 2006 and 2005. The notes generated $25 million and
$26 million of interest income for December 31, 2006
and January 1, 2006, respectively. In addition, the Company
recorded $10 million of interest income in 2005 for a
$300 million note receivable from Cadbury Trebor Bassett (a
wholly-owned subsidiary of the Cadbury Schweppes) which the
Company settled in the same year.
Debt
and Related Items
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.
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, $125 million and $123 million during
2006, 2005 and 2004, 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, $426 million and
$393 million during 2006, 2005 and 2004, respectively.
F-49
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Sales of
finished goods
DPSUBG purchased finished product from the Company for sale to
retailers. The Companys finished product sales totaled
$16 million, $53 million and $62 million during
2006, 2005 and 2004, respectively.
The Company had recorded receivables from DPSUBG relating to the
above transactions totaling $64 million at January 1,
2006.
SeaBev
Acquisition
On July 11, 2007, the Company acquired the Jacksonville,
Florida-based Southeast-Atlantic Beverage Corp.
(SeaBev), the second largest independent bottling
and distribution company in the United States, for approximately
$53 million. SeaBev has 2 manufacturing facilities and 16
warehouses and distribution centers located from Miami to
Atlanta. It distributes many of the Companys CSDs and
non-CSDs throughout Florida and Northern Georgia,
providing the Company with expanded geographic coverage and a
more integrated business.
Glacéau
Termination
Following its acquisition by Coca-Cola on August 30, 2007,
Energy Brands, Inc. notified the Company that it was terminating
the Companys distribution agreements for glacéau
products, including vitaminwater, fruitwater and smartwater,
effective November 2, 2007. Pursuant to the terms of the
agreement, the Company expects to receive a payment from Energy
Brands, Inc. of approximately $90 million for this
termination.
Organizational
Restructuring
On October 10, 2007, the Company announced a restructuring
of its organization that is intended to create a more efficient
organization. This restructuring will result in a reduction of
approximately 470 employees. As a result of the
restructuring, the Company expects to recognize a charge of
approximately $70 million primarily in 2007, with the
balance in 2008. The Company expects the restructuring to
generate annual cost savings of approximately $70 million
most of which are expected to be realized in 2008 with the full
annual benefit realized from 2009 onwards. As part of this
restructuring, the Bottling Group segment has assumed management
and operational control of the Snapple Distributors segment.
These operations are currently being integrated and will be
reported in the Companys 2007 annual results as a single
segment.
* * * * *
F-50
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(U.S. dollars in millions)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34
|
|
|
$
|
35
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $21 and $14, respectively)
|
|
|
609
|
|
|
|
562
|
|
Other
|
|
|
30
|
|
|
|
18
|
|
Related party receivable
|
|
|
11
|
|
|
|
5
|
|
Notes receivable from related parties (Note 14)
|
|
|
1,931
|
|
|
|
579
|
|
Inventories (Note 3)
|
|
|
352
|
|
|
|
300
|
|
Deferred tax assets
|
|
|
57
|
|
|
|
61
|
|
Prepaid and other current assets
|
|
|
94
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,118
|
|
|
|
1,632
|
|
Property, plant and equipment, net
|
|
|
795
|
|
|
|
755
|
|
Investment in unconsolidated subsidiaries
|
|
|
14
|
|
|
|
12
|
|
Goodwill, net (Note 4)
|
|
|
3,211
|
|
|
|
3,180
|
|
Other intangible assets, net (Note 4)
|
|
|
3,635
|
|
|
|
3,651
|
|
Other non-current assets (Note 5)
|
|
|
95
|
|
|
|
107
|
|
Non-current deferred tax assets
|
|
|
28
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,896
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND INVESTED EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (Note 6)
|
|
$
|
763
|
|
|
$
|
788
|
|
Related party payable
|
|
|
509
|
|
|
|
183
|
|
Current portion of long-term debt payable to third parties
(Note 8)
|
|
|
40
|
|
|
|
|
|
Current portion of long-term debt payable to related parties
(Note 8)
|
|
|
218
|
|
|
|
708
|
|
Income taxes payable
|
|
|
24
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,554
|
|
|
|
1,691
|
|
Long-term debt payable to third parties (Note 8)
|
|
|
23
|
|
|
|
543
|
|
Long-term debt payable to related parties (Note 8)
|
|
|
2,946
|
|
|
|
2,541
|
|
Deferred tax liabilities
|
|
|
1,267
|
|
|
|
1,292
|
|
Other non-current liabilities
|
|
|
114
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,904
|
|
|
|
6,096
|
|
Commitments and contingencies (Notes 9)
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
4,964
|
|
|
|
3,249
|
|
Accumulated other comprehensive income
|
|
|
28
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
4,992
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
10,896
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed combined financial statements.
F-51
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
January 2, 2006 -
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
(Unaudited)
|
|
|
|
(U.S. Dollars in millions)
|
|
|
Net sales
|
|
$
|
4,347
|
|
|
$
|
3,380
|
|
Cost of sales
|
|
|
1,984
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,363
|
|
|
|
1,981
|
|
Selling, general and administrative expenses
|
|
|
1,527
|
|
|
|
1,239
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
44
|
|
Restructuring costs (Note 10)
|
|
|
36
|
|
|
|
9
|
|
Gain on disposal of property and intangible assets
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
731
|
|
|
|
721
|
|
Interest expense
|
|
|
195
|
|
|
|
189
|
|
Interest income
|
|
|
(38
|
)
|
|
|
(35
|
)
|
Other (income) expense
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
576
|
|
|
|
562
|
|
Provision for income taxes (Note 7)
|
|
|
218
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
358
|
|
|
|
356
|
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
359
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed combined financial statements.
F-52
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
January 2, 2006 -
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
(Unaudited)
|
|
|
|
(U.S. Dollars in millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
359
|
|
|
$
|
359
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
89
|
|
|
|
65
|
|
Amortization expense
|
|
|
38
|
|
|
|
33
|
|
Provision for doubtful accounts
|
|
|
10
|
|
|
|
(2
|
)
|
Employee stock-based compensation expense
|
|
|
14
|
|
|
|
12
|
|
Excess tax benefit on stock-based compensation
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Deferred income taxes
|
|
|
(36
|
)
|
|
|
1
|
|
Gain on disposal of intangible assets
|
|
|
|
|
|
|
(32
|
)
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Other, net
|
|
|
|
|
|
|
(4
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Increase in trade accounts receivable
|
|
|
(38
|
)
|
|
|
(8
|
)
|
(Increase) decrease in other accounts receivable
|
|
|
(9
|
)
|
|
|
41
|
|
(Increase) in related party receivable
|
|
|
(8
|
)
|
|
|
(18
|
)
|
(Increase) decrease in inventories
|
|
|
(41
|
)
|
|
|
9
|
|
Decrease (increase) in prepaid expenses other current assets
|
|
|
5
|
|
|
|
(9
|
)
|
(Increase) decrease in other assets
|
|
|
(6
|
)
|
|
|
32
|
|
Decrease in other non-current assets
|
|
|
4
|
|
|
|
1
|
|
(Decrease) in accounts payable and accrued expenses
|
|
|
(48
|
)
|
|
|
(93
|
)
|
Increase in related party payables
|
|
|
350
|
|
|
|
131
|
|
Increase in income taxes payable
|
|
|
9
|
|
|
|
|
|
Increase in other non-current liabilities
|
|
|
71
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
757
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
(20
|
)
|
|
|
(436
|
)
|
Purchases of investments and intangible assets
|
|
|
(4
|
)
|
|
|
(54
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
|
|
|
|
53
|
|
Purchases of property, plant and equipment
|
|
|
(123
|
)
|
|
|
(79
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
1
|
|
|
|
12
|
|
Issuances of notes receivable
|
|
|
(1,829
|
)
|
|
|
(56
|
)
|
Repayment of notes receivables
|
|
|
525
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,450
|
)
|
|
|
(550
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
2,803
|
|
|
|
1,218
|
|
Repayment of long-term debt
|
|
|
(3,232
|
)
|
|
|
(1,157
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
4
|
|
|
|
1
|
|
Cash distributions
|
|
|
(189
|
)
|
|
|
|
|
Change in Cadbury Schweppes net investment
|
|
|
1,305
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
691
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
(2
|
)
|
|
|
52
|
|
Currency translation
|
|
|
1
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
35
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
34
|
|
|
$
|
80
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
Non-cash transfers of property, plant and equipment to other
Cadbury Schweppes companies
|
|
$
|
9
|
|
|
$
|
9
|
|
Non-cash transfers of operating assets and liabilities to other
Cadbury Schweppes companies
|
|
|
40
|
|
|
|
2
|
|
Non-cash reduction in long term debt from Cadbury Schweppes net
investment
|
|
|
257
|
|
|
|
383
|
|
Cadbury Schweppes or related entities acquisition payments
reflected through Cadbury Schweppes net investment
|
|
|
17
|
|
|
|
27
|
|
Non-cash issuance of note payable related to acquisition
|
|
|
38
|
|
|
|
|
|
Operating liabilities expected to be reimbursed by Cadbury
Schweppes
|
|
|
12
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
182
|
|
|
$
|
91
|
|
Income taxes paid
|
|
|
26
|
|
|
|
11
|
|
The accompanying notes are an integral part of these unaudited
condensed combined financial statements.
F-53
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Company
|
|
|
Comprehensive
|
|
|
Invested
|
|
|
Comprehensive
|
|
|
|
Net Investment
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(U.S. Dollars in millions)
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
3,249
|
|
|
$
|
1
|
|
|
$
|
3,250
|
|
|
|
|
|
Net income
|
|
|
359
|
|
|
|
|
|
|
|
359
|
|
|
$
|
359
|
|
Distributions
|
|
|
(189
|
)
|
|
|
|
|
|
|
(189
|
)
|
|
|
|
|
Movement in Cadbury Schweppes investments, net
|
|
|
1,561
|
|
|
|
|
|
|
|
1,561
|
|
|
|
|
|
Adoption of FIN 48 (Note 7)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
4,964
|
|
|
$
|
28
|
|
|
$
|
4,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed combined financial statements.
F-54
|
|
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 prior to the
distribution of all its outstanding shares of common stock to
shareholders of Cadbury Schweppes. The initial capitalization
was two dollars. Prior to ownership of Cadbury Schweppes
Americas Beverages business, the Company does 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,
Margaritaville and Roses.
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 accompanying financial information as of September 30,
2007 and for the nine months ended September 30, 2007 and
the period from January 2, 2006 to September 30, 2006
consist of the Companys businesses. The Company has
prepared these combined financial statements, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to such rules and
regulations. These combined financial statements should be read
in conjunction with the Companys annual combined financial
statements and the notes thereto.
In the opinion of management, the unaudited financial
information reflects all adjustments, which are normal recurring
adjustments, necessary to present a fair statement of financial
position, results of operations and cash flows. The results of
operations for the nine months ended September 30, 2007 are
not necessarily indicative of the operating results that may be
expected for the full year or any future period.
The 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
Schweppess Americas Beverages business and include
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverages 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
F-55
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
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 be 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 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 interim periods presented are the nine months ended
September 30, 2007 and the period from January 2, 2006
as the Companys fiscal year 2006 began on January 2,
2006 due to the Companys previous policy of utilizing year
end dates which represented the Sunday closest to
December 31 each year. Effective 2006, the Companys
fiscal year ends on December 31 of each year.
New
Accounting Standards
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141 (revised 2007),
Business Combinations
(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. The Company is currently
evaluating the provisions of SFAS 141(R) and has not
determined the impact, if any, on its combined financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). SFAS 160 improves the
relevance, comparability, and transparency of financial
information provided to investors by requiring all entities to
report noncontrolling interests in subsidiaries as equity in the
consolidated financial statements. SFAS 160 is effective
for the Company beginning January 1, 2009. The Company is
currently evaluating the provisions of SFAS 160 and has not
determined the impact, if any, on its combined financial
statements.
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 of option has been elected will be
recognized in earnings at each subsequent in earnings at each
subsequent reporting date. SFAS 159 is effective for the
Company January 1, 2008. The Company believes that the
adoption of SFAS 159 will not have a material impact on its
combined financial statements.
F-56
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
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
combined 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 full
ownership of DPSUBG. DPSUBGs principal operations are the
bottling and distribution of beverages produced by the
Companys Beverage Concentrates and Finished Goods
operating 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 beverages
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 in cash
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. None of
the goodwill is deductible for tax purposes.
The acquisition was accounted for as a purchase under
SFAS No. 141,
Business Combinations
(SFAS 141). The following table summarizes
the allocation of the purchase price of approximately 55% of
DPSUBGs assets and liabilities:
|
|
|
|
|
|
|
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 10 years and
5 years, respectively; 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.
F-57
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
The following unaudited proforma summary presents the results of
operations as if the acquisition of DPSUBG had occurred on
January 2, 2006. The proforma information may not be
indicative of future performance.
|
|
|
|
|
|
|
January 2, 2006
|
|
|
|
September 30, 2006
|
|
|
Sales
|
|
$
|
4,088
|
|
|
|
|
|
|
Net income
|
|
$
|
349
|
|
|
|
|
|
|
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 $39 million and
identifiable intangible assets of $54 million were
recorded. The Company has not yet completed its fair value
assessment of the assets acquired and liabilities assumed of the
SeaBev acquisition. We expect to have this assessment completed
by the end of first quarter 2008. 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 $218 million, $322 million and $233 million,
respectively. The goodwill represents benefits of the
acquisitions that are in addition to the fair value of the net
assets acquired and the anticipated increased profitability
arising from the future revenue and cost synergies arising from
the combination.
Supplemental
schedule of non-cash investing activities:
In conjunction with the acquisitions of DPSUBG, AABC, Easley and
SeaBev the following liabilities were assumed as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
SeaBev
|
|
|
DPSUBG
|
|
|
AABC
|
|
|
Easley
|
|
|
Fair value of assets acquired
|
|
$
|
76
|
|
|
$
|
1,189
|
|
|
$
|
64
|
|
|
$
|
99
|
|
Cash paid by the Company
|
|
|
|
|
|
|
(347
|
)
|
|
|
(58
|
)
|
|
|
(51
|
)
|
Cash paid by Cadbury Schweppes
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
76
|
|
|
$
|
819
|
|
|
$
|
6
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
89
|
|
|
$
|
105
|
|
Work in process
|
|
|
1
|
|
|
|
5
|
|
Finished goods
|
|
|
293
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Inventories at FIFO cost
|
|
|
383
|
|
|
|
324
|
|
Reduction to LIFO cost
|
|
|
(31
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
352
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
Percent of inventory accounted for by:
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
91
|
%
|
|
|
91
|
%
|
FIFO
|
|
|
9
|
%
|
|
|
9
|
%
|
F-58
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of goodwill for the nine months
ended September 30, 2007 by reporting unit are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage
|
|
|
Finished
|
|
|
Bottling
|
|
|
Mexico and
|
|
|
|
|
|
|
Concentrates
|
|
|
Goods
|
|
|
Group
|
|
|
the Caribbean
|
|
|
Total
|
|
|
Balance at December 31, 2006
|
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
188
|
|
|
$
|
37
|
|
|
$
|
3,180
|
|
Acquisitions (disposals)
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
Changes due to currency
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
1,732
|
|
|
$
|
1,222
|
|
|
$
|
220
|
|
|
$
|
37
|
|
|
$
|
3,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average useful lives, as applicable, and the net
carrying amounts of intangible assets other than goodwill as of
September 30, 2007 and December 31, 2006 are as
follows:
As of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
3,097
|
|
|
$
|
|
|
|
$
|
3,097
|
|
Bottler agreements
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
404
|
|
Distributor Rights
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
8
|
|
|
|
29
|
|
|
|
(15
|
)
|
|
|
14
|
|
Customer relationships
|
|
|
7
|
|
|
|
73
|
|
|
|
(17
|
)
|
|
|
56
|
|
Bottler agreements
|
|
|
5
|
|
|
|
52
|
|
|
|
(15
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,682
|
|
|
$
|
(47
|
)
|
|
$
|
3,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
3,096
|
|
|
$
|
|
|
|
$
|
3,096
|
|
Bottler agreements
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
404
|
|
Distributor Rights
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
7
|
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
17
|
|
Customer relationships
|
|
|
7
|
|
|
|
73
|
|
|
|
(8
|
)
|
|
|
65
|
|
Bottler agreements
|
|
|
5
|
|
|
|
52
|
|
|
|
(7
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,678
|
|
|
$
|
(27
|
)
|
|
$
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $20 million
and $13 million in the nine months ended September 30,
2007 and for the period from January 2, 2006 to
September 30, 2006, respectively. No impairment expense was
recognized in the nine months ended September 30, 2007 and
the period from January 2, 2006 to
F-59
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
September 30, 2006. At September 30, 2007, estimated
amortization expense for the remainder of 2007 and for each of
the next four years is $7 million, $27 million,
$23 million, $23 million and $17 million,
respectively.
During the period from January 2, 2006 to
September 30, 2006, the Company sold the Slush Puppie
business, which included certain trademarks 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 to
B&G Foods for $30 million.
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 equipment used to market and sell the
Companys products as well as certain other brand placement
fees.
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 and amounted to
$89 million and $100 million net of accumulated
amortization, as of September 30, 2007 and
December 31, 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 equipment was $9 million and
$13 million for the nine months ended September 30,
2007 and the period from January 2, 2006 to
September 30, 2006, 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 $8 million and $7 million for the nine
months ended September 30, 2007 and the period from
January 2, 2006 to September 30, 2006, respectively
and was recorded as a deduction from sales.
|
|
6.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Trade accounts payable
|
|
$
|
329
|
|
|
$
|
256
|
|
Customer rebates
|
|
|
169
|
|
|
|
184
|
|
Accrued compensation
|
|
|
81
|
|
|
|
96
|
|
Other current liabilities
|
|
|
184
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
763
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate for the nine months ended
September 30, 2007 is 37.8%. For the nine months ended
September 30, 2007, the Company earned $576 million
before taxes and equity in earnings and provided for income
taxes of $218 million. The effective tax rate varied from
the U.S. federal statutory rate for the nine months ended
September 30, 2007 primarily due to the net impact of
foreign operations, state income taxes and the domestic
manufacturing deduction.
The Companys effective tax rate for the nine months ended
September 30, 2006 was 36.9%. For the period from
January 2, 2006 to September 30, 2006, the Company
earned $562 million before taxes and equity in earnings and
provided for income taxes of $206 million. The effective
tax rate varied from the U.S. federal statutory rate for
F-60
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
the period from January 2, 2006 to September 30, 2006
primarily due to the net impact of foreign operations, state
income taxes, the domestic manufacturing deduction, and the
favorable results from various tax audit closures.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which is an interpretation of the
SFAS No. 109,
Accounting for Income
Taxes
. The Company has adopted the provisions of
FIN 48 effective January 1, 2007, as required.
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 amount of gross unrecognized tax benefit at
January 1, 2007 was $85 million. Of this amount
$45 million, if recognized, would impact the Companys
effective tax rate.
Interest and penalties related to income tax liabilities are
included in income tax expense. The balance of accrued interest
and penalties recorded on the balance sheet at January 1,
2007 was $13 million and $2 million, respectively.
The Company recorded an additional FIN 48 liability of
$12 million in connection with tax positions taken during
the nine months ended September 30, 2007. Additionally, the
Company released $6 million for the settlement of various
tax positions during the same period. With limited exceptions,
the Company is no longer subject to U.S. federal tax audits
for years through 2002. The Companys U.S. income tax
returns for 2003 through 2005 are currently under examination by
the Internal Revenue Service (IRS). Additionally,
the Company is currently under examination for various years in
various state and foreign jurisdictions. It is reasonably
possible that within the next 12 months it will work with
taxing authorities to resolve some or all of the matters
presently under examination; however, an estimate of the range
of financial statement impact that may result from these
examinations cannot be made at this time.
Debt
Payable to Related Parties
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans payable to related parties, with various fixed and
floating interest rates(a)
|
|
$
|
3,164
|
|
|
$
|
3,249
|
|
Less Current portion
|
|
|
(218
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to related parties
|
|
$
|
2,946
|
|
|
$
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Debt agreements with related parties consist of:
|
|
|
|
Cadbury Ireland Limited (CIL)
|
|
|
|
Total principal owed to CIL was $40 million at
September 30, 2007 and December 31, 2006. The debt
bears interest at a floating rate based on
3-month
LIBOR. Actual rates were 5.95% and 5.36% at September 30,
2007 and December 31, 2006, respectively. The outstanding
principal balance is due in November 2007 and is included in the
current portion of long-term debt. The Company recorded
$2 million and $2 million of interest expense related
to these notes for the nine months ended September 30, 2007
and the period from January 2, 2006 to September 30,
2006, 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
$566 million and $2,937 million at September 30,
2007 and December 31, 2006, respectively. At
September 30, 2007 and December 31, 2006,
$566 million and $2,387 million of the debt,
respectively, were based upon a floating rate ranging between
|
F-61
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
LIBOR plus 1.5% to LIBOR plus 2.5%. The remaining principal
balance of $550 million at December 31, 2006 had
stated interest fixed rates ranging from 5.76% to 5.95%. The
Company recorded $53 million and $121 million of
interest related to these notes for the nine months ended
September 30, 2007 and the period from January 2, 2006
to September 30, 2006, respectively.
|
|
|
|
Cadbury Schweppes Overseas Limited (CSOL)
|
|
|
|
Total principal owed to CSOL was $23 million and
$22 million at September 30, 2007 and
December 31, 2006, respectively. The debt bears interest at
a floating rate based on Mexican LIBOR plus 1.5% and matures in
2009. Actual rates were 9.89% at September 30, 2007 and
December 31, 2006. The Company recorded $2 million and
$15 million of interest expense related to these notes for
the nine months ended September 30, 2007 and the period
from January 2, 2006 to September 30, 2006,
respectively.
|
|
|
|
Cadbury Adams Canada, Inc. (CACI)
|
|
|
|
Total principal owed to CACI was $67 million and
$15 million at September 30, 2007 and
December 31, 2006, respectively and is payable on demand.
The debt bears interest at a floating rate based on 1 month
Canadian LIBOR. Actual rates were 5.15% and 4.26% at
September 30, 2007 and December 31, 2006,
respectively. The Company recorded $1 million and less than
$1 million of interest expense related to this debt for the
nine months ended September 30, 2007 and the period from
January 2, 2006 to September 30, 2006, respectively.
|
|
|
|
Cadbury Schweppes Americas Holding BV (CSAHBV)
|
|
|
|
During 2007, CSAHBV issued the Company a variety of debt
agreements with maturity dates ranging from 2009 to 2017. These
agreements had a combined outstanding principal balance of
$2,468 million at September 30, 2007 and bear interest
at a floating rate ranging between 6 Month USD LIBOR plus .75%
to 6 Month USD LIBOR plus 1.75%. The Company recorded
$107 million of interest related to these notes for the
nine months ended September 30, 2007.
|
|
|
|
Cadbury Schweppes Treasury America (CSTA)
|
|
|
|
Total principal owed to CSTA was $0 million and
$235 million at September 30, 2007 and
December 31, 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 $7 million of interest expense related
to these notes for the nine months ended September 30, 2007
and the period from January 2, 2006 to September 30,
2006, respectively.
|
F-62
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
Debt
Payable to Third Parties
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Note payable to a bank. Interest payments due quarterly
|
|
$
|
|
|
|
$
|
114
|
|
(interest at CDOR(1) + .325%, due April 2008, payable
in Canadian Dollars)(2)
|
|
|
|
|
|
|
|
|
Note payable to a bank. Interest payments due quarterly
|
|
|
|
|
|
|
129
|
|
(interest at CDOR(1) + .45%, due April 2010, payable
in Canadian Dollars)(2)
|
|
|
|
|
|
|
|
|
Bonds payable, 4.90% fixed interest rate. Interest payments due
semiannually. Principal due December 2008. Payable in Canadian
Dollars(3)
|
|
|
|
|
|
|
278
|
|
Notes payable related to the SeaBev acquisition, interest rates
ranging from 4.97% to 7.50%. Interest and principal due October
2007. Payable in U.S. Dollars
|
|
|
38
|
|
|
|
|
|
Capital leases
|
|
|
25
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
63
|
|
|
|
545
|
|
Less current installments
|
|
|
(40
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, payable to third parties
|
|
$
|
23
|
|
|
$
|
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 these notes
payable to a subsidiary of Cadbury Schweppes.
|
|
(3)
|
|
On August 31, 2007, the Company paid off the outstanding
balance of bonds payable.
|
|
|
9.
|
Commitments
and Contingencies
|
Legal
Matters
The Company is occasionally subject to litigation or other legal
proceedings relating to our business. Set forth below is a
description of our three most significant pending legal matters
and one recently settled legal matter. Although the estimated
range of loss, if any, for the three pending legal matters
described below cannot be estimated at this time the Company
does 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 the business or financial condition
of the Company although such matters may have a material 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 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
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 a notice to appeal the decision
and may decide to re-file the state law claims in state court.
The Company believes it has
F-63
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
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 refilled,
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 these cases as class actions. The plaintiffs
allege that Snapples labeling of certain of its drinks is
misleading
and/or
deceptive. The 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 the Companys subsidiaries who have held a
merchandiser or delivery driver position in southern 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. 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.
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 2) and was fully
reserved at 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-64
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring charges incurred during the nine months ended
September 30, 2007 and during the period from
January 2, 2006 to September 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Period From
|
|
|
|
Ended
|
|
|
January 2, 2006
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
Beverages Concentrates
|
|
$
|
8
|
|
|
$
|
4
|
|
Finished Goods
|
|
|
9
|
|
|
|
|
|
Bottling Group
|
|
|
10
|
|
|
|
|
|
Mexico and the Caribbean
|
|
|
3
|
|
|
|
2
|
|
Corporate
|
|
|
6
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
36
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
The restructuring costs primarily relate to staff redundancies
and closure of duplicate facilities from a significant four-year
cost reduction initiative implemented by Cadbury Schweppes,
which began in mid-2003 and the integration of the Bottling
Group with existing businesses.
In conjunction with the acquisition of the Bottling Group, the
Company began restructuring of the Companys existing
business to integrate the Bottling Groups business. The
restructuring charges recorded during the nine months ended
September 30, 2007 and during the period from
January 2, 2006 to September 30, 2006 are primarily
related to the integration of the Bottling Group with existing
businesses of the Company, as well as staff redundancies and
closure of duplicate facilities from a significant four-year
cost reduction initiative implemented by Cadbury Schweppes,
which began in mid-2003. The Company has incurred
$69 million of total, non-recurring charges to date related
to these activities, of which $34 million relates to the
Bottling Group integration. Additional restructuring charges of
approximately $31 million are expected to be incurred
related to these plans over the next two years, of which
$22 million relates to the Bottling Group integration.
Restructuring liabilities along with charges to expense, cash
payment and non-cash charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Asset
|
|
|
External
|
|
|
Shutdown
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Write-off
|
|
|
Consulting
|
|
|
Costs
|
|
|
Other
|
|
|
Total
|
|
|
Balance at December 31, 2006
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
Charges
|
|
|
14
|
|
|
|
1
|
|
|
|
8
|
|
|
|
4
|
|
|
|
9
|
|
|
|
36
|
|
Cash payments
|
|
|
(9
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
|
(32
|
)
|
Due to/from Cadbury Schweppes
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Asset
|
|
|
External
|
|
|
Shutdown
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Write-off
|
|
|
Consulting
|
|
|
Costs
|
|
|
Other
|
|
|
Total
|
|
|
Balance at January 1, 2006
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
2
|
|
Charges
|
|
|
2
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
1
|
|
|
|
9
|
|
Cash payments
|
|
|
(3
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(15
|
)
|
Due to/from Cadbury Schweppes
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring charges recorded by each segment were as follows:
Beverage
Concentrates
Beverage Concentrates recorded restructuring charges of
$8 million and $4 million during the nine months ended
September 30, 2007 and during the period from
January 2, 2006 to September 30, 2006, respectively.
During both periods presented, the charges mainly related to the
integration of the Bottling Group with existing businesses of
the Company. The cumulative amount related to this activity to
date is $13 million. The Company expects to incur
additional charges in this segment related to this restructuring
plan of approximately $5 million over the next two years.
Finished
Goods
Finished Goods recorded restructuring charges of $9 million
and $0 during the nine months ended September 30, 2007 and
during the period from January 2, 2006 to
September 30, 2006, respectively. During the nine months
ended September 30, 2007, the costs mainly related to the
closing of the St. Catharines plant initiated during the period.
The cumulative amount related to this activity incurred to date
is $6 million. No significant additional costs related to
this activity are expected be incurred by Finished Goods. The
Company also recorded restructuring charges of $3 million
related to the relocation of the Research and Development
facility which was initiated in 2007. The Company expects to
incur additional charges in this segment related to this
restructuring plan of approximately $7 million over the
next year.
Bottling
Group
Bottling Group recorded restructuring charges of $10 million and
$0, during the nine months ended September 30, 2007 and
during the period from January 2, 2006 to
September 30, 2006, respectively, related to integration of
the Bottling Group with existing businesses of the Company as
stated above. The cumulative amount related to this activity
incurred to date is $18 million. The Company expects to
incur additional charges in this segment related to this
restructuring plan of approximately $17 million over the
next two years.
Mexico
and the Caribbean
Mexico and the Caribbean recorded restructuring charges of
$3 million and $2 million during the nine months ended
September 30, 2007 and during the period from
January 2, 2006 to September 30, 2006, respectively.
The charges mainly related to restructuring actions initiated in
2003 and extended to 2007 to outsource the activities of Mexico
and the Caribbeans warehousing and distribution processes.
The cumulative amount related to this activity incurred to date
is $9 million. The Company expects to incur additional
charges in this segment related to this restructuring plan of
approximately $2 million through the remainder of 2007.
Corporate
Corporate recorded charges of $6 million and
$3 million during the nine months ended September 30,
2007 and during the period from January 2, 2006 to
September 30, 2006, respectively. During both periods
presented, the charges mainly related to restructuring actions
to outsource data center activities and related asset write-offs
that were initiated in 2006, and outsource shared business
services globally that was initiated in 2005. The cumulative
amount related to this activity incurred to date is
$17 million. The Company does not expect to incur
significant additional charges in this segment related to the
data center outsourcing restructuring plan or the shared
business services outsourcing plan.
F-66
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Employee
Benefit Plans
|
The following table sets forth the components of pension and
other benefits cost for the nine months ended September 30,
2007 and the period from January 2, 2006 to
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
Nine Months
|
|
|
January 2,
|
|
|
Nine Months
|
|
|
January 2,
|
|
|
|
Ended
|
|
|
2006 -
|
|
|
Ended
|
|
|
2006 -
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Service costs
|
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest costs
|
|
|
15
|
|
|
|
13
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(14
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
Recognition of actuarial gain/loss
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
16
|
|
|
$
|
19
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
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 stock or stock
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 $14 million ($9 million
net of tax) and $12 million ($7 million net of tax) in
the nine months ended September 30, 2007 and during the
period from January 2, 2006 to September 30, 2006,
respectively.
The Company presents segment information in accordance with
SFAS No. 131,
Disclosures about Segments of an
Enterprise and Related Information
(SFAS 131),
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, gross contribution before marketing
(GCBM) 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 September 30, 2007, the Companys operating
structure consisted of the following five operating segments:
|
|
|
|
|
The Beverage Concentrates segment reflects sales from the
manufacturer of concentrates and syrup of our brands 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
non-CSD brands.
|
|
|
|
The Bottling Group segment reflects sales from the manufacture
and/or
distribution of finished beverages, including sales of the
Companys own brands and third-party owned brands.
|
F-67
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
The Snapple Distributors segment reflects sales from the
distribution of finished beverages primarily Snapple, in New
York City and the surrounding regions.
|
|
|
|
The Mexico and the Caribbean segment reflects sales from the
manufacture; bottling
and/or
distribution of both concentrates and finished beverages.
|
The Company has significant transactions between our segments.
For example, the Bottling Group purchases concentrates from the
Beverage Concentrates segment. In addition, the Snapple
Distributors segment purchases finished beverages from the
Finished Goods segment.
Under management reporting, transactions between segments are
eliminated except to the Bottling Group.
The Companys current segment reporting structure is
largely the result of acquiring and combining various portions
of its 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 certain segments may not be
consistent with the profitability of the Company or comparable
to our competitors. For example, following the Companys
bottling group acquisitions in 2006, it changed certain funding
and manufacturing arrangements between the Beverage Concentrates
and Finished Goods segments and its newly acquired bottling
companies, which reduced the profitability of the Bottling Group
segment.
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, Snapple Distributors, and Mexico and the
Caribbean segments relate solely to those segments. However, as
a result of the Companys historical segment reporting
policies, it has certain combined selling activities to support
the Beverage Concentrates and Finished Goods segments that 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 directly allocated to its respective segments but rather
have been allocated to the Beverage Concentrates segment.
Information about the Companys operations by operating
segment for the nine months ended September 30, 2007 and
the period from January 2, 2006 to September 30, 2006
is as follows:
The following table reconciles segmental data to combined data:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
January 2, 2006
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,004
|
|
|
$
|
980
|
|
Finished Goods
|
|
|
1,036
|
|
|
|
1,014
|
|
Bottling Group
|
|
|
2,160
|
|
|
|
1,081
|
|
Snapple Distributors
|
|
|
194
|
|
|
|
205
|
|
Mexico and the Caribbean
|
|
|
313
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
4,707
|
|
|
|
3,582
|
|
Adjustments and eliminations
|
|
|
(360
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,347
|
|
|
$
|
3,380
|
|
|
|
|
|
|
|
|
|
|
F-68
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
January 2, 2006
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
Gross Contribution Before Marketing
|
|
|
|
|
|
|
|
|
Beverages Concentrates
|
|
$
|
909
|
|
|
$
|
886
|
|
Finished Goods
|
|
|
536
|
|
|
|
518
|
|
Bottling Group
|
|
|
723
|
|
|
|
383
|
|
Snapple Distributors
|
|
|
33
|
|
|
|
40
|
|
Mexico and the Caribbean
|
|
|
174
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
2,375
|
|
|
|
2,000
|
|
Adjustments and eliminations
|
|
|
(12
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit as reported
|
|
$
|
2,363
|
|
|
$
|
1,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
January 2, 2006
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
541
|
|
|
$
|
511
|
|
Finished Goods
|
|
|
116
|
|
|
|
121
|
|
Bottling Group
|
|
|
69
|
|
|
|
67
|
|
Snapple Distributors
|
|
|
34
|
|
|
|
34
|
|
Mexico and the Caribbean
|
|
|
75
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
835
|
|
|
|
805
|
|
Corporate and other
|
|
|
(34
|
)
|
|
|
(15
|
)
|
Adjustments and eliminations
|
|
|
(225
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in
earnings of unconsolidated subsidiaries as reported
|
|
$
|
576
|
|
|
$
|
562
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Segmental Information
Total segmental revenue includes Beverage Concentrates and
Finished Goods sales to Bottling Group, amounting to
$362 million and $199 million in the nine months ended
September 30, 2007 and the period from January 2, 2006
to September 30, 2006, respectively, which were eliminated.
The foreign exchange rate used to convert segmental revenue from
Mexico and Canada was based on a budgeted amount in the
management reports. The adjustment reflected above is the
difference that resulted from using the budgeted amount instead
of the average rate for the year.
Total segmental gross contribution before marketing for the nine
months ended September 30, 2007 and the period from
January 2, 2006 to September 30, 2006 includes gross
contribution of $5 million and $10 million,
respectively, attributable to Beverage Concentrates and Finished
Goods sales to Bottling Group, which were eliminated in the
combined results. Significant U.S. GAAP adjustments include
the LIFO revaluation.
Major
Customers
None of the Companys customers accounted for 10% or more
of total net sales.
F-69
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Related
Party Transactions
|
Allocated
Expenses
The Company has been allocated corporate overhead expenses from
Cadbury Schweppes and its subsidiaries for corporate-related
functions based on the most relevant allocation method to the
service provided. To the extent expenses have been paid by
Cadbury Schweppes and its subsidiaries 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 that management
believes is reasonable, primarily either revenue or headcount.
The Company was allocated $113 million and
$104 million of overhead costs in the nine months ended
September 30, 2007 and during the period from
January 2, 2006 to September 30, 2006, 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 U.S. 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 pays royalties to other Cadbury Schweppes-owned
companies for the use of certain brands. Total amounts paid were
$0 and $1 million for the nine months ended
September 30, 2007 and the period from January 2, 2006
to September 30, 2006, respectively.
Purchase
of Intangibles
The Company purchased certain trademarks from Cadbury Schweppes
for a total purchase price of $19 million in the period
from January 2, 2006 to September 30, 2006. These
trademark purchases were substantially equivalent to those that
prevail in an arms length transaction and were determined
to have indefinite lives.
Notes
Receivable
The Company held a note receivable balance with wholly owned
subsidiaries of Cadbury Schweppes with outstanding principal
balances of $1,931 million and $579 million at
September 30, 2007 and December 31, 2006,
respectively. The Company recorded $37 and $29 million of
interest income related to these notes for the nine months ended
September 30, 2007 and the period from January 2, 2006
to September 30, 2006, 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 8.
The related party payable balances of $509 million and
$183 million at September 30, 2007 and
December 31, 2006, respectively, represent non-interest
bearing payable balances with companies owned by Cadbury
Schweppes and related party accrued interest payable associated
with interest bearing notes described in Note 8. The
non-interest bearing payable balance was $448 million and
$158 million at September 30, 2007 and
December 31, 2006, respectively, and the payables are due
within one year. The accrued interest payable balance was
$61 million and $25 million at September 30, 2007
and December 31, 2006, respectively.
F-70
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
Glacéau
Termination
Following its acquisition by
Coca-Cola
on
August 30, 2007, Energy Brands, Inc. notified the Company
that it was terminating the Companys distribution
agreements for glacéau products, including its agreement to
distribute glacéau products, including vitaminwater,
fruitwater and smartwater, effective November 2, 2007.
Pursuant to the terms of the agreement, the Company received a
payment of approximately $92 million from Energy Brands, Inc.
for this termination in December 2007. The Companys
glacéau net sales for the nine months ended
September 30, 2007 were approximately $200 million and are
reflected in the Bottling Group and Snapple Distributors
segments.
Organizational
Restructuring
On October 10, 2007, the Company announced a restructuring
of the organization that is intended to create a more efficient
organization. This restructuring will result in a reduction of
approximately 470 employees in our corporate, sales and
supply chain functions located in the United States, Canada and
Mexico. The restructuring will also include the closure of two
manufacturing facilities. The employee reductions and facilities
closures are expected to be completed by June 2008.
As a result of the restructuring, the Company expects to
recognize a charge of approximately $70 million primarily
in 2007, with the balance in 2008. The Company expects the
restructuring to generate annual cost savings of approximately
$70 million, most of which are expected to be realized in
2008 with the full annual benefit realized from 2009 onwards. As
part of this restructuring, the Bottling Group segment has
assumed management and operational control of the Snapple
Distributors segment. These operations are currently being
integrated and will be reported in the Companys 2007
annual results as a single segment.
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