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 April 22, 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.
On April 11, 2008, shareholders of Cadbury Schweppes voted
to approve the separation and distribution. No further action by
Cadbury Schweppes shareholders will be 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 May 6, 2008. Immediately after the
distribution is completed, we will be an independent public
company. The record date for the distribution of shares of our
common stock is expected to be May 1, 2008. We expect the
distribution to occur on May 7, 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 have applied to list our common stock 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 is expected to be mailed to
shareholders of Cadbury Schweppes on or
about ,
2008.
TABLE OF
CONTENTS
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Information Statement Summary
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1
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Risk Factors
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15
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Special Note Regarding Forward-Looking Statements
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25
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Dividend Policy
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27
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Capitalization
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28
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Selected Historical Combined Financial Data
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29
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Unaudited Pro Forma Combined Financial Data
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32
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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39
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Industry
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65
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Business
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71
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Our Relationship with Cadbury plc After the Distribution
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85
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Management
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92
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Ownership of Our Common Stock
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123
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Description of Indebtedness
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124
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Description of Capital Stock
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128
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The Distribution
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131
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Material Tax Considerations
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136
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Where You Can Find More Information
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145
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Index to Financial Statements
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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
periods ended December 31, 2007 and 2006, which we refer to
as 2007 and 2006, respectively, the
52-week
period ended January 1, 2006, which we refer to as
2005, and
53-week
period ended January 2, 2005, which we refer to as
2004. Beginning in 2006, our fiscal year ends on
December 31 of each year. In 2005 and 2004, the year end
date represented the Sunday closest to December 31.
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 combined financial
statements included elsewhere in this information statement.
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
More than 75% of our volume from brands
that are either #1 or #2 in their category
#3 North American liquid refreshment
beverage business
$5.7 billion of net sales in 2007
from the United States (89%), Canada (4%) and Mexico and the
Caribbean (7%)
$1.0 billion of income from
operations in 2007
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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
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Juice products include apple and other
fruit juices, Motts Plus and Motts for Tots
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Apple sauce products include regular,
unsweetened, flavored and organic
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Brand began as a line of apple cider and
vinegar offerings in 1842
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#1 orange CSD in the United States
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Flavors include orange, diet and other
fruits
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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
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Brand includes a variety of fruit
flavored and reduced calorie juice drinks
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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
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Flavors include regular and diet root
beer and cream soda
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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
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Brand includes club soda, tonic and
other mixers
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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
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Brand includes club soda, tonic and
other mixers
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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
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Flavors include regular, diet and ruby
red
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Founded in 1938
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A leading spicy tomato juice brand in
the United States, Canada and Mexico
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Key ingredient in Canadas popular
cocktail, the Bloody Caesar
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Created in 1969
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#1 carbonated mineral water brand in
Mexico
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Brand includes Flavors, Twist and
Naturel
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Mexicos oldest mineral water,
founded in 1928
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#1 portfolio of mixer brands in the
United States
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#1 mixer brand (Mr & Mrs T) in the
United States
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Leading mixers (Margaritaville and
Roses) in their flavor categories
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Note:
All information regarding the beverage
market in the United States is from Beverage Digest, and, except
as otherwise indicated, is from 2006. Certain limited United
States beverage market information for 2007 is available from
Beverage Digest and is contained herein, but in most instances
2006 information is the most recent available from Beverage
Digest. All information regarding the beverage markets in Canada
and Mexico is from Canadean and is from 2006. All information
regarding our brand market positions in the United States is
from ACNielsen and is based on retail dollar sales in 2007. All
information regarding our brand market positions in Canada is
from ACNielsen and is based on volume in 2007. All information
regarding our brand market positions in Mexico is from Canadean
and is based on volume in 2006. When 2006 information is used,
it is the most recent information available from the applicable
source. 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.
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 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. According
to the latest available information from Beverage Digest, in
2007 CSD retail sales increased 2.7% despite a 2.3% decline in
volume. 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 2007, more than 75% of our volume was generated
by brands that hold either the #1 or #2 position in
their category. The strength of our key brands has allowed us to
launch innovations and brand extensions such as Dr Pepper Soda
Fountain Classics, Motts for Tots and Snapple Antioxidant
Waters.
Integrated business model.
We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and that
this differentiation provides us with a competitive advantage.
Our integrated business model strengthens our route-to-market
and enables us to improve focus on our brands. 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 approximately
200 distribution centers in the United States, as well as 4
manufacturing facilities and approximately 25 distribution
centers in Mexico. These facilities use a variety of
manufacturing processes. 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 and 2007, we continued to enhance the Snapple portfolio
by launching brand extensions with functional benefits, such as
super premium teas and juice drinks and Snapple Antioxidant
Waters. 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 significant 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 February 15, 2008, Cadbury Schweppes
board of directors approved the distribution of our common stock
to the shareholders of Cadbury Schweppes. On April 11,
2008, shareholders of Cadbury Schweppes voted to approve the
separation and distribution. 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
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing consisting of a term loan A
facility, a revolving credit facility and a bridge loan facility.
On April 11, 2008, we amended and restated the credit
facilities and borrowed $2.2 billion under the term loan A
facility and $1.7 billion under the bridge loan facility.
Our $500 million revolving credit facility remains undrawn.
All of the proceeds from borrowings under the term loan A
facility and the bridge loan facility were placed into
collateral accounts. In addition, we intend to offer
$1.7 billion aggregate principal amount of senior unsecured
notes. If the notes offering is successfully completed prior to
the separation, we intend to deposit the net proceeds of the
offering into an escrow account, following which the borrowings
under the bridge loan facility will be released from the
collateral account containing such funds and returned to the
lenders. The separation is not conditional upon the completion
of a notes offering.
5
When the separation has been consummated, the borrowings under
the term loan A facility and the bridge loan facility (or the
net proceeds of the notes offering, if such offering has been
completed) will be released to us from the collateral accounts
(or escrow account in the case of the notes) and used by us,
together with cash on hand, to settle with Cadbury Schweppes
related party debt and other balances, eliminate Cadbury
Schweppes net investment in us, purchase certain assets
from Cadbury Schweppes related to our business and pay fees and
expenses related to our new credit facilities.
If the separation is not consummated prior to 3:00 p.m.
(New York City time) on May 13, 2008, or if Cadbury
Schweppes publicly announces that it has determined to abandon
the separation prior to that time, the borrowings under the term
loan A facility and the bridge loan facility now held in the
collateral accounts will be released and used to repay the
amounts due under those facilities. If we have issued the notes
and the separation is not consummated, the net proceeds of the
notes offering, together with funds Cadbury Schweppes has agreed
to pay to us, will be used to redeem all of the notes. See
Description of Indebtedness.
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 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 100 employees in
Plano, Texas, 125 employees in Rye Brook, New York and 50
employees in Aspers, Pennsylvania. The remaining reductions will
occur at a number of sites located in the United States, Canada
and Mexico. The restructuring also includes the closure of two
manufacturing facilities in Denver, Colorado (closed in December
2007) and Waterloo, New York (closed in March 2008). The
employee reductions are expected to be completed by June 2008.
As a result of this restructuring, we recognized a charge of
approximately $32 million in 2007. We expect to recognize a
charge of approximately $21 million in 2008 related to this
restructuring. We expect this restructuring to generate annual
cost savings of approximately $68 million, most of which
are expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards. Savings realized in 2007 were
immaterial. As part of this restructuring, our Bottling Group
segment has assumed management and operational control of our
Snapple Distributors segment.
In 2007, we incurred a total of $76 million of
restructuring costs, which included the $32 million related
to the restructuring announced on October 10, 2007.
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 was
supported by significant national product placement and
marketing investments. Net sales were below expectations despite
these investments. We incurred an operating loss of
$55 million from the Accelerade launch in 2007, while
marketing investments in other brands, predominantly Beverage
Concentrate brands, were reduced by approximately
$25 million. In addition, we incurred a $4 million
impairment charge related to the Accelerade brand which
represented the majority of the $6 million of impairment
charges we incurred in 2007. Going forward, we intend to focus
on marketing and selling Accelerade in a more targeted way to
informed athletes, trainers and exercisers, and 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 agreements,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007, and
we recorded a $71 million gain in 2007 in respect of this
payment. Our 2007 glacéau net sales and contribution to
income from operations were approximately
$227 million and $40 million, respectively, and
were reflected in our Bottling Group segment.
6
Questions
and Answers About the Distribution
This information statement will not be distributed to
shareholders until our registration statement on Form 10,
of which this information statement forms a part, has been
declared effective by the Securities and Exchange Commission.
For a more detailed description of the matters summarized below,
see The Distribution.
|
|
|
What is the distribution?
|
|
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 (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.
|
|
How will the separation work?
|
|
Cadbury Schweppes currently intends to effect the separation and
distribution through the following steps:
|
|
|
|
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
May 7, 2008.
|
|
|
|
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.
|
|
|
|
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.
|
7
|
|
|
What will the relationship of Dr Pepper Snapple
Group, Inc. and
Cadbury plc
be
after the
distribution?
|
|
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.
|
|
|
|
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.
|
|
When will the distribution be
completed?
|
|
We expect the distribution to be completed on May 7, 2008.
|
|
What is the record date for the
distribution
of our
shares of common stock?
|
|
The record date for the distribution of shares of our common
stock is expected to be May 1, 2008.
|
|
What do Cadbury Schweppes shareholders and holders of
ADRs
have to do to
participate in
the
distribution?
|
|
Shareholders of Cadbury Schweppes voted to approve the
separation and distribution on April 11, 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 will remain contingent on 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?
|
|
How many shares of our common stock will
Cadbury Schweppes shareholders and holders of ADRs
receive?
|
|
We will distribute 0.12 shares of our common stock for each
Cadbury Schweppes ordinary share held at the Scheme Record Time
or 0.48 shares of our common stock for each Cadbury
Schweppes ADR held at the Depositary Record Time (as defined
under The Distribution). Based on approximately
2.1 billion Cadbury Schweppes ordinary shares outstanding
as of April 14, 2008, a total of approximately
253.5 million shares of our common stock will be
distributed. For additional information on the distribution, see
The Distribution Results of the
Distribution.
|
|
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?
|
|
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.
|
|
|
|
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 bona fide commercial reasons
and do not form part of a scheme or
|
8
|
|
|
|
|
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 received 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 or loss.
|
|
|
|
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 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?
|
|
We currently intend to retain cash generated from our business
to repay our debt and for other corporate purposes and do not
currently anticipate paying any cash dividends in the short
term. In the long term, we intend to invest in our business and
return excess cash to our stockholders. See Dividend
Policy.
|
|
Will Dr Pepper Snapple Group, Inc. incur any debt
prior to or at the time
of the
distribution?
|
|
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing consisting of a term loan A
facility, a revolving credit facility and a bridge loan facility.
|
|
|
|
On April 11, 2008, we amended and restated the credit
facilities and borrowed $2.2 billion under the term loan A
facility and $1.7 billion under the bridge loan facility.
Our $500 million revolving credit facility remains undrawn.
All of the proceeds from borrowings under the term loan A
facility and the bridge loan facility were placed into
collateral accounts. In addition, we intend to offer
$1.7 billion aggregate principal amount of senior unsecured
notes. If the notes offering is successfully completed prior to
the separation, we intend to deposit the net proceeds of the
offering into an escrow account, following which the borrowings
under the bridge loan facility will be released from the
collateral account containing such funds and returned to the
lenders. The separation is not conditioned upon the completion
of a notes offering.
|
|
|
|
When the separation has been consummated, the borrowings under
the term loan A facility and the bridge loan facility (or the
net proceeds of the notes offering, if such offering has been
completed) will be released to us from the collateral accounts
(or escrow account in the case of the notes) and used by us,
together with cash on hand, to
|
9
|
|
|
|
|
settle with Cadbury Schweppes related party debt and other
balances, eliminate Cadbury Schweppes net investment in
us, purchase certain assets from Cadbury Schweppes related to
our business and pay fees and expenses related to our new credit
facilities.
|
|
|
|
If the separation is not consummated prior to 3:00 p.m.
(New York City time) on May 13, 2008, or if Cadbury
Schweppes publicly announces that it has determined to abandon
the separation prior to that time, the borrowings under the term
loan A facility and the bridge loan facility now held in the
collateral accounts will be released and used to repay the
amounts due under those facilities. If we have issued the notes
and the separation is not consummated, the net proceeds of the
notes offering, together with funds Cadbury Schweppes has agreed
to pay to us, will be used to redeem all of the notes. See
Description of Indebtedness and 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.
|
|
Where will trading begin in the common stock?
|
|
There is no current trading market for our common stock. We have
applied to list our common stock 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 CBRY and the
Cadbury plc ADRs will be listed on the New York Stock Exchange
under the symbol CBY. See The
Distribution Reorganization of Cadbury Schweppes and
Distribution of Shares of Our Common Stock.
|
|
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:
|
|
|
Dr Pepper Snapple Group,
Inc.
5301 Legacy Drive
Plano, TX 75024
Attention: Aly Noormohamed, SVP,
Investor Relations
Tel: (972) 673-6050
|
10
|
|
|
|
|
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
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 formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and will have
no operations prior to the separation and distribution.
11
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, 2007 and 2006 and January 1, 2006
(the last day of fiscal 2005) and for the three fiscal years
2007, 2006 and 2005 have been derived from our audited combined
financial statements, included elsewhere in this information
statement.
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
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 Southeast-Atlantic Beverage Corp.
(SeaBev). Each of these four acquisitions is
included in our combined financial statements beginning on its
date of acquisition. As a result, our financial data is not
necessarily comparable on a period-to-period basis.
The summary unaudited pro forma combined financial data has been
prepared to give effect to:
|
|
|
|
|
the contribution by Cadbury Schweppes to us of its Americas
Beverages business;
|
|
|
|
the distribution of our common stock to Cadbury Schweppes
shareholders;
|
|
|
|
the purchase by us from Cadbury Schweppes of software and
intangible assets related to our foreign operations for an
aggregate of $295 million in cash;
|
|
|
|
the borrowing by us of $3.9 billion under our new credit
facilities;
|
|
|
|
the payment by us of $92 million of fees and expenses
related to our new credit facilities;
|
|
|
|
the settlement with Cadbury Schweppes of related party debt and
other balances and the elimination of Cadbury Schweppes
net investment in us; and
|
|
|
|
other adjustments as described in the notes to the unaudited pro
forma combined financial data.
|
Due to the relatively small size of the 2007 SeaBev acquisition,
no adjustments have been reflected in this summary unaudited pro
forma combined financial data for this acquisition.
12
The unaudited pro forma combined balance sheet data as of
December 31, 2007 has been prepared as though the
separation, distribution and related financing transactions
occurred on December 31, 2007. The unaudited pro forma
combined statement of operations data for 2007 has been prepared
as though the separation, distribution and related financing
transactions occurred on January 1, 2007. 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 transactions reflected therein 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
future financial performance. For further information regarding
the pro forma adjustments described above, see Unaudited
Pro Forma Combined Financial Data and our audited combined
financial statements and related notes thereto included
elsewhere in this information statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Statements of Operations Data:
|
|
(In millions, except per share
data)
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
|
|
Depreciation and amortization
|
|
|
100
|
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
76
|
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
|
|
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,002
|
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
|
|
|
|
Interest expense
|
|
|
250
|
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
|
|
Interest income
|
|
|
(4
|
)
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
|
|
Other expense (income)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
772
|
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
|
|
|
|
Provision for income taxes
|
|
|
319
|
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
453
|
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
455
|
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
|
|
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
455
|
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic(1)
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted(2)
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
100
|
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
|
|
|
Total assets
|
|
|
9,598
|
|
|
|
10,528
|
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
1,920
|
|
|
|
126
|
|
|
|
708
|
|
|
|
404
|
|
|
|
|
|
Long-term debt
|
|
|
1,999
|
|
|
|
2,912
|
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
|
|
Other non-current liabilities, including deferred tax liabilities
|
|
|
1,913
|
|
|
|
1,460
|
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
|
|
Total invested equity
|
|
|
2,922
|
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
603
|
|
|
$
|
581
|
|
|
$
|
583
|
|
|
|
|
|
Investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
|
|
Financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
|
|
Depreciation expense(3)
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
|
|
Amortization expense(3)
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
|
|
Capital expenditures
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(4)
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
|
|
|
|
|
|
(1)
|
|
The number of shares used to compute pro forma earnings per
share basic is 253.5 million, which is the
number of shares of our common stock assumed to be outstanding
on the distribution date, based on a distribution ratio of
0.12 shares of our common stock for every Cadbury Schweppes
ordinary share as of April 14, 2008.
|
|
(2)
|
|
The number of shares used to compute pro forma earnings per
share diluted will be the number of basic
shares referenced in note (1) above plus any potential
dilution from issuances under stock-based awards granted under
our stock-based compensation plans. There will be no potentially
dilutive securities outstanding on separation. In the ordinary
course of business post separation, we expect to issue
stock-based awards under our stock-based compensation plans
which, when issued, will be dilutive in future periods.
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
Income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, PET bottles and caps, paperboard
packaging, high fructose corn syrup (HFCS) and other
sweeteners, juice, fruit, electricity, fuel and water. The cost
of the raw materials can fluctuate substantially. For example,
aluminum, glass, PET and HFCS prices increased significantly in
recent periods. In addition, we are significantly impacted by
increases in fuel costs due to the large truck fleet we operate
in our distribution businesses. Under many of our supply
arrangements, the price we pay for raw materials fluctuates
along with certain changes in underlying commodities costs, such
as aluminum in the case of cans, natural gas in the case of
glass bottles, resin in the case of PET bottles and caps, corn
in the case of HFCS and pulp in the case of paperboard
packaging. We expect these increases to continue to exert
pressure on our costs and we may not be able to pass along any
such increases to our customers or consumers, which could
negatively affect our business and financial performance.
Certain
raw materials we use are available from a limited number of
suppliers and shortages could occur.
Some raw materials we use, such as aluminum cans and ends, glass
bottles, PET bottles, HFCS and other ingredients, are available
from only a few suppliers. If these suppliers are unable or
unwilling to meet our requirements, we could suffer shortages or
substantial cost increases. Changing suppliers can require long
lead times. The failure of our suppliers to meet our needs could
occur for many reasons, including fires, natural disasters,
weather, manufacturing problems, disease, crop failure, strikes,
transportation interruption, government regulation,
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 Stores,
Inc., the largest retailer of our products, represented
approximately 10% of our net sales in 2007. Some retailers also
offer their own private label products that compete with some of
our brands. The loss of sales of any of our products in a major
retailer could have a material adverse effect on our business
and financial performance.
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
2007, approximately two-thirds of our beverage concentrates
volume was sold to bottlers that we do not own. Some of these
bottlers are partly owned by our competitors, and much of their
business comes from selling our competitors products. In
addition, some of the products we manufacture are distributed by
third parties. As independent companies, these bottlers and
distributors make their own business decisions. They may have
the right to determine whether, and to what extent, they produce
and distribute our products, our competitors products and
their own products. They may devote more resources to other
products or take other actions detrimental to our brands. In
most cases, they are able to terminate their bottling and
distribution arrangements with us without cause. We may need to
increase support for our brands in their territories and may not
be able to pass on price increases to them. Their financial
condition could also be adversely affected by conditions beyond
our control and our business could suffer. Any of these factors
could negatively affect our business and financial performance.
Our
intellectual property rights could be infringed or we could
infringe the intellectual property rights of others and adverse
events regarding licensed intellectual property, including
termination of distribution rights, could harm our
business.
We possess intellectual property that is important to our
business. This intellectual property includes ingredient
formulas, trademarks, copyrights, patents, business processes
and other trade secrets. See Business
Intellectual Property and Trademarks for more information.
We and third parties, including competitors, could come into
conflict over intellectual property rights. Litigation could
disrupt our business, divert management attention and cost a
substantial amount to protect our rights or defend ourselves
against claims. We cannot be certain that the steps we take to
protect our rights will be sufficient or that others will not
infringe or misappropriate our rights. If we are unable to
protect our intellectual property rights, our brands, products
and business could be harmed.
We also license various trademarks from third parties and
license our trademarks to third parties. In some countries,
other companies own a particular trademark which we own in the
United States, Canada or Mexico. For example, the Dr Pepper
trademark and formula is owned by
Coca-Cola
in
certain other countries. Adverse events affecting those third
parties or their products could affect our use of the trademark
and negatively impact our brands.
In some cases, we license products from third-parties which we
distribute. The licensor may be able to terminate the license
arrangement upon an agreed period of notice, in some cases
without payment to us of any termination fee. The termination of
any material license arrangement could adversely affect our
business and financial performance. For example, following its
acquisition by Coca-Cola on August 30, 2007, Energy Brands, Inc.
notified us that it was terminating our distribution agreement
for glacéau products.
Litigation
or legal proceedings could expose us to significant liabilities
and damage our reputation.
We are party to various litigation claims and legal proceedings.
We evaluate these claims and proceedings to assess the
likelihood of unfavorable outcomes and estimate, if possible,
the amount of potential losses. We may establish a reserve as
appropriate based upon assessments and estimates in accordance
with our accounting policies. We base our assessments, estimates
and disclosures on the information available to us at the time
and rely on legal and management judgment. Actual outcomes or
losses may differ materially from assessments and estimates.
Actual settlements, judgments or resolutions of these claims or
proceedings may negatively affect our business and financial
performance. For more information, see
Business Legal Matters.
We may
not comply with applicable government laws and regulations, and
they could change.
We are subject to a variety of federal, state and local laws and
regulations in the United States, Canada, Mexico and other
countries in which we do business. These laws and regulations
apply to many aspects of our business including the manufacture,
safety, labeling, transportation, advertising and sale of our
products. See Business Regulatory
Matters for more information regarding many of these laws
and regulations. Violations of these laws or regulations could
damage our reputation and/or result in regulatory actions with
substantial penalties. In addition, any significant change in
such laws or regulations or their interpretation, or the
introduction of higher standards or more stringent laws or
regulations,
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.
Determinations
in the future that a significant impairment of the value of our
goodwill and other indefinite lived intangible assets has
occurred could have a material adverse effect on our financial
performance.
As of December 31, 2007, we had approximately
$10.5 billion of total assets, of which approximately
$6.8 billion were intangible assets. Intangible assets
include goodwill, and other intangible assets in connection with
brands, bottler agreements, distribution rights and customer
relationships. We conduct impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. If
the carrying amount of an intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to
that excess. Our annual impairment analysis, performed as of
December 31, 2007, resulted in impairment charges of
$6 million, of which $4 million was related to the
Accelerade brand. For additional information about these
intangible assets, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Critical Accounting Policies
Goodwill and Other Indefinite Lived Intangible Assets and
our audited combined financial statements included elsewhere in
this 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 December 31, 2007, on a pro forma basis after giving
effect to the new financing arrangements we entered into on
March 10, 2008 and amended and restated on April 11, 2008
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
$3.9 billion.
This significant amount of debt could have important
consequences to us and our investors, including:
|
|
|
|
|
requiring a substantial portion of our cash flow from operations
to make interest payments on this debt;
|
|
|
|
making it more difficult to satisfy debt service and other
obligations;
|
|
|
|
increasing the risk of a future credit ratings downgrade of our
debt, which could increase future debt costs;
|
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
reducing the cash flow available to fund capital expenditures
and other corporate purposes and to grow our business;
|
|
|
|
limiting our flexibility in planning for, or reacting to,
changes in our business and the industry;
|
|
|
|
placing us at a competitive disadvantage to our competitors that
may not be as highly leveraged with debt as we are; and
|
|
|
|
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.
|
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.
In addition, the agreements governing the debt that we entered
into in connection with the separation contain covenants that,
among other things, limit our ability to incur debt at
subsidiaries that are not guarantors, incur liens, merge or
sell, transfer or otherwise dispose of all or substantially all
of our assets, make investments, loans, advances, guarantees and
acquisitions, enter into transactions with affiliates and enter
into agreements restricting our ability to incur liens or the
ability of our subsidiaries to make distributions. These
agreements also require us to comply with certain affirmative
and financial covenants. For additional information about our
debt agreements, see Description of Indebtedness.
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:
|
|
|
|
|
allowing our management to focus its efforts on our business and
strategic priorities,
|
|
|
|
enabling us to allocate our capital more efficiently,
|
|
|
|
providing us with direct access to the debt and equity capital
markets,
|
|
|
|
improving our ability to pursue acquisitions through the use of
shares of our common stock as consideration,
|
|
|
|
enhancing our market recognition with investors, and
|
|
|
|
increasing our ability to attract and retain employees by
providing equity compensation tied to our business.
|
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
$161 million in 2007. 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
20
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 capital
structure in connection with our separation from Cadbury
Schweppes. We have borrowed an aggregate of $3.9 billion
under the new credit facilities in connection with the
separation. As a result of these borrowings our interest expense
after the separation is expected to be significantly higher than
it was prior to the separation. For additional information, see
Unaudited Pro Forma Combined Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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 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.
21
We and
Cadbury Schweppes could have significant indemnification
obligations to each other with respect to tax
liabilities.
We will enter into a tax-sharing and indemnification agreement
with Cadbury Schweppes that sets forth the rights and
obligations of Cadbury Schweppes and us (along with our
respective subsidiaries) with respect to taxes and, in general,
provides that we and Cadbury Schweppes each will be responsible
for taxes imposed on our respective businesses and subsidiaries
for all taxable periods, whether ending on, before or after the
date of the separation and distribution.
Cadbury Schweppes has, subject to certain conditions, agreed to
indemnify us for income taxes that are attributable to certain
restructuring transactions undertaken in connection with the
separation and distribution and various other transactions
between Cadbury Schweppes and us that were entered into in prior
taxable periods. Such potential tax liabilities could be for
significant amounts. Notwithstanding these tax indemnification
obligations of Cadbury Schweppes, if the treatment of these
transactions were successfully challenged by a taxing authority,
we generally would be required under applicable tax law to pay
the resulting tax liabilities in the event that either
(1) Cadbury Schweppes were to default on their obligations
to us, (2) we breached certain covenants or other
obligations or (3) we are involved in certain
change-in-control
transactions including certain acquisitions of our stock
representing more than 35% of the voting power represented by
our issued and outstanding stock. Thus, since we have primary
liability for income taxes in respect of these transactions, if
Cadbury Schweppes fails to, is not required to or cannot
indemnify or reimburse us, our resulting tax liability could be
significant and could have a material adverse effect on our
results of operations, cash flows and financial condition.
In addition, we generally will be liable for any liabilities,
taxes or other charges that are imposed on Cadbury Schweppes,
including as a result of the separation and distribution failing
to qualify for non-recognition treatment for U.S. federal
income tax purposes, if such failure is the result of a breach
by us of certain of our representations or covenants, including,
for example, our failure to continue the active conduct of the
historic business relied upon for purposes of the private letter
ruling issued by the IRS and taking any action inconsistent with
the written statements and representations furnished to the IRS
in connection with the private letter ruling request. The
parties could have significant indemnification obligations to
each other with respect to tax liabilities.
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
received 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 the 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 the 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 have applied to list our
common stock 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 April 14, 2008, we expect
that immediately following the distribution, there will be
approximately 253.5 million 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 that hold Cadbury Schweppes ordinary shares 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 relevant 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 amended and restated certificate of
incorporation and by-laws could delay and discourage takeover
attempts that stockholders may consider favorable.
Certain provisions in Delaware law and our amended and restated
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. Such provisions include,
among other things, a classified board of directors with
three-year staggered terms, the removal of directors by
stockholders only for cause and only by the affirmative vote of
the holders of at least
two-thirds
of the votes which all stockholders would be entitled to cast in
any annual election of directors at a meeting and the preclusion
of stockholders from calling special meetings. 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 impairment of our goodwill and other intangible assets;
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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 Schweppes 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
We currently intend to retain cash generated from our business
to repay our debt and for other corporate purposes and do not
currently anticipate paying any cash dividends in the short
term. In the long term, we intend to invest in our business and
return excess cash to our stockholders. The declaration and
payment of dividends are subject to the discretion of our board
of directors. Any determination to pay dividends will depend on
our results of operations, financial condition, capital
requirements, credit ratings, contractual restrictions and other
factors deemed relevant at the time of such determination by our
board of directors.
27
CAPITALIZATION
The following table presents our capitalization and cash and
cash equivalents as of December 31, 2007:
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on a historical 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 December 31, 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 combined financial statements
and the related notes thereto included elsewhere in this
information statement.
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December 31, 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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67
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$
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100
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Debt:
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Short-term debt:
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Debt payable to Cadbury
Schweppes
(a)
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$
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126
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|
$
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Other payables to Cadbury
Schweppes
(a)
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|
175
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Debt payable to third
parties
(b)
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|
2
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|
|
|
2
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New credit
facilities
(c)
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1,920
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Long-term debt (excluding current maturities):
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Debt payable to Cadbury
Schweppes
(a)
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2,893
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Debt payable to third
parties
(b)
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|
|
19
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|
|
|
19
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New credit
facilities
(c)
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1,980
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Total debt
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|
3,215
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|
|
|
3,921
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Total invested
equity
(d)
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|
5,021
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|
|
|
2,922
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Total capitalization
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$
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8,236
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|
$
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6,843
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(a)
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Represents the settlement with Cadbury Schweppes of related
party debt and other balances.
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(b)
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Represents capital lease obligations. The short-term portion of
these obligations is included within accounts payable and
accrued expenses in our combined balance sheet.
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(c)
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Represents an aggregate of $3.9 billion of borrowings under
the senior credit facility and the bridge loan facility.
Borrowings of $1.7 billion under the bridge loan facility
(with a term of 364 days) and $220 million under the
term loan A facility of the senior credit facility (representing
current maturities of the term loan A facility) have been
classified as short-term debt. Borrowings of $1.98 billion,
representing the balance of the term loan A facility, have been
classified as long-term debt. We currently intend, subject to
prevailing market conditions, to replace all or a portion of the
bridge loan facility with the proceeds of the issuance of one or
more series of notes and/or an alternative term loan facility.
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(d)
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Represents the elimination of Cadbury Schweppes net
investment in us and the distribution of our common stock to
Cadbury Schweppes shareholders.
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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, 2007 and 2006 and
January 1, 2006 (the last day of fiscal 2005) and for the
three fiscal years 2007, 2006 and 2005 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 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 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.
Our financial data for 2003 has been omitted from this
information statement because it is not available without
unreasonable effort and expense. We believe the omission of the
financial data for the year ended December 31, 2003 does
not have a material impact on the understanding of our financial
performance and related trends.
29
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2007
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2006
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|
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2005
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|
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2004
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|
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(In millions)
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Statements of Operations Data:
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Net sales
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|
$
|
5,748
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|
|
$
|
4,735
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|
|
$
|
3,205
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|
|
$
|
3,065
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Cost of sales
|
|
|
2,617
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|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
1,051
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|
|
|
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|
|
|
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|
|
|
|
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|
Gross profit
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|
|
3,131
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|
|
|
2,741
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|
|
|
2,085
|
|
|
|
2,014
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling, general and administrative expenses
|
|
|
2,018
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|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
1,135
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|
Depreciation and amortization
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
|
|
10
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
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Restructuring costs
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
|
|
36
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
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)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from operations
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
Other expense (income)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
|
|
703
|
|
Provision for income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
|
|
433
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
|
|
446
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
19
|
|
Total assets
|
|
|
10,528
|
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
7,625
|
|
Current portion of long-term debt
|
|
|
126
|
|
|
|
708
|
|
|
|
404
|
|
|
|
435
|
|
Long-term debt
|
|
|
2,912
|
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
3,468
|
|
Other non-current liabilities
|
|
|
1,460
|
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
943
|
|
Total invested equity
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
603
|
|
|
$
|
581
|
|
|
$
|
583
|
|
|
$
|
610
|
|
Investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
184
|
|
Financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
(799
|
)
|
Depreciation expense(1)
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
Amortization expense(1)
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
Capital expenditures
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
|
|
(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
|
30
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(In millions)
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
Income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 as of December 31, 2007 has
been prepared as though the separation, distribution and related
financing transactions occurred on December 31, 2007. The
unaudited pro forma combined statement of operations for the
year ended December 31, 2007 has been prepared as though
the separation, distribution and related financing transactions
occurred on January 1, 2007. The pro forma adjustments are
based upon available information and assumptions that we believe
are reasonable.
The unaudited pro forma combined financial data has been
prepared to give effect to:
|
|
|
|
|
the contribution by Cadbury Schweppes to us of its Americas
Beverages business;
|
|
|
|
the distribution of our common stock to Cadbury Schweppes
shareholders;
|
|
|
|
the purchase by us from Cadbury Schweppes of software and
intangible assets related to our foreign operations for an
aggregate of $295 million in cash;
|
|
|
|
the borrowing by us of $3.9 billion under our new credit
facilities;
|
|
|
|
the payment by us of $92 million of fees and expenses
related to our new credit facilities;
|
|
|
|
the settlement with Cadbury Schweppes of related party debt and
other balances and the elimination of Cadbury Schweppes
net investment in us; and
|
|
|
|
other adjustments as described in the notes to the unaudited pro
forma combined financial data.
|
Cadbury Schweppes currently allocates certain costs to us,
including costs in respect of certain corporate functions
provided for us by Cadbury Schweppes. 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 allocated by Cadbury
Schweppes to us in 2007 was $161 million, of which
$154 million ($145 million excluding restructuring
costs of $9 million) was in cash. As an independent
publicly-traded company, effective as of our separation from
Cadbury Schweppes, we will assume responsibility for these
costs. We believe that our total annual costs on a pro forma
basis for 2007, including the incremental costs of being an
independent publicly-traded company, would have been
approximately $174 million, of which $160 million
($151 million excluding restructuring costs of
$9 million) would have been in cash. As a result, our pro
forma 2007 costs for the foregoing would have been
$13 million higher ($6 million on a cash basis) than
the 2007 costs incurred by Cadbury Schweppes which were
allocated to us. These additional costs of $13 million are
not reflected in our pro forma combined financial data presented
below.
The unaudited pro forma combined statement of operations
includes a historical charge of $21 million (primarily
non-cash) related to historical Cadbury Schweppes
stock-based compensation plans. We estimate we will incur
approximately $4 million in 2008 prior to the separation
related to these existing Cadbury Schweppes stock compensation
plans in which our employees are participants. Following the
separation, we will issue stock awards under our new Dr Pepper
Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008. These
awards have been approved by Cadbury Schweppes in terms of the
dollar value of the grants but the number of shares underlying
the expected grant cannot be determined until the actual grant
date of such awards. No pro forma adjustment has been made to
reflect the impact of these anticipated new stock incentive
awards. In 2008, we currently expect to recognize charges
related to these new awards of approximately $8 million.
The unaudited pro forma combined statement of operations does
not reflect certain non-recurring charges associated with the
separation. These charges will include $5 million of bonus
payments to be paid to certain members of our management upon
our separation from Cadbury Schweppes and $2 million
(non-cash) related to the forfeiture and replacement of stock
incentive awards, which will be reflected as a charge at
separation.
32
As a result of certain separation transactions the carrying
amounts of certain of our Canadian assets will be stepped up to
fair value in accordance with valuations performed and Canadian
law and the amount of tax deductible goodwill associated with
these assets will have to be calculated. For book purposes,
these assets will be reflected at carryover basis and no
goodwill will be recorded. All or a portion of our cash tax
benefit received from the amortization of the stepped up assets
and the amount of tax deductible goodwill will be remitted to
Cadbury Schweppes or one of its subsidiaries under the
tax-sharing and indemnification agreement and, therefore, it is
expected that a deferred tax asset would be recognized, which
would be offset by an amount that would be a payable from us to
Cadbury Schweppes. We have not completed the tax valuations of
these Canadian assets and the associated calculation of the
amount of the tax deductible goodwill to quantify the amount of
the deferred tax assets and the related liability to Cadbury
Schweppes. We expect to finalize these calculations during the
second quarter of 2008.
On July 11, 2007 we acquired SeaBev and it is included in
our audited combined financial statements from that date. Due to
the relatively small size of the acquisition, no adjustments
have been reflected in this summary unaudited pro forma combined
financial data.
The unaudited pro forma combined financial data is for
informational purposes only and is not necessarily indicative of
what our financial performance would have been had the
transactions reflected therein been completed on the dates
assumed. It 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, it is
not indicative of our future financial performance.
The following unaudited pro forma combined financial data should
be read in conjunction with Selected Historical Combined
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Business and our historical audited combined
financial statements and the related notes thereto included
elsewhere in this information statement.
33
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Statement of Operations
For the
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions, except per share data)
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
|
|
|
$
|
5,748
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
|
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
|
|
|
|
3,131
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
|
|
|
|
2,018
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
2
|
(c)
|
|
|
100
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Restructuring costs
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
(2
|
)
|
|
|
1,002
|
|
Interest expense
|
|
|
253
|
|
|
|
(3
|
)(b)
|
|
|
250
|
|
Interest income
|
|
|
(64
|
)
|
|
|
60
|
(a)
|
|
|
(4
|
)
|
Other income
|
|
|
(2
|
)
|
|
|
(14
|
)(d)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity
in earnings of unconsolidated subsidiaries
|
|
|
817
|
|
|
|
(45
|
)
|
|
|
772
|
|
Provision for income taxes
|
|
|
322
|
|
|
|
(23
|
)(e)
|
|
|
319
|
|
|
|
|
|
|
|
|
6
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
14
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
495
|
|
|
|
(42
|
)
|
|
|
453
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
(42
|
)
|
|
$
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(f)
|
|
|
|
|
|
|
|
|
|
$
|
1.79
|
|
Diluted(g)
|
|
|
|
|
|
|
|
|
|
$
|
1.79
|
|
Weighted average shares outstanding (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(f)
|
|
|
|
|
|
|
|
|
|
|
253.5
|
|
Diluted(g)
|
|
|
|
|
|
|
|
|
|
|
253.5
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
34
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Balance Sheet
As of
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions, except share and
|
|
|
|
per share data)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67
|
|
|
$
|
3,808
|
(i)
|
|
$
|
100
|
|
|
|
|
|
|
|
|
(1,628
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
(1,852
|
)(k)
|
|
|
|
|
|
|
|
|
|
|
|
(295
|
)(l)
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $20)
|
|
|
538
|
|
|
|
|
|
|
|
538
|
|
Other
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
Related party receivable
|
|
|
66
|
|
|
|
(39
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)(h)
|
|
|
|
|
Notes receivable from related parties
|
|
|
1,527
|
|
|
|
(1,527
|
)(j)
|
|
|
|
|
Inventories
|
|
|
325
|
|
|
|
|
|
|
|
325
|
|
Deferred tax assets
|
|
|
81
|
|
|
|
|
|
|
|
81
|
|
Prepaid and other current assets
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,739
|
|
|
|
(1,560
|
)
|
|
|
1,179
|
|
Property, plant and equipment, net
|
|
|
868
|
|
|
|
7
|
(l)
|
|
|
875
|
|
Investment in unconsolidated subsidiaries
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Goodwill
|
|
|
3,183
|
|
|
|
|
|
|
|
3,183
|
|
Other intangible assets, net
|
|
|
3,617
|
|
|
|
|
|
|
|
3,617
|
|
Other non-current assets
|
|
|
100
|
|
|
|
92
|
(i)
|
|
|
573
|
|
|
|
|
|
|
|
|
354
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
27
|
(h)
|
|
|
|
|
Non-current deferred tax assets
|
|
|
8
|
|
|
|
122
|
(n)
|
|
|
158
|
|
|
|
|
|
|
|
|
28
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,528
|
|
|
$
|
(930
|
)
|
|
$
|
9,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Invested Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
812
|
|
|
$
|
|
|
|
$
|
812
|
|
Related party payable
|
|
|
175
|
|
|
|
(175
|
)(j)
|
|
|
|
|
Current portion of long-term debt payable to third parties
|
|
|
|
|
|
|
1,920
|
(i)
|
|
|
1,920
|
|
Current portion of long-term debt payable to related parties
|
|
|
126
|
|
|
|
(126
|
)(j)
|
|
|
|
|
Income taxes payable
|
|
|
22
|
|
|
|
10
|
(o)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,135
|
|
|
|
1,629
|
|
|
|
2,764
|
|
Long-term debt payable to third parties
|
|
|
19
|
|
|
|
1,980
|
(i)
|
|
|
1,999
|
|
Long-term debt payable to related parties
|
|
|
2,893
|
|
|
|
(2,893
|
)(j)
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,324
|
|
|
|
|
|
|
|
1,324
|
|
Other non-current liabilities
|
|
|
136
|
|
|
|
71
|
(m)
|
|
|
589
|
|
|
|
|
|
|
|
|
382
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,507
|
|
|
|
1,169
|
|
|
|
6,676
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 800,000,000 authorized;
253,500,000 outstanding on a pro forma basis
|
|
|
|
|
|
|
3
|
(p)
|
|
|
3
|
|
Contributed surplus
|
|
|
|
|
|
|
2,931
|
(p)
|
|
|
2,931
|
|
Parent Company Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
5,001
|
|
|
|
(1,852
|
)(k)
|
|
|
|
|
|
|
|
|
|
|
|
(288
|
)(l)
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
101
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
(2,934
|
)(p)
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)(o)
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
20
|
|
|
|
(53
|
)(m)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
21
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
5,021
|
|
|
|
(2,099
|
)
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
10,528
|
|
|
$
|
(930
|
)
|
|
$
|
9,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
35
Dr Pepper
Snapple Group, Inc.
Notes to Unaudited Pro Forma Combined Financial Data
|
|
(a)
|
Represents the removal of $60 million of interest income on
related party receivable balances and from our participation in
the Cadbury Schweppes cash management programs. Following
the separation, we will not participate in Cadbury
Schweppes cash management program.
|
(b) Represents adjustments to reflect:
|
|
|
|
|
removal of interest expense attributable to related party debt
balances;
|
|
|
|
recognition of interest expense attributable to borrowings of
$3.9 billion under our new credit facilities;
|
|
|
|
amortization of fees and expenses attributable to our new credit
facilities, including $30 million attributable to the
bridge loan facility; and
|
|
|
|
recognition of commitment fees on unused amounts attributable to
our new revolving credit facility.
|
The following table sets forth the assumed principal
outstanding, interest rate and maturity for each component of
our new credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
Facility
|
|
Outstanding
|
|
|
Interest Rate
|
|
|
Maturity
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Bridge loan facility
|
|
$
|
1,700
|
|
|
|
3-month LIBOR plus 2.00%
|
|
|
|
364 days
|
|
Senior credit facility:
Term loan A facility
|
|
|
2,200
|
|
|
|
3-month LIBOR plus 2.00%
|
|
|
|
5 years
|
|
Revolving credit facility
|
|
|
|
|
|
|
3-month LIBOR plus 2.00%
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have the choice of either a floating rate of LIBOR plus an
applicable margin or a floating alternate base rate plus an
applicable margin. For the purposes of the unaudited pro forma
combined statement of operations, we have assumed that our
outstanding borrowings bear interest at three-month LIBOR plus
an applicable margin of 2.00%. The assumed applicable
margin is based upon our expected debt rating at the time of the
separation.
For the purposes of the unaudited pro forma combined statement
of operations, we have assumed that the commitment fee on our
revolving credit facility,which is payable quarterly in arrears,
is at a rate of 0.3% (based upon our expected debt rating at the
time of the separation) of the unused amounts.
The pro forma adjustment to interest expense consists of the
following (in millions):
|
|
|
|
|
Removal of interest on related party debt
|
|
$
|
(234
|
)
|
Interest on bridge loan facility
|
|
|
80
|
|
Interest on term loan A facility
|
|
|
104
|
|
Amortization of fees and expenses attributable to new credit
facilities
|
|
|
45
|
|
Commitment fees on unused revolving facility
|
|
|
2
|
|
|
|
|
|
|
Total
|
|
$
|
(3
|
)
|
|
|
|
|
|
The three-month LIBOR as of April 4, 2008 was 2.73%. Pro
forma interest charges on the term loan A and bridge loan
facilities were calculated at a rate of 4.73% reflecting the
three-month LIBOR at April 4, 2008 plus a margin of 2.00%.
Fees and expenses attributable to the new credit facilities are
amortized on an effective yield basis over the life of the
related loan.
We intend to replace all or a portion of the bridge loan
facility with the proceeds from the issuance of one or more
series of fixed rate notes of varying maturities. Interest rates
on these notes will be subject to prevailing market conditions
at the time of issuance. If we replace all of the bridge loan
facility with notes, we would expect interest expense to
increase approximately $40 million per annum based upon an
assumed weighted-average interest rate of approximately 7.0% for
the notes.
A change of
one-eighth
of 1.00% (12.5 basis points) in the interest rate associated
with the floating rate borrowings would result in an additional
annual interest expense of approximately $5 million (in the
case of an increase to the rate) or an annual reduction of
interest expense of approximately $5 million (in the case
of a decrease in the rate).
36
Dr Pepper
Snapple Group, Inc.
Notes to
Unaudited Pro Forma Combined Financial Data
In 2007, $6 million of interest was capitalized with
respect to ongoing capital projects. We have assumed that
$6 million of the pro forma interest expense would also
have been capitalized.
For a description of the terms of the senior credit facility and
bridge loan facility, including the right of the bookrunners
under the facilities to modify certain of the terms under
certain circumstances, see Description of
Indebtedness.
|
|
(c)
|
Represents incremental depreciation from the purchase of certain
software from Cadbury Schweppes in connection with the
separation for $7 million. The estimated remaining useful
life of these assets is three years resulting in additional
annual depreciation expense of $2 million.
|
|
|
(d)
|
In accordance with Financial Accounting Standards Board
Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes
(FIN 48), we will
record $354 million (gross unrecognized benefit of $382
million less state income tax offset of $28 million) of
unrecognized tax benefits which will arise prior to the date of
separation. The tax uncertainty relates to a Cadbury Schweppes
entity not included in our combined financial statements, which
will become our responsibility upon separation. Under the
tax-sharing and indemnification agreement, Cadbury Schweppes has
agreed to indemnify us for this and other tax liabilities as
more fully described in Our Relationship with Cadbury plc
After the Distribution Description of Various
Separation and Transition Arrangements Tax-Sharing
and Indemnification Agreement, and, accordingly we have
recognized a corresponding offset under
non-current
assets. We have recorded on the pro forma combined
statement of operations $14 million of income tax expense
for the accrual of interest, net of tax benefits, associated
with these unrecognized tax benefits and a corresponding amount
as other income. The actual level of unrecognized tax benefits
ultimately realized, if any, and the corresponding amounts paid
to us under the tax-sharing and indemnification agreement may
not be known for several years. In addition, pursuant to the
terms of the
tax-sharing
and indemnification agreement, if we breach certain covenants or
other obligations or we are involved in certain
change-in-control
transactions, Cadbury Schweppes would not be required to
indemnify us for any of these unrecognized tax benefits that are
subsequently not realized.
|
|
|
(e)
|
Represents the adjustment to reflect the $23 million of
income tax effects of the pro forma adjustments referenced in
notes (a) through (c) above at our U.S. marginal tax
rate of 39% and $6 million to reflect the income tax
increase attributable to foreign tax credit limitations after
separation.
|
|
|
(f)
|
The number of shares used to compute pro forma earnings per
share basic is 253.5 million, which is the
number of shares of our common stock assumed to be outstanding
on the distribution date, based on a distribution ratio of
0.12 shares of our common stock for every Cadbury Schweppes
ordinary share outstanding as of April 14, 2008.
|
|
(g)
|
The number of shares used to compute pro forma earnings per
share diluted will be the number of basic
shares referenced in note (f) above plus any potential dilution
from stock-based awards granted under our stock-based
compensation plans. There will be no potentially dilutive
securities outstanding on separation. In the ordinary course of
business post separation, we expect to issue stock-based awards
under our stock-based compensation plans which, when issued,
will be dilutive in future periods.
|
|
(h)
|
Represents the reclassification of $27 million of other tax
indemnification receivables from Cadbury Schweppes that will not
be repaid at separation from related party
receivable to other
non-current
assets.
|
|
(i)
|
Represents an aggregate of $3.9 billion of borrowings under
the senior credit facility and the bridge loan facility, net of
$92 million of fees and expenses related to the facilities.
Borrowings of $1.7 billion under the bridge loan facility
(with a term of 364 days) and of $220 million under
the term loan A facility (representing the current maturities of
the term loan) have been classified as current liabilities.
Borrowings of $1.98 billion, representing the balance of
the term loan A facility, have been classified as long-term
debt. The $92 million of fees and expenses related to the
new credit facilities are reflected as other non-current
assets.
|
37
Dr Pepper
Snapple Group, Inc.
Notes to
Unaudited Pro Forma Combined Financial Data
the current maturities of the term loan) have been classified as
current liabilities. Borrowings of $1.98 billion,
representing the balance of the term loan A facility, have been
classified as long-term debt. The $92 million of fees and
expenses related to the new credit facilities are reflected as
other non-current assets.
|
|
(j)
|
Represents the settlement with Cadbury Schweppes of related
party debt and other balances as follows (in millions):
|
|
|
|
|
|
Related party receivable
|
|
$
|
39
|
|
Notes receivable from related parties
|
|
|
1,527
|
|
Related party payable
|
|
|
(175
|
)
|
Current portion of long-term debt payable to related parties
|
|
|
(126
|
)
|
Long-term debt payable to related parties
|
|
|
(2,893
|
)
|
|
|
|
|
|
Net cash settlement of related party balances
|
|
$
|
1,628
|
|
|
|
|
|
|
|
|
(k)
|
Represents the $1,852 million repayment of debt for an
affiliated Cadbury Schweppes entity that is unrelated to our
business and is not included in our historical combined
financial statements. This repayment is reflected as an
adjustment to Parent Company Equity Cadbury
Schweppes net investment.
|
|
(l)
|
Represents our purchase for $295 million in cash of
intangible ($288 million) and other assets
($7 million) from Cadbury Schweppes in connection with the
separation. The intangible assets represent trademarks integral
to our operations that are owned by an entity that will stay
with Cadbury Schweppes upon separation. The trademarks will be
sold to a DPS group entity before separation. These intangible
assets have no book carrying value, thus the $288 million
adjustment is reflected in Parent Company
Equity Cadbury Schweppes net investment.
There will be no amortization of these intangibles in future
periods. The $7 million of other assets are reflected in
property, plant and equipment.
|
|
(m)
|
Represents the assumption of employee benefit liabilities for
pension and postretirement benefit plans previously sponsored by
Cadbury Schweppes. A pension liability of $71 million has
been reflected in the pro forma adjustment. In addition,
$53 million of unamortized losses related to the pension
plans that will be assumed has been reflected as an adjustment
to Accumulated other comprehensive income. The
difference of $18 million has been reflected as an
adjustment to Parent Company Equity Cadbury
Schweppes net investment. The actual pension
liability and associated unamortized losses will be finalized at
the separation date.
|
|
(n)
|
Represents net incremental deferred tax assets associated with
the $288 million purchase of intangible assets from Cadbury
Schweppes discussed in (l) above, the $71 million
assumption of pension liabilities and the related
$53 million of unamortized losses in Accumulated
other comprehensive income discussed in (m) above. The
deferred tax assets are reflected at a marginal tax rate of
25.5% for intangible assets related to our foreign operations
and the pension liabilities assumed and associated unamortized
losses are reflected at our U.S. marginal tax rate of 39%.
|
|
(o)
|
Reflects $10 million of income tax liabilities transferred
to us at separation and which have been reflected as an
adjustment to Parent Company Equity Cadbury
Schweppes net investment. These liabilities
represent income tax payable, based on our tax sharing
arrangement, associated with our historical income tax returns
that include both our business and other Cadbury Schweppes
businesses unrelated to our business that are not included in
our historical combined financial statements.
|
|
(p)
|
Represents the reclassification of the balance of the remaining
Parent Company Equity Cadbury Schweppes
net investment, after giving effect to all of the
foregoing pro-forma separation adjustments into common
shares of $3 million, to reflect the total par value
of our outstanding common stock and contributed
surplus of $2.9 billion.
|
38
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with
our audited 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
periods ended December 31, 2007 and 2006, which we refer to
as 2007 and 2006, respectively, and the
52-week period ended January 1, 2006, which we refer to as
2005. Effective 2006, our fiscal year ends on
December 31 of each year. In 2005, the year end date
represented the Sunday closest to December 31. 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, which generated
approximately one-third of our volume in 2007. We have some of
the most recognized beverage brands in North America, with
significant consumer awareness levels and long histories that
evoke strong emotional connections with consumers.
We operate primarily in the United States, Mexico and Canada,
the first, second and tenth largest beverage markets,
respectively, by CSD volume, according to Beverage Digest and
Canadean. We also distribute our products in the Caribbean. In
2007, 89% of our net sales were generated in the United States,
4% in Canada and 7% in Mexico and the Caribbean.
Our
Business Model
We operate as a brand owner, a bottler and a distributor through
our four segments as follows:
|
|
|
|
|
our Beverage Concentrates segment is a brand ownership business;
|
|
|
|
our Finished Goods segment is a brand ownership and a bottling
business and, to a lesser extent, a distribution business;
|
|
|
|
our Bottling Group segment is a bottling and distribution
business; and
|
|
|
|
our Mexico and the Caribbean segment is a brand ownership and a
bottling and distribution business.
|
Our Brand Ownership Businesses.
As a brand
owner, we build our brands by promoting brand awareness through
marketing, advertising and promotion, and by developing new and
innovative products and product line extensions that address
consumer preferences and needs. As the owner of the formulas and
proprietary know-how required for the preparation of beverages,
we manufacture, sell and distribute beverage concentrates and
syrups used primarily to produce CSDs and we manufacture,
bottle, sell and distribute primarily 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, 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.
39
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 2007 Bottling Group net sales
of branded products come from our own brands, with the remaining
from the distribution of third-party brands such as 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 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.
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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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40
Trends
Affecting our Business
According to the latest available data from Beverage Digest, in
2007, the U.S. CSD market segment grew by 2.7% in retail sales,
despite a 2.3% decline in total CSD volume. The U.S. non-CSD
volume and retail sales increased by 13.2% and 14.8%,
respectively, in 2006. In addition, non-CSDs experienced strong
growth over the last five years with their volume share of the
overall U.S. liquid refreshment beverage market increasing from
12.7% in 2001 to 16.3% in 2006.
We believe the key trends influencing the North
American liquid refreshment beverage market include:
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Increased health consciousness.
We believe the
main beneficiaries of this trend include diet drinks,
ready-to-drink
teas, enhanced waters and bottled waters.
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Changes in lifestyle.
We believe changes in
lifestyle will continue to drive increased sales of single-serve
beverages, which typically have higher margins.
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Growing demographic segments in the United
States.
We believe marketing and product
innovations that target fast growing population segments, such
as the Hispanic community in the United States, will drive
further market growth.
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Product and packaging innovation.
We believe
brand owners and bottling companies will continue to create new
products and packages such as beverages with new ingredients and
new premium flavors, as well as innovative convenient packaging
that address changes in consumer tastes and preferences.
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Changing retailer landscape.
As retailers
continue to consolidate, we believe retailers will support
consumer product companies that can provide an attractive
portfolio of products, a strong value proposition and efficient
delivery.
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Recent increases in raw material costs.
The
costs of a substantial proportion of the raw materials used in
the beverage industry are dependent on commodity prices for
aluminum, natural gas, resins, corn, pulp and other commodities.
Recently, these costs on the whole have increased significantly
and this has exerted pressure on industry margins.
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Seasonality
The beverage market is subject to some seasonal variations. Our
beverage sales are generally higher during the warmer months and
also can be influenced by the timing of holidays and religious
festivals as well as weather fluctuations.
Recent
Developments
New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing consisting of a term loan A
facility, a revolving credit facility and a bridge loan
facility.
On April 11, 2008, we amended and restated the credit
facilities and borrowed $2.2 billion under the term loan A
facility and $1.7 billion under the bridge loan facility.
Our $500 million revolving credit facility remains undrawn.
All of the proceeds from borrowings under the term loan A
facility and the bridge loan facility were placed into
collateral accounts. In addition, we intend to offer
$1.7 billion aggregate principal amount of senior unsecured
notes. If the notes offering is successfully completed prior to
the separation, we intend to deposit the net proceeds of the
offering into an escrow account, following which the borrowings
under the bridge loan facility will be released from the
collateral account containing such funds and returned to the
lenders. The separation is not conditional upon the completion
of a notes offering.
When the separation has been consummated, the borrowings under
the term loan A facility and the bridge loan facility (or the
net proceeds of the notes offering, if such offering has been
completed) will be released to us from the collateral accounts
(or escrow account in the case of the notes) and used by us,
together with cash on hand, to settle with Cadbury Schweppes
related party debt and other balances, eliminate Cadbury
Schweppes net investment in us, purchase certain assets
from Cadbury Schweppes related to our business and pay fees and
expenses related to our new credit facilities.
41
If the separation is not consummated prior to 3:00 p.m.
(New York City time) on May 13, 2008, or if Cadbury
Schweppes publicly announces that it has determined to abandon
the separation prior to that time, the borrowings under the term
loan A facility and the bridge loan facility now held in the
collateral accounts will be released and used to repay the
amounts due under those facilities. If we have issued the notes
and the separation is not consummated, the net proceeds of the
notes offering, together with funds Cadbury Schweppes has agreed
to pay to us, will be used to redeem all of the notes. See
Description of Indebtedness.
Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization 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 100 employees in Plano,
Texas, 125 employees in Rye Brook, New York, and 50 employees in
Aspers, Pennsylvania. The remaining reductions will occur at a
number of sites located in the United States, Canada and Mexico.
The restructuring also includes the closure of two manufacturing
facilities in Denver, Colorado (closed in December 2007) and
Waterloo, New York (closed in March 2008). The employee
reductions are expected to be completed by June 2008.
As a result of this restructuring, we recognized a charge of
approximately $32 million in 2007. We expect to recognize a
charge of approximately $21 million in 2008 related to this
restructuring. We expect this restructuring to generate annual
cost savings of approximately $68 million, most of which
are expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards. Savings realized in 2007 were
immaterial. As part of this restructuring, our Bottling Group
segment has assumed management and operational control of our
Snapple Distributors segment.
In 2007, we incurred a total of $76 million of
restructuring costs, which included $32 million related to
the restructuring announced on October 10, 2007.
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 was
supported by significant national product placement and
marketing investments. Net sales were below expectations despite
these investments. We incurred an operating loss of
$55 million from the Accelerade launch in 2007, while
marketing investments in other brands, predominantly Beverage
Concentrate brands, were reduced by approximately
$25 million. In addition, we incurred a $4 million
impairment charge related to the Accelerade brand, which
represented the majority of the $6 million of impairment
charges we incurred in 2007. Going forward, we intend to focus
on marketing and selling Accelerade in a more targeted way to
informed athletes, trainers and exercisers, and 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 agreements,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007, and
we recorded a $71 million gain in 2007 in respect of this
payment. Our 2007 glacéau net sales and contribution to
income from operations were approximately $227 million and
$40 million, respectively, and were reflected in our
Bottling Group segment.
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
42
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 it
intended 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. As a subsidiary of
Cadbury Schweppes (a U.K. company), historically we have
maintained our books and records, managed our business and
reported our results based on IFRS. The preparation of our U.S.
GAAP information uses IFRS as our base financial system and
includes a process for capturing accounting and disclosure
differences relevant to U.S. GAAP. This adds a level of
complexity and time to the process. We intend to migrate to a
U.S. GAAP-based system over time following separation. Our
segment information has been prepared and presented on the basis
which management uses to assess the performance of our segments,
which is principally in accordance with IFRS. Our consolidated
and segment results are not necessarily indicative of our future
performance and do not reflect what our financial performance
would have been had we been an independent publicly-traded
company during the periods presented.
As explained more fully in Unaudited Pro Forma Combined
Financial Data, the total amount of these allocations from
Cadbury Schweppes was approximately $161 million in 2007
and approximately $142 million in 2006. As an independent
publicly-traded company, effective as of our separation from
Cadbury Schweppes, we will assume responsibility for these
costs. We believe that our total annual costs on a pro forma
basis for 2007, including the incremental costs of being an
independent publicly-traded company, would have been
approximately $174 million. As a result, our 2007 pro forma
costs for the foregoing would have been $13 million higher
than the 2007 expenses incurred by Cadbury Schweppes which were
allocated to us.
Segments
We currently operate in four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
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Our Beverage Concentrates segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
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Our Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
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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43
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Our Mexico and the Caribbean segment reflects sales from the
manufacture, bottling and/or distribution of both concentrates
and finished beverages in those geographies.
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Our current segment reporting structure is largely the result of
acquiring and combining various portions of our businesses over
the past several years. Although we continue to report our
segments separately, due to the integrated nature of our
business model, we manage our business to maximize profitability
for our company as a whole. As a result, profitability trends in
individual segments may not be consistent with the profitability
of our company or comparable to our competitors. For example,
following our bottling acquisitions in 2006, we changed certain
funding and manufacturing arrangements between our Beverage
Concentrates and Finished Goods segments and our newly acquired
bottling companies, which reduced the profitability of our
Bottling Group segment while benefiting our other segments.
We have significant intersegment transactions. For example, our
Bottling Group purchases concentrates at an arms length
price from our Beverage Concentrates segment. We expect these
purchases to account for approximately one-third of our Beverage
Concentrates segment annual net sales and therefore drive a
similar proportion of our Beverage Concentrates segment
profitability. In addition, our Bottling Group segment purchases
finished beverages from our Finished Goods segment. All
intersegment transactions are eliminated in preparing our
combined results of operations.
We incur selling, general and administrative expenses in each of
our segments. In our segment reporting, the selling, general and
administrative expenses of our Bottling Group and Mexico and the
Caribbean segments relate primarily to those segments. However,
as a result of our historical segment reporting policies,
certain combined selling activities that support our Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between those two segments. We also
incur certain centralized finance and corporate costs that
support our entire business, which have not been directly
allocated to our respective segments but rather have been
allocated primarily to our Beverage Concentrates segment.
The key financial measures management uses to assess the
performance of our segments are net sales and underlying
operating profit (UOP).
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.
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We offer a variety of incentives and discounts to bottlers,
customers and consumers through various programs to support in
the distribution and promotion of our products. These incentives
and discounts include cash discounts, price allowances, volume
based rebates, product placement fees and other financial
support for items such as trade promotions, displays, new
products, consumer incentives and advertising assistance. These
incentives and discounts, collectively referred to as trade
spend, are reflected as a reduction of gross sales to arrive at
net sales.
We expect to report 2008 first quarter net sales growth of 3%,
which includes a 2% contribution from the acquisition of SeaBev.
Net sales growth was also driven by strong performances in our
Finished Goods and Mexico and the Caribbean segments due to a
combination of price increases and continued strength from our
Snapple, Motts, Clamato and Penafiel brands. This was
partially offset by a net sales decline of 4% as a result of the
loss of
44
our distribution agreements for glacéau products, as well
as comparatively higher concentrate sales in the first quarter
of 2007 in advance of our annual concentrate price increase on
April 1, 2007. We continue to expect our 2008 net sales
growth rate to be in the range of 3%-5% (before giving effect to
any acquisitions we may make in the future).
We expect our annual net sales growth rate over the next several
years to be in the range of 3%-5% (before giving effect to any
acquisitions we may make in the future), driven by, among other
things, the execution of our strategy including our focus on
higher margin opportunities which arise from investing in
coolers and other cold drink equipment, expanding our product
presence in channels, such as convenience stores, as well as
investing in manufacturing facilities.
Cost of
Sales
Our cost of sales include costs associated with the operation of
our manufacturing and other related facilities, including
depreciation, as well as the following:
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Beverage concentrates cost of sales.
The major
components in our beverage concentrates cost of sales are
flavors and sweeteners for diet beverage concentrates.
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Bottler cost of sales.
The major components in
our bottler cost of sales are beverage concentrates, packaging
and ingredients. Packaging costs and ingredients costs
represented approximately 39% and 19%, respectively, of our cost
of sales in 2007. Packaging costs include aluminum, glass, PET
and paper packaging. Ingredients include HFCS and other
sweeteners, agricultural commodities (such as apples, citrus
fruits and tomatoes), teas and flavorings.
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Distributor cost of sales.
The major component
in our distributor cost of sales is purchased finished beverages.
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In planning for 2008, we previously anticipated our cost of
sales to increase approximately 6% in 2008, principally driven
by an increase in commodity costs, including our cost of
aluminum and, to a lesser extent, an increase in the cost of
PET, apple juice concentrate and HFCS. Commodity costs have been
extremely volatile to date this year. To the extent we
experience cost of sales increases above 6%, we intend to
seek to offset these through further price increases.
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).
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We expect that our selling, general and administrative expenses
in 2008 and in future years to be positively impacted by the
cost savings we expect to realize from the organizational
restructuring we announced on October 10, 2007 as described
under Restructuring Costs below. As discussed
in Unaudited Pro Forma Combined Financial Data, the
$13 million of incremental corporate and other
publicly-traded company costs we expect to incur following our
separation from Cadbury Schweppes will negatively impact our
selling, general and administrative costs.
Depreciation
and Amortization
Our depreciation expense includes depreciation of buildings,
machinery and equipment relating to our manufacturing,
distribution and office facilities as well as coolers and other
cold drink equipment and computer software. Our amortization
expense includes amortization of
definite-lived
intangible assets including our brands, bottler agreements,
distribution rights, customer relationships and vending
contracts. Depreciation directly attributable to our
manufacturing and distribution operations is included in our
cost of sales. Amortization
45
related to our long-term vending contracts is recorded in
selling, general and administrative expenses. All other
depreciation and amortization is included as a separate line
item.
Restructuring
Costs
We implement restructuring programs from time to time and incur
costs that are designed to improve operating effectiveness and
lower costs. These programs have included closure of
manufacturing plants, reductions in workforce, integrating back
office operations and outsourcing certain transactional
activities. When we implement these programs, we incur various
charges, including severance and other employment-related costs.
In 2007, we incurred $76 million of restructuring costs
primarily related to the organizational restructuring we
announced on October 10, 2007 and the ongoing integration
of our bottling acquisitions. In 2008, we expect to incur
approximately $42 million of additional restructuring
charges principally with respect to these programs. As discussed
in Information Statement Summary Recent
Developments, we expect the organizational restructuring
announced on October 10, 2007 to generate annual cost
savings of approximately $68 million, most of which are
expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards.
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. We expect our
interest expense to increase significantly as the result of
borrowings under our new $2.2 billion term loan A facility and
the $1.7 billion bridge loan facility (or the notes that may be
issued to replace borrowings under the bridge loan facility).
See Unaudited Pro Forma Combined Financial Data for
more information.
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. We expect our
interest income to decrease significantly as a result of the
repayment of intercompany receivables by Cadbury Schweppes as
part of the separation.
Other
Expense (Income)
Other expense (income) includes miscellaneous items not
reflected in our income from operations. This line item in
future periods will be impacted by the income we will record as
a result of Cadbury Schweppes agreement to indemnify us
for certain tax liabilities as described in Unaudited Pro
Forma Combined Financial Data.
Income
Taxes
Our effective income tax rate fluctuates from
period-to-period
and can be impacted by various items, including shifts in the
mix of our earnings from various jurisdictions, changes in
requirements for tax uncertainties, timing and results of any
reviews or audits of our income tax filing positions or returns,
and changes in tax legislation. Our effective tax rate in future
periods will be impacted by the accrual of interest we will
record as a result of the unrecognized tax benefits transferred
to us in connection with the separation. We expect any amount
recorded in respect of the indemnified unrecognized tax
benefits reflected in income taxes will have an offsetting
amount recorded in other expense (income), unless
Cadbury Schweppes fails to, is not required to or cannot
indemnify or reimburse us. See Unaudited Pro Forma
Combined Financial Data.
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.
46
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.
Results
of Operations for 2007 Compared to 2006
Combined
Operations
The following table sets forth our combined results of operation
for 2007 and 2006.
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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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$
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5,748
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$
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4,735
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$
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1,013
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21.4
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%
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Cost of sales
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2,617
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1,994
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623
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31.2
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%
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Gross profit
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3,131
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2,741
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390
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14.2
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%
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Selling, general and administrative expenses
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2,018
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1,659
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359
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21.6
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%
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Depreciation and amortization
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98
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69
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29
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42.0
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%
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Impairment of intangible assets
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6
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6
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NM
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Restructuring costs
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76
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27
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49
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NM
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Gain on disposal of property and intangible assets
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(71
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)
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(32
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)
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(39
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)
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NM
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Income from operations
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1,004
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1,018
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(14
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(1.4
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)%
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Interest expense
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253
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|
257
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(4
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)
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(1.6
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)%
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Interest income
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(64
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)
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(46
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)
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(18
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)
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39.1
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%
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Other expense (income)
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(2
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)
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2
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(4
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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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817
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805
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12
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|
|
1.5
|
%
|
Provision for income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
24
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
495
|
|
|
|
507
|
|
|
|
(12
|
)
|
|
|
(2.4
|
)%
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
(13
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales.
The $1,013 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $931 million mainly due to
the inclusion of our bottling acquisitions. Higher pricing and
improved sales mix in all remaining segments increased net sales
by 3% despite lower volumes. Excluding the impact of our
bottling acquisitions, volumes were down 1%, with declines in Dr
Pepper and Hawaiian Punch being partially offset by increases in
Snapple, Motts and Sunkist. The disposal of the
Grandmas Molasses brand in January 2006 and the Slush
Puppie business in May 2006 reduced net sales by less than
1%.
Gross Profit.
The $390 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $359 million mainly due to
the inclusion of our bottling acquisitions. The remaining
47
increase was primarily due to net sales growth, partially offset
by increases in commodity costs, including HFCS and apple juice
concentrate, as well as inventory write-offs related to
Accelerade.
Gross margin was 54% in 2007 and 58% in 2006. The decrease in
gross margin was due primarily to the inclusion of our bottling
acquisitions (which generally have lower margins than our other
businesses) for the full year 2007 as compared to partial
periods in 2006.
Selling, General and Administrative
Expenses.
The $359 million increase was
primarily due to increases in our Bottling Group segment, which
resulted in an additional $324 million of expenses mainly
due to the inclusion of our bottling acquisitions. The remaining
increase for all other segments was primarily due to the impact
of inflation (particularly in wages and benefits), higher
transportation costs as well as higher allocations from Cadbury
Schweppes, partially offset by a reduction in annual management
incentive plan accruals. Marketing was up slightly as increases
in the Finished Goods segment to support new product launches,
including Accelerade, Motts line extensions, and
Peñafiel in the United States, were mostly offset by a
reduction in the Beverage Concentrates segment.
Depreciation and Amortization.
The
$29 million increase was principally due to higher
depreciation on property, plant and equipment and amortization
of definite-lived intangible assets in connection with our
bottling acquisitions.
Impairment of Intangible Assets.
In 2007, we
recorded impairment charges of $6 million, of which
$4 million was related to the Accelerade brand.
Restructuring Costs.
The $76 million cost
in 2007 was primarily due to $32 million of costs
associated with the organizational restructuring announced on
October 10, 2007 and $21 million of costs associated
with the Bottling Group integration. The organizational
restructuring announced in October 2007 included employee
reductions and the closure of manufacturing facilities.
The $27 million cost in 2006 was primarily related to the
Bottling Group integration as well as various other cost
reduction and efficiency initiatives. The Bottling Group
integration and other cost reduction and efficiency initiatives
primarily related to the alignment of management information
systems, the consolidation of the back office operations from
the acquired businesses, the elimination of duplicate functions,
and employee relocations.
Gain on Disposal of Property and Intangible
Assets.
In 2007, we recognized a $71 million
gain due to a payment we received from Energy Brands, Inc. as a
result of its termination of our contractual rights to
distribute glacéau products. In 2006, we recognized a
$32 million gain on disposals of assets, attributable to
the Grandmas Molasses brand and the Slush Puppie business.
Income from Operations.
The $14 million
decrease was due to the $55 million operating loss from the
launch of Accelerade, increased selling, general and
administrative expenses and $49 million of higher
restructuring costs in 2007, partially offset by higher net
sales in 2007 and $39 million of higher gain on disposal of
property and intangible assets in 2007.
Interest Expense.
The $4 million decrease
in 2007 was primarily due to a reduction in the interest
component paid on a lawsuit settled in June 2007 and a decrease
in interest due to the settlement of third-party debt. These
decreases were partially offset by an increase in interest on
our related-party debt.
Interest Income.
The $18 million increase
was primarily due to higher related-party note receivable
balances with subsidiaries of Cadbury Schweppes.
Provision for Income Taxes.
The effective tax
rates for 2007 and 2006 were 39.3% and 36.9%, respectively. The
increase in the effective rate for 2007 was primarily due to a
lower benefit from foreign operations.
Results
of Operations by Segment for 2007 Compared to 2006
We operate our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group, and Mexico and the Caribbean.
The key financial measures management uses to assess the
performance of our segments are net sales and UOP.
48
The following tables set forth net sales and UOP for our
segments for 2007 and 2006, as well as the adjustments necessary
to reconcile our total segment results to our combined results
presented in accordance with U.S. GAAP and the elimination
of intersegment transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Operating Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
12
|
|
|
|
0.9
|
%
|
Finished Goods
|
|
|
1,562
|
|
|
|
1,516
|
|
|
|
46
|
|
|
|
3.0
|
%
|
Bottling Group
|
|
|
3,143
|
|
|
|
2,001
|
|
|
|
1,142
|
|
|
|
57.1
|
%
|
Mexico and the Caribbean
|
|
|
418
|
|
|
|
408
|
|
|
|
10
|
|
|
|
2.5
|
%
|
Adjustments and eliminations(1)
|
|
|
(717
|
)
|
|
|
(520
|
)
|
|
|
(197
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
1,013
|
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists principally of eliminations of intersegment net sales.
The increase in these eliminations was due principally to the
inclusion of our 2006 bottling acquisitions for the full year
2007 as compared to the inclusion of our 2006 bottling
acquisitions for partial periods in 2006. Adjustments in these
periods were not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Underlying operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
21
|
|
|
|
3.0
|
%
|
Finished Goods
|
|
|
167
|
|
|
|
172
|
|
|
|
(5
|
)
|
|
|
(2.9
|
)%
|
Bottling Group
|
|
|
130
|
|
|
|
130
|
|
|
|
0
|
|
|
|
0
|
%
|
Mexico and the Caribbean
|
|
|
100
|
|
|
|
102
|
|
|
|
(2
|
)
|
|
|
(2.0
|
)%
|
Corporate and other(1)
|
|
|
(42
|
)
|
|
|
(14
|
)
|
|
|
(28
|
)
|
|
|
NM
|
|
Adjustments and eliminations(2)
|
|
|
(269
|
)
|
|
|
(295
|
)
|
|
|
26
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries as reported
|
|
$
|
817
|
|
|
$
|
805
|
|
|
$
|
12
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
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 2007, adjustments consist principally of net interest
expense of $189 million, restructuring costs of
$76 million and depreciation and amortization of
$98 million. The 2007 adjustments were partially offset by
a portion ($58 million) of the $71 million gain on
termination of the glacéau distribution agreements. The
balance of the gain ($13 million) is reflected in the
Bottling Group UOP. For 2006, adjustments consist principally
of net interest expense of $211 million, restructuring
costs of $27 million and depreciation and amortization
costs of $69 million. These 2006 adjustments were partially
offset by the $32 million gain on disposal of the
Grandmas Molasses brand and Slush Puppie business.
Eliminations in these periods were not material. Information on
restructuring charges by segment is available in note 12 to
our audited combined financial statements.
|
49
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
12
|
|
|
|
0.9
|
%
|
Underlying operating profit
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
21
|
|
|
|
3.0
|
%
|
The $12 million net sales increase was due primarily to
price increases, which more than offset the impact of a 1.4%
volume decline. The volume decline was due primarily to a 3.3%
decline in Dr Pepper partially offset by single digit percentage
increases in Sunkist, Schweppes and A&W. The Dr Pepper
decline is primarily a result of comparisons to prior period
volumes that included the launch of Soda Fountain
Classics line extensions. Line extensions are usually
offered for a limited time period and their volumes typically
decline in the years subsequent to the year of launch, as was
the case with these line extensions in 2007. The total of all
other regular and Diet Dr Pepper volumes (base Dr
Pepper volumes) declined 0.4%. For 2006, net sales
included $8 million for the Slush Puppie business, which
was disposed in May 2006.
The $21 million UOP increase was due primarily to higher
net sales and lower marketing investments (particularly
advertising costs) partially offset by higher cost of sales from
increased sweetener and flavor costs and increased selling,
general and administrative expenses. The lower marketing
investments were primarily a result of a reduction in Beverage
Concentrates marketing investments to support new product
initiatives in our Finished Goods segment, including
$25 million for the launch of Accelerade. Selling, general
and administrative expenses were higher due primarily to
increased corporate costs following our bottler acquisitions, a
transfer of sales personnel from the Finished Goods segment to
this segment reflecting a sales reorganization, and general
inflationary increases, which were partially offset by lower
management annual incentive plan accruals.
Bottler case sales declined 1.5% in 2007 due primarily to a 2.5%
decline in Dr Pepper, and a single and double digit
percentage decline in 7UP and Diet Rite, respectively. The Dr
Pepper decline results from comparisons to strong volumes in
2006 driven by the Soda Fountain Classics line
extensions which were nationally introduced in 2005, while the
total of base Dr Pepper volumes increased 0.4% compared with the
prior year. The 7UP decline primarily reflects the
discontinuance of 7UP Plus, as well as the comparison to strong
volumes in 2006 driven by the third quarter launch of 7UP
with natural flavors and heavy promotional support
for 7UP and other brands. The Diet Rite decline was due to the
shift of marketing investment from Diet Rite to other diet
brands, such as Diet Sunkist, Diet A&W and Diet Canada Dry.
These declines were partially offset by single digit percentage
increases in Sunkist and Canada Dry, which are consistent with
the consumer shift from colas to flavored CSDs.
Finished
Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,562
|
|
|
$
|
1,516
|
|
|
$
|
46
|
|
|
|
3.0
|
%
|
Underlying operating profit
|
|
$
|
167
|
|
|
$
|
172
|
|
|
$
|
(5
|
)
|
|
|
(2.9
|
)%
|
The $46 million net sales increase was due to price
increases and a favorable shift towards higher priced products
such as Snapple and Motts. These increases were partially
offset by lower volumes and higher product placement costs
associated with new product launches. The volume decrease of
2.0% was primarily due to a price increase on Hawaiian Punch in
April 2007, which more than offset growth from Snapple and
Motts. Snapple volumes increased primarily due to the
launch of Antioxidant Waters and the continued growth from super
premium teas. Motts volumes increased due primarily to the
new product launches of Motts for Tots juice and
Motts Scooby Doo apple sauce and increased consumer demand
for apple juice.
The $5 million UOP decrease was due primarily to a
$55 million operating loss from Accelerade, partially
offset by the strong performance of Motts and Snapple
products. The $55 million operating loss attributable to
Accelerade was primarily due to new product launch expenses to
support our entry into the sports drink category. The launch had
been supported by significant product placement and marketing
investments. In 2007, we had no net
50
sales for this product as gross sales were more than offset by
product placement fees. UOP was also negatively impacted by
higher costs for glass, HFCS, apple juice concentrate, as well
as $8 million of costs for the launch of Motts line
extensions and the launch of Peñafiel in the United States,
partially offset by the elimination of co-packing fees
previously charged by the Bottling Group segment and lower
selling, general and administrative costs due to the transfer of
sales personnel from the Finished Goods segment to the Beverages
Concentrates segment in connection with a sales reorganization.
Bottling
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
3,143
|
|
|
$
|
2,001
|
|
|
$
|
1,142
|
|
|
|
57.1
|
%
|
Underlying operating profit
|
|
$
|
130
|
|
|
$
|
130
|
|
|
|
0
|
|
|
|
0
|
%
|
The results of operations for 2006 only include eight months of
results from DPSUBG (acquired in May 2006), approximately seven
months of results from All American Bottling Corp. (acquired in
June 2006), and approximately five months of results from Seven
Up Bottling Company of San Francisco (acquired in August
2006), as compared to 2007 which includes a full year of results
of operations for these businesses and approximately six months
of results from SeaBev (acquired in July 2007).
The $1,142 million net sales increase was primarily due to
the bottling acquisitions described above, price increases and a
favorable sales mix of higher priced non-CSDs. After elimination
of intersegment sales, the impact on our consolidated net sales
was an increase of $931 million.
UOP was flat in 2007 compared to 2006 to the prior year despite
the increased net sales. The associated profit from the
increased net sales were more than offset by an increase in
post-acquisition employee benefit costs, wage inflation costs,
higher HFCS costs, the elimination of co-packing fees in 2007
which were previously earned on manufacturing for the Finished
Goods segment, and an increase in investments in new markets.
Additionally, in 2007, UOP included a portion ($13 million)
of the $71 million gain due to the payment we received from
Energy Brands, Inc. as a result of their termination of our
contractual rights to distribute glacéau products.
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
418
|
|
|
$
|
408
|
|
|
$
|
10
|
|
|
|
2.5
|
%
|
Underlying operating profit
|
|
$
|
100
|
|
|
$
|
102
|
|
|
$
|
(2
|
)
|
|
|
(2.0
|
)%
|
The $10 million net sales increase was due to volume growth
of 1.5% and increased pricing despite challenging market
conditions and adverse weather, partially offset by unfavorable
currency translation. The volume growth was due to the strong
performance of Aguafiel and Clamato brands, both of which had
double digit percentage increases. Foreign currency translation
negatively impacted net sales by $6 million.
The $2 million UOP decrease in 2007 despite the increase in
net sales was due primarily to an increase in raw material
costs, particularly HFCS, higher distribution costs and
unfavorable foreign currency translation. Foreign currency
translation of expenses negatively impacted UOP by
$2 million.
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
|
|
|
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 increases in our Bottling Group segment,
which contributed an additional $1,462 million mainly due
to the inclusion of our bottling group acquisitions. The
remaining $68 million increase was due primarily to higher
pricing, improved sales mix and favorable foreign currency
translation. Volumes declined 1.4% primarily reflecting the
impact of higher pricing in the Finished Goods segment and lower
Beverage Concentrates volumes primarily due to 7UP and Diet
Rite, which were partially offset by growth in our Mexico and
the Caribbean segment. The disposal of a brand and a business
reduced net sales by less than 1%.
Gross Profit.
The $656 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $570 million mainly due to
the inclusion of our bottling group acquisitions. The remaining
$86 million increase was primarily due to net sales growth,
partially offset by higher raw material costs, including PET,
glass and sweeteners. As a result of the bottling acquisitions,
we were also able to reduce the use of external co-packing,
which lowered overall production costs.
Gross margin was 58% in 2006 and 65% in 2005. The decrease in
gross margin was due to the inclusion of our bottling
acquisitions, which generally have lower margins than our other
businesses.
Selling, General and Administrative
Expenses.
The $480 million increase was
primarily due to increases in our Bottling Group segment, which
contributed an additional $484 million of expenses mainly
due to the inclusion
52
of our bottling group acquisitions. The remaining
$4 million decrease was primarily due to lower marketing
investments as well as reduced stock option and pension
expenses, partially offset by higher transportation costs driven
by fuel and general inflation for wages and benefits.
Depreciation and Amortization.
The
$43 million increase was primarily due to higher
depreciation on property, plant and equipment and amortization
of definite lived intangible assets following our bottling
acquisitions.
Restructuring Costs.
In 2006, the
$27 million in expenses was primarily related to
integration costs associated with our bottling acquisitions, as
well as the outsourcing of certain back office functions, such
as accounts payable and travel and entertainment management, to
a third-party provider, and a reorganization of our information
technology functions. The integration costs associated with our
bottling acquisitions primarily related to the alignment of
management information systems, the consolidation of back office
operations from the acquired businesses, the elimination of
duplicate functions, and employee relocations. In 2005, the
$10 million in expenses was primarily related to costs from
the restructuring of our four North American businesses
(Motts, Snapple, Dr Pepper/Seven Up and Mexico) into
a combined management reporting unit, that occurred in 2004 and
the further consolidation of our back office operations that
began in 2004.
Gain on Disposal of Property and Intangible
Assets.
In 2006, we recognized a $32 million
gain on the disposals of assets attributable to the disposals of
the Grandmas Molasses brand and Slush Puppie business. In
2005, we recognized a $36 million gain on the disposal of
the Holland House brand.
Income from Operations.
The $112 million
increase was primarily due to the net impact of our bottling
acquisitions and strong performance from our Beverage
Concentrates segment, partially offset by higher restructuring
costs.
Interest Expense.
The $47 million
increase was primarily due to the increase in related party debt
as a result of the bottling acquisitions, which resulted in
higher interest expense of $67 million. There was a further
increase of $18 million due to higher interest rates on our
variable rate related party debt. These increases were partially
offset by a reduction of $43 million related to the
repayment of certain related party debt.
Interest Income.
The $6 million increase
is primarily due to fluctuations in related party note
receivable balances with subsidiaries of Cadbury 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 greater benefit from foreign operations,
changes in state, local and foreign income tax rates and shifts
in the relative jurisdictional mix of taxable profits.
Equity in Earnings of Unconsolidated
Subsidiaries.
The $18 million decrease was
due to the impact of our increased ownership of DPSUBG. Prior to
May 2, 2006, we owned approximately 45% of DPSUBG and
recorded our share of its earnings on an equity basis. On
May 2, 2006, we increased our ownership from 45% to 100%.
As a result, DPSUBGs results were reflected on a
consolidated basis after May 2, 2006.
Cumulative Effect of Change in Accounting Policy, Net of
Tax.
In 2005, we adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment
and selected the prospective method
of transition. Accordingly, prior period results were not
restated and the cumulative impact for additional expense of
$10 million was reflected in 2005.
53
Results
of Operations by Segment for 2006 Compared to 2005
The following tables set forth net sales, and UOP for our
segments for 2006 and 2005, as well as adjustments necessary to
reconcile our total segment results to our combined results
presented in accordance with U.S. GAAP and the elimination of
intersegment transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,516
|
|
|
|
1,516
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
%
|
Bottling Group
|
|
|
2,001
|
|
|
|
241
|
|
|
|
|
|
|
|
1,760
|
|
|
|
NM
|
|
Mexico and the Caribbean
|
|
|
408
|
|
|
|
354
|
|
|
|
|
|
|
|
54
|
|
|
|
15.3
|
%
|
Adjustments and eliminations(1)
|
|
|
(520
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
(310
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
$
|
1,530
|
|
|
|
47.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists principally of eliminations of intersegment net sales.
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)
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
710
|
|
|
$
|
657
|
|
|
|
|
|
|
$
|
53
|
|
|
|
8.1
|
%
|
Finished Goods
|
|
|
172
|
|
|
|
165
|
|
|
|
|
|
|
|
7
|
|
|
|
4.2
|
%
|
Bottling Group
|
|
|
130
|
|
|
|
44
|
|
|
|
|
|
|
|
86
|
|
|
|
NM
|
|
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 is provided in note 15, in
each case to our audited combined financial statements.
|
54
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
$
|
26
|
|
|
|
2.0
|
%
|
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 $53 million UOP increase was due primarily to higher
net sales and lower cost of sales and marketing expenses
(primarily advertising costs), which were partially offset by
higher selling, general and administrative expenses. The lower
cost of sales was driven by a favorable sales mix shift away
from higher cost beverage concentrates products, such as 7UP
Plus and Diet Rite, to non-diet products. The higher selling,
general and administrative expenses related mainly to an
increase in corporate costs following our bottling acquisitions.
Bottler case sales increased 0.9% primarily due to growth in Dr
Pepper following the launch of Dr Pepper Berries &
Cream, the second offering of the Soda Fountain
Classics line extensions, and single digit percentage
increases on Diet Dr Pepper as a result of the Diet Try
It promotion. Sunkist had a double digit volume percentage
increase due to a line extension, and A&W had a single
digit volume percentage increase due to new packaging. These
increases were partially offset by a decline in 7UP and Diet
Rite. The 7UP decline was primarily due to the discontinuation
of 7UP Plus which was partially offset by the volume gains in
the relaunch of 7UP with natural 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
|
|
$
|
1,516
|
|
|
$
|
1,516
|
|
|
$
|
0
|
|
|
|
0
|
%
|
Underlying operating profit
|
|
$
|
172
|
|
|
$
|
165
|
|
|
$
|
7
|
|
|
|
4.2
|
%
|
Net sales were equal to the prior year as volume declines of
3.0% and an unfavorable sales mix were offset by price
increases. Volume declines in Snapple and Yoo-Hoo more than
offset an increase in Hawaiian Punch.
The $7 million UOP increase was due to lower cost of sales,
partially offset by higher marketing expenses mainly associated
with the launch of Snapple super premium teas. The lower cost of
sales was due to supply chain initiatives, including lower
ingredient costs from product reformulation and lower production
costs as certain products, which were previously co-packed
externally, were manufactured in-house. These cost of sales
reductions were partially offset by an increase in our cost of
HFCS, PET and glass.
Bottling
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
2,001
|
|
|
$
|
241
|
|
|
$
|
1,760
|
|
|
|
NM
|
|
Underlying operating profit
|
|
$
|
130
|
|
|
$
|
44
|
|
|
$
|
86
|
|
|
|
NM
|
|
Bottling Group results in 2005 included only the results from
the former Snapple Distributors segment. Bottling Groups
2006 results include a full year of sales of $271 million
from the former Snapple Distributors segment, and partial year
results from our 2006 bottling acquisitions. After elimination
of intersegment sales, the impact on our consolidated net sales
was an increase of $1,462 million. As a result, UOP was
$130 million on $2,001 million of net sales in 2006,
compared to UOP of $44 million on $241 million of net
sales in 2005.
55
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
408
|
|
|
$
|
354
|
|
|
$
|
54
|
|
|
|
15.3
|
%
|
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 $6 million UOP increase was due to the increased net
sales, partially offset by increases in HFCS and PET costs,
higher transportation and distribution costs, increased selling,
general and administrative expenses, and unfavorable foreign
currency translation. Foreign currency translation negatively
impacted cost of sales by $6 million.
Critical
Accounting Policies
The process of preparing our financial statements in conformity
with U.S. GAAP requires the use of estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses. These estimates and judgments are based on
historical experience, future expectations and other factors and
assumptions we believe to be reasonable under the circumstances.
The most significant estimates and judgments are reviewed on an
ongoing basis and are revised when necessary. Actual amounts may
differ from these estimates and judgments. A summary of our
significant accounting policies is contained in note 2 to
our audited combined financial statements included elsewhere in
this 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
2007 and 2006 includes the effect of our bottling
acquisitions where the amounts of such spend are larger
than those related to other parts of our business. The aggregate
deductions from gross sales recorded by us in relation to these
programs were approximately $3,159 million,
$2,440 million and $928 million in 2007, 2006 and
2005, respectively. Net sales are also reported net of sales
taxes and other similar taxes.
56
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.
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. Prior to the adoption of SFAS 123(R),
we applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB25) and related interpretations when accounting
for our stock-based compensation plans. We have selected the
modified prospective method of transition; accordingly, prior
periods have not been restated. Upon adoption of
SFAS 123(R), for awards which are classified as liabilities
we were required to reclassify the APB 25 historical
compensation cost from equity to liability and to recognize the
difference between this and the fair value liability through the
statement of operations.
We selected the Black-Scholes option pricing model as the most
appropriate method for determining the estimated fair value for
stock-based awards. The Black-Scholes option pricing model
requires the use of highly subjective and complex assumptions
which determine the fair value of stock-based awards, including
the options expected term, expected volatility of the
underlying stock, risk-free rate, and expected dividends. These
assumptions significantly affect the stock compensation charges
associated with each grant and in the case of liability plans,
the cost associated with remeasuring the liability at each
balance sheet date. Moreover, changes in forfeiture rates affect
the timing and amount of stock compensation expense recognized
over the requisite service period.
Under SFAS 123(R), we recognize the cost of all unvested
employee stock options on a straight-line attribution basis over
their respective vesting periods, net of estimated forfeitures.
In addition, 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),
57
requires a liability be recorded on the balance sheet until
awards have vested. Also, in calculating the income statement
charge for share awards under the liability method as set out in
SFAS 123(R), the fair value of each award must be
remeasured at each reporting date until vesting.
The compensation expense related to our stock-based compensation
plans is included within selling, general and
administrative expenses in our Combined Statements of
Operations. We recognized approximately $21 million
($13 million net of tax), $17 million
($10 million net of tax) and $22 million
($13 million net of tax) of expense in 2007, 2006 and 2005,
respectively. See note 14 to our audited combined financial
statements for a further description of the stock-based
compensation plans.
Pension
and Postretirement Benefits
We have several pension and postretirement plans covering our
employees who satisfy age and length of service requirements.
There are 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 adopted the provisions of SFAS No. 158
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An amendment of Financial
Accounting Standards Board Statements No. 87, 88, 106, and
132(R)
(SFAS 158) related to recognizing
the funded status of a benefit plan and the disclosure
requirements on December 31, 2006. We have elected to defer
the change of measurement date as permitted by SFAS 158
until December 31, 2008. Our policy is to fund pension
plans in accordance with the requirements of the Employee
Retirement Income Security Act. Employee benefit plan
obligations and expenses included in the combined financial
statements are determined from actuarial analyses based on plan
assumptions, employee demographic data, years of service,
compensation, benefits and claims paid and employer
contributions.
Cadbury Schweppes sponsors the five defined benefit plans and
one postretirement health care plan in which our employees
participate. Expenses related to these plans were determined by
specifically identifying the costs for our participants.
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.
58
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. See note 9 to our audited combined
financial statements for additional information related to
FIN 48.
Our effective tax rate for 2007 was 39.3%. See note 9 to
our audited 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:
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We will incur significant third party debt in connection with
the separation;
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We will continue to make capital expenditures to build new
manufacturing capacity, upgrade our existing plants and
distribution fleet of trucks, replace and expand our cold drink
equipment, make IT investments for IT systems, and from
time-to-time invest in restructuring programs in order to
improve operating efficiencies and lower costs;
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We will assume significant pension obligations; and
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We may make further acquisitions.
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New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing consisting of a term loan A
facility, a revolving credit facility and a bridge loan facility.
On April 11, 2008, we amended and restated the credit
facilities and borrowed $2.2 billion under the term loan A
facility and $1.7 billion under the bridge loan facility.
Our $500 million revolving credit facility remains undrawn.
All of the proceeds from borrowings under the term loan A
facility and the bridge loan facility were placed into
collateral accounts. In addition, we intend to offer
$1.7 billion aggregate principal amount of senior unsecured
notes. If the notes offering is successfully completed prior to
the separation, we intend to deposit the net proceeds of the
offering into an escrow account, following which the borrowings
under the bridge loan facility will be released from the
collateral account containing such funds and returned to the
lenders. The separation is not conditional upon the completion
of a notes offering.
When the separation has been consummated, the borrowings under
the term loan A facility and the bridge loan facility (or the
net proceeds of the notes offering, if such offering has been
completed) will be released to us from the collateral accounts
(or escrow account in the case of the notes) and used by us,
together with cash on hand, to settle
59
with Cadbury Schweppes related party debt and other balances,
eliminate Cadbury Schweppes net investment in us, purchase
certain assets from Cadbury Schweppes related to our business
and pay fees and expenses related to our new credit facilities.
If the separation is not consummated prior to 3:00 p.m.
(New York City time) on May 13, 2008, or if Cadbury
Schweppes publicly announces that it has determined to abandon
the separation prior to that time, the borrowings under the term
loan A facility and the bridge loan facility now held in the
collateral accounts will be released and used to repay the
amounts due under those facilities. If we have issued the notes
and the separation is not consummated, the net proceeds of the
notes offering, together with funds Cadbury Schweppes has agreed
to pay to us, will be used to redeem all of the notes. See
Description of Indebtedness.
Capital
Expenditures
Capital expenditures were $230 million in 2007 compared to
$158 million in 2006. Capital expenditures for both years
primarily consisted of manufacturing and distribution equipment,
cold drink equipment and IT investments for new systems. The
increase in 2007 was primarily due to the inclusion of our
bottling acquisitions. We plan to incur annual capital
expenditures over the next three years in an amount equal to
approximately 5% of our net sales. These expenditures are
expected to include investments in cold drink equipment,
construction of a multi-product manufacturing facility in
Southern California, expansion of our capabilities in existing
facilities and implementation of
route-to-market
efficiency initiatives.
Restructuring
We implement restructuring programs from time to time and incur
costs that are designed to improve operating effectiveness and
lower costs. These programs have included closure of
manufacturing plants, reductions in force, integration of back
office operations and outsourcing of certain transactional
activities. When we implement these programs, we incur various
charges, including severance and other employment-related costs.
The restructuring costs of $76 million in 2007 are
primarily related to the following:
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Organizational restructuring announced on October 10,
2007, which will result in the reduction of approximately 470
employees and the closure of two manufacturing facilities in
Denver, Colorado (closed in December 2007) and Waterloo, New
York (closed in March 2008). The employee reductions are
expected to be completed by June 2008. As a result of this
restructuring, we recognized a charge of $32 million in
2007.
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Continued integration of the Bottling Group, which was initiated
in 2006, resulted in charges of $21 million.
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Integration of technology facilities initiated in 2007.
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Closure of the St. Catharines facility initiated in 2007.
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The restructuring costs of $27 million in 2006 are
primarily related to the following:
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Integration of the Bottling Group initiated in 2006; and
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Outsourcing initiatives of our back office operations service
center and a reorganization of our IT operations initiated in
2006.
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We expect to incur an aggregate of approximately
$42 million of pre-tax, non-recurring charges in 2008 with
respect to the restructuring discussed above. For more
information, see note 12 to our audited combined financial
statements.
Pension
Obligations
We expect to assume unfunded employee benefit liabilities for
pension benefit and postretirement obligations from Cadbury
Schweppes for qualified and non-qualified plans. In January
2008, we began to separate commingled pension and postretirement
plans in which certain of our employees participate. As a
result, we remeasured the
60
projected benefit obligation of the separated plans, which we
expect to result in an increase of approximately
$71 million to our other non-current
liabilities and a decrease of approximately
$53 million to accumulated other comprehensive
income. See Unaudited Pro Forma Combined Financial
Data. The actual pension liability and associated
unamortized losses will be finalized at the separation date.
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 Provided by Operating Activities
Net cash provided by operating activities was $603 million
in 2007 compared to $581 million in 2006. The
$22 million increase was primarily due to changes in
non-cash
adjustments and working capital improvements. The increase in
working capital was primarily the result of a $99 million
increase in accounts payable and accrued expenses and a
$74 million decrease in trade accounts receivable. These
changes were partially offset by increases in related party
receivables of $55 million, other accounts receivable of
$84 million and inventories of $27 million.
Net cash from operating activities was $581 million in 2006
compared to $583 million in 2005. The $2 million
decrease was primarily due to a decrease in our cash flows from
working capital of $89 million partially offset by an
increase in net earnings of $33 million, an increase in
depreciation of $46 million and an increase in amortization
of $14 million. Changes in working capital were a decreased
source of cash flow from operations in 2006 compared to 2005,
primarily as a result of a $138 million decrease from
accounts payables and accrued expenses, partially offset by a
$20 million decrease from receivables.
Net
Cash Provided by Investing Activities
Net cash used in investing activities was $1,087 million in
2007 compared to $502 million in 2006. The increase of
$585 million was primarily attributable to the issuance of
notes receivable for $1,846 million, partially offset by
$842 million due to the repayment of notes receivable and a
decrease of $405 million for acquisitions, principally the
acquisition in 2006 of the remaining 55% interest in DPSUBG.
Net cash used in investing activities was $502 million in
2006 compared to $283 million provided by investing
activities in 2005. The $785 million increase in 2006 was
primarily due to the acquisition of the remaining
55% interest in DPSUBG, higher purchases of property,
plant, and equipment, and lower proceeds from asset sales.
Net
Cash Provided by Financing Activities
Net cash provided by financing activities was $515 million
in 2007 compared to $72 million used in financing
activities in 2006. The $587 million increase in 2007 was
due to higher levels of debt issuances and net investment
transactions with Cadbury 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. 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.
Cash
and Cash Equivalents
Cash and cash equivalents were $67 million at
December 31, 2007 and increased $32 million in 2007
from $35 million at the prior year end. The increase was
primarily due to transactions with Cadbury Schweppes.
61
Contractual
Commitments and Obligations
We enter into various contractual obligations that impact, or
could impact, our liquidity. The following table summarizes our
contractual obligations and contingencies at December 31,
2007. See notes 10 and 13 to our audited combined financial
statements included elsewhere in this information statement for
additional information regarding the items described in this
table.
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Payments Due in Year
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Total
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2008
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2009
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2010
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2011
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2012
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After 2012
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(In millions)
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Long-term debt obligations(1)
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$
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3,019
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$
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126
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$
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494
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$
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$
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425
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$
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740
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$
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1,234
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Capital leases(2)
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21
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2
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3
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3
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3
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3
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7
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Interest payments(3)
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1,083
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192
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165
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161
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140
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88
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337
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Operating leases(4)
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281
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72
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53
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45
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36
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29
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46
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Purchase obligations(5)
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122
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36
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24
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20
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11
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10
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21
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Other long-term liabilities(6)
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44
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4
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4
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4
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4
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4
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24
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Total
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$
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4,570
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$
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432
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$
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743
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$
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233
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$
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619
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$
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874
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$
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1,669
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(1)
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Amounts represent scheduled principal payments for long-term
debt. The amount and timing of payments related to our long-term
debt will be different from those set forth in this table as the
result of borrowings under our new credit facilities.
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(2)
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Amounts represent capitalized lease obligations, net of
interest. Interest in respect of capital leases is included
under the caption Interest payments on this table.
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(3)
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Amounts represent our estimated interest payments based on:
(a) projected interest rates for floating rate debt,
(b) specified interest rates for fixed rate debt,
(c) capital lease amortization schedules and (d) debt
amortization schedules. The amount and timing of interest
payments will be different from those set forth in this table as
the result of borrowings under our new credit facilities.
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(4)
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Amounts represent minimum rental commitment under
non-cancellable operating leases.
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(5)
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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.
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(6)
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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. As of December 31,
2007 the amount of unrecognized tax benefits was
$98 million. This table does not reflect any payments we
may be required to make in respect of tax matters for which we
have established reserves in accordance with FIN 48. Due to
uncertainty regarding the timing of payments associated with
these liabilities, we are unable to make a reasonable estimate
of the amount and period for which these liabilities might be
paid and therefore are not included in the above table.
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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 March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 changes
the disclosure requirements for derivative instruments and
hedging activities, requiring enhanced disclosures about how and
why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under
SFAS 133, and how derivative instruments and related hedged
items affect an entitys financial position, financial
performance and cash flows. SFAS 161 is effective for
fiscal years beginning after November 15, 2008. We will
provide the required disclosures for all our filings for periods
subsequent to the effective date.
62
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS 141(R)), which amends the principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.
SFAS 141(R) is effective for us on January 1, 2009,
and we will apply SFAS 141(R) prospectively to all business
combinations subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An amendment of Accounting Research
Bulletin No. 51
(SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
noncontrolling interests. SFAS 160 is effective for fiscal
years beginning after December 15, 2008. We will apply
SFAS 160 prospectively to all applicable transactions
subsequent to the effective date.
In 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 do not plan to apply SFAS 159 to any of our existing
financial assets or liabilities and believe that the adoption of
SFAS 159 would 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
We are exposed to market risks arising from changes in market
rates and prices, including movements in foreign currency
exchange rates, interest rates, and commodity prices.
Foreign
Exchange Risk
Historically, Cadbury Schweppes has managed foreign currency
risk on a centralized basis on our behalf. The majority of our
net sales, expenses, and capital purchases are transacted in
United States dollars. However, we do have some exposure
with respect to foreign exchange rate fluctuations. Our primary
exposure to foreign exchange rates is the Canadian dollar and
Mexican peso against the U.S. dollar. 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 significant forecasted receipts and payments. All of these
hedged transactions are against firmly committed or forecasted
exposures. It is Cadbury Schweppes practice not to hedge
translation exposure.
Following the separation, we may continue to utilize foreign
exchange forward and option contracts to manage our exposure to
changes in foreign exchange rates.
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Interest
Rate Risk
Historically, Cadbury Schweppes has managed interest rate risk
on a centralized basis on our behalf through the use of interest
rate swap agreements and other risk management instruments. 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. Following completion of the separation and the
related financing transactions, we will be subject to interest
rate risk with respect to our long-term debt under the credit
facilities. The principal interest rate exposure relates to
amounts we have borrowed under our new term loan A and
bridge loan facilities. We have incurred $3.9 billion of
debt with floating interest rates under these facilities. A
change in the estimated interest rate on the $3.9 billion
of borrowings under the term loan A and bridge loan facilities
up or down by 1% will increase or decrease our earnings before
provision for income taxes by approximately $39 million,
respectively, on an annual basis. We will also have interest
rate exposure for any amounts we may borrow in the future under
the revolving credit facility. If we replace the bridge loan
facility with one or more series of notes bearing a fixed rate
of interest, our exposure to interest rate risk will be
significantly reduced. If we replace the bridge loan facility
with an alternative term loan facility bearing a floating rate
of interest we will continue to have a similar level of exposure
to interest rate risk.
Following the separation, we may utilize interest rate swaps,
agreements or other risk management instruments to manage our
exposure to changes in interest rates.
Commodity
Risks
We are subject to market risks with respect to commodities
because our ability to recover increased costs through higher
pricing may be limited by the competitive environment in which
we operate. Our principal commodities risks relate to our
purchases of aluminum, corn (for HFCS), natural gas (for use in
processing and packaging), PET and fuel. 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 has enabled
Cadbury Schweppes to obtain the benefit of guaranteed contract
performance on firm priced contracts offered by banks, the
exchanges and their clearing houses.
Following the separation, we intend to utilize commodities
forward contracts and supplier pricing agreements to hedge the
risk of adverse movements in commodity prices for limited time
periods for certain commodities.
Following the separation, commodities forward contracts in
existence relating to our business will be transferred to us.
The fair market value of these contracts as of December 31,
2007 was a liability of $6 million.
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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.
According to the latest available
information from Beverage Digest, in 2007, CSD retail sales
increased 2.7% despite a 2.3% decline in volume. In 2006, CSD
retail sales grew by 2.9% despite a 0.6% decline in volume. The
rise in retail sales in both years was primarily due to price
increases in CSDs combined with strong growth of premium-priced
energy drinks. The decline in volume in both years was primarily
attributable to a combination of increased pricing and consumers
switching to non-CSDs and bottled water. Diet CSDs volume
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 42.1% of total volume in the Canadian soft drink
market, or $4.4 billion in retail sales, followed by
non-CSDs and bottled water with 37.3% and 20.6% 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.
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Beverage
Market Trends
We believe the key trends influencing the North
American liquid refreshment beverage market include:
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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.
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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.
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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.
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Product and packaging innovation.
We believe
brand owners and bottling companies will continue to create new
products and packages such as beverages with new ingredients and
new premium flavors, as well as innovative convenient packaging
that address changes in consumer tastes and preferences.
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Changing retailer landscape.
As retailers
continue to consolidate, we believe 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.
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Recent increases in raw material costs.
The
costs of a substantial proportion of the raw materials used in
the beverage industry, such as aluminum cans and ends, glass
bottles, PET 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.
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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
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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.
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Bottling Systems.
The U.S. bottling
industry consists of the following four systems:
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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.
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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.
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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.
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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.
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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:
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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.
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Warehouse delivery.
Finished beverages are
shipped to retailer warehouses, and then delivered by the
retailer through its own delivery system to its stores.
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Fountain foodservice.
Fountain syrup is
delivered to fountain customers either through direct store
delivery or the customers warehouse.
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Vending operations.
Finished beverages are
delivered to vending machines and stocked and filled by vending
service operators or bottlers.
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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
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the PepsiCo affiliated system. The Canadian beverage industry is
also characterized by more consolidated retail sales channels
than in the United States.
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,
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drinking and accommodation establishments and institutions. We
use Canadean data to assess both our own and our
competitors performance and market share in Canada and
Mexico.
In this information statement, all information regarding the
beverage market in the United States is from Beverage Digest,
and, except as otherwise indicated, is from 2006. Certain
limited United States beverage market information for 2007 is
available from Beverage Digest and is contained herein, but in
most instances 2006 information is the most recent available
from Beverage Digest. All information regarding the beverage
market in Canada and Mexico is from Canadean and is from 2006.
All information regarding our brand market positions in the
United States is from ACNielsen and is based on retail dollar
sales in 2007. All information regarding our brand market
positions in Canada is from ACNielsen and is based on volume in
2007. All information regarding our brand market positions in
Mexico is from Canadean and is based on volume in 2006. When
2006 information is used, it is the most recent information
available from the applicable source.
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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
More than 75% of our volume from brands that are either #1 or #2 in their category
#3 North American liquid refreshment beverage business
$5.7 billion of net sales in 2007 from the United States (89%), Canada (4%) and Mexico and
the Caribbean (7%)
$1.0 billion of income from operations in 2007
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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 1842
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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
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Flavors include regular and diet root
beer and cream soda
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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
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Brand includes club soda, tonic and
other mixers
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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
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Brand includes club soda, tonic and
other mixers
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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
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Flavors include regular, diet and ruby
red
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Founded in 1938
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A leading spicy tomato juice brand in
the United States, Canada and Mexico
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Key ingredient in Canadas popular
cocktail, the Bloody Caesar
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Created in 1969
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#1 carbonated mineral water brand in
Mexico
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Brand includes Flavors, Twist and Naturel
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Mexicos oldest mineral water,
founded in 1928
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#1 portfolio of mixer brands in the
United States
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#1 mixer brand (Mr & Mrs T) in the
United States
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Leading mixers (Margaritaville and
Roses) in their flavor categories
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Note:
All information regarding the beverage
market in the United States is from Beverage Digest, and, except
as otherwise indicated, is from 2006. Certain limited United
States beverage market information for 2007 is available from
Beverage Digest and is contained herein, but in most instances
2006 information is the most recent available from Beverage
Digest. All information regarding the beverage markets in Canada
and Mexico is from Canadean and is from 2006. All information
regarding our brand market positions in the United States is
from ACNielsen and is based on retail dollar sales in 2007. All
information regarding our brand market positions in Canada is
from ACNielsen and is based on volume in 2007. All information
regarding our brand market positions in Mexico is from Canadean
and is based on volume in 2006. When 2006 information is used,
it is the most recent information available from the applicable
source. 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 2007, 89% of our net sales were generated in the
United States, 4% in Canada and 7% in Mexico and the Caribbean.
We sold 1.6 billion equivalent 288 ounce cases in 2007.
In the CSD market segment in the United States and Canada, we
participate primarily in the flavored CSD category. Our key
brands are Dr Pepper, 7UP, Sunkist, A&W and Canada Dry, and
we also sell regional and smaller niche brands. In the CSD
market segment we are primarily a manufacturer of beverage
concentrates and fountain syrups. Beverage concentrates are
highly concentrated proprietary flavors used to make syrup or
finished beverages. We manufacture beverage concentrates that
are used by our own bottling operations as well as sold to
third-party bottling companies. According to ACNielsen, we had
an 18.8% share of the U.S. CSD market segment in 2007 (measured
by retail sales), which increased from 18.5% in 2006. We also
manufacture fountain syrup that we sell to the foodservice
industry directly, through bottlers or through third parties.
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 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
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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
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing consisting of a term loan A
facility, a revolving credit facility and a bridge loan facility.
On April 11, 2008, we amended and restated the credit
facilities and borrowed $2.2 billion under the term loan A
facility and $1.7 billion under the bridge loan facility.
Our $500 million revolving credit facility remains undrawn.
All of the proceeds from borrowings under the term loan A
facility and the bridge loan facility were placed into
collateral accounts. In addition, we intend to offer
$1.7 billion aggregate principal amount of senior unsecured
notes. If the notes offering is successfully completed prior to
the separation, we intend to deposit the net proceeds of the
offering into an escrow account, following which the borrowings
under the bridge loan facility will be released from the
collateral account containing such funds and returned to the
lenders. The separation is not conditional upon the completion
of a notes offering.
When the separation has been consummated, the borrowings under
the term loan A facility and the bridge loan facility (or the
net proceeds of the notes offering, if such offering has been
completed) will be released to us from the collateral accounts
(or escrow account in the case of the notes) and used by us,
together with cash on hand, to settle with Cadbury Schweppes
related party debt and other balances, eliminate Cadbury
Schweppes net investment in us, purchase certain assets
from Cadbury Schweppes related to our business and pay fees and
expenses related to our new credit facilities.
If the separation is not consummated prior to 3:00 p.m.
(New York City time) on May 13, 2008, or if Cadbury
Schweppes publicly announces that it has determined to abandon
the separation prior to that time, the borrowings under the term
loan A facility and the bridge loan facility now held in
collateral accounts will be released and used to repay the
amounts due under those facilities. If we have issued the notes
and the separation is not consummated, the net proceeds of the
notes offering, together with funds Cadbury Schweppes has agreed
to pay to us, will be used to redeem all of the notes. See
Description of Indebtedness.
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 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 100 employees in
Plano, Texas, 125 employees in Rye Brook, New York and 50
employees in Aspers, Pennsylvania. The remaining reductions will
occur at a number of sites located in the United States, Canada
and Mexico. The restructuring also includes the closure of two
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manufacturing facilities in Denver, Colorado (closed in December
2007) and Waterloo, New York (closed in March 2008). The
employee reductions are expected to be completed by June 2008.
As a result of this restructuring, we recognized a charge of
approximately $32 million in 2007. We expect to recognize a
charge of approximately $21 million in 2008 related to this
restructuring. We expect this restructuring to generate annual
cost savings of approximately $68 million, most of which
are expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards. Savings realized in 2007 were
immaterial. As part of this restructuring, our Bottling Group
segment has assumed management and operational control of our
Snapple Distributors segment.
In 2007, we incurred a total of $76 million of
restructuring costs, which included $32 million related to
the restructuring announced on October 10, 2007.
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 was
supported by significant national product placement and
marketing investments. Net sales were below expectations despite
these investments. We incurred an operating loss of
$55 million from the Accelerade launch in 2007, while
marketing investments in other brands, predominantly Beverage
Concentrate brands, were reduced by approximately
$25 million. In addition, we incurred a $4 million
impairment charge related to the Accelerade launch, which
represented the majority of the $6 million of impairment
charges we incurred in 2007. Going forward, we intend to focus
on marketing and selling Accelerade in a more targeted way to
informed athletes, trainers and exercisers, and 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 agreements,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007, and
we recorded a $71 million gain in 2007 in respect of this
payment. Our 2007 glacéau net sales and contribution to
income from operations were approximately $227 million and
$40 million, respectively, and were reflected in our
Bottling Group segment.
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
2007, more than 75% of our volume was generated by brands that
hold either the #1 or #2 position in their category.
The strength of our key brands has allowed us to launch
innovations and brand extensions such as Dr Pepper Soda
Fountain Classics, Motts for Tots and Snapple Antioxidant
Waters.
Integrated business model.
We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and that
this differentiation provides us with a competitive advantage.
Our integrated business model strengthens our route-to-market
and enables us to improve focus on our brands, especially
certain of our brands such as 7UP, Sunkist, A&W and
Snapple, which do not have a large presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems. Our
integrated business model also 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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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 approximately 200 distribution
centers in the United States, as well as 4 manufacturing
facilities and approximately 25 distribution centers in
Mexico. These facilities use a variety of manufacturing
processes. In addition, our warehouses are generally located at
or near bottling plants and geographically dispersed across the
region to ensure our product is available to meet consumer
demand. We actively manage transportation of our products using
our own fleet of more than 5,000 delivery trucks, as well as
third-party logistics providers on a selected basis. Following
our recent bottling acquisitions and manufacturing investments,
we now have greater geographic coverage with strategically
located manufacturing and distribution capabilities, enabling us
to better align our operations with our customers, reduce
transportation costs and have greater control over the timing
and coordination of new product launches.
Strong operating margins and significant, stable cash flows.
The breadth and strength of our brand portfolio
have enabled us to generate strong operating margins which,
combined with our relatively modest capital expenditures, have
delivered significant and stable cash flows. These cash flows
create stockholder value by enabling us to consider a variety of
alternatives, such as investing in our business, reducing debt
and returning capital to our stockholders.
Experienced executive management team
. Our
executive management team has an average of more than
20 years of experience in the food and beverage industry.
The team has broad experience in brand ownership, bottling and
distribution, and enjoys strong relationships both within the
industry and with major customers. In addition, our management
team has diverse skills that support our operating strategies,
including driving organic growth through targeted and efficient
marketing, reducing operating costs, enhancing distribution
efficiencies, aligning manufacturing and bottling and
distribution interests and executing strategic acquisitions.
Our
Strategy
The key elements of our business strategy are to:
Build and enhance leading brands.
We have a
well-defined portfolio strategy to allocate our marketing and
sales resources. We use an on-going process of market and
consumer analysis to identify key brands that we believe have
the greatest potential for profitable sales growth. For example,
in 2006 and 2007, we continued to enhance the Snapple portfolio
by launching brand extensions with functional benefits, such as
super premium teas and juice drinks and Snapple Antioxidant
Waters. Also, in 2006, we relaunched 7UP with 100% natural
flavors and no 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.
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Focus on opportunities in high growth and high margin
categories.
We are focused on driving growth in
our business in selected profitable and emerging categories.
These categories include ready-to-drink teas, energy drinks and
other functional beverages. For example, we recently launched
Snapple super premium teas and juices and Snapple enhanced
waters. We also intend to capitalize on opportunities in these
categories through brand extensions, new product launches and
selective acquisitions of brands and distribution rights. For
example, we believe we are well-positioned to enter into new
distribution agreements for emerging, high-growth third party
brands in new categories that can use our bottling and
distribution network. We can provide these new brands with
distribution capability and resources to grow, and they provide
us with exposure to growing segments of the market with
relatively low risk and capital investment.
Increase presence in high margin channels and
packages.
We are focused on improving our product
presence in high margin channels, such as convenience stores,
vending machines and small independent retail outlets, through
increased selling activity and significant investments in
coolers and other cold drink equipment. We intend to
significantly increase the number of our branded coolers and
other cold drink equipment over the next few years, which we
believe will provide an attractive return on investment. We also
intend to increase demand for high margin products like
single-serve packages for many of our key brands through
increased promotional activity and innovation such as the
successful introduction of our A&W vintage 20
ounce bottle.
Leverage our integrated business model.
We
believe our integrated brand ownership, bottling and
distribution business model provides us opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. We intend to leverage our integrated
business model to reduce costs by creating greater geographic
manufacturing and distribution coverage and to be more flexible
and responsive to the changing needs of our large retail
customers by coordinating sales, service, distribution,
promotions and product launches. For example, we intend to
concentrate more of our manufacturing in multi-product, regional
manufacturing facilities, including by opening a new plant in
Southern California and investing in expanded capabilities in
several of our existing facilities within the next several years.
Strengthen our route-to-market through
acquisitions.
The acquisition and creation of our
Bottling Group is part of our longer-term initiative to
strengthen the route-to-market for our products. We believe
additional acquisitions of regional bottling companies will
broaden our geographic coverage in regions where we are
currently under-represented, enhance coordination with our large
retail customers, more quickly address changing customer
demands, accelerate the introduction of new products, improve
collaboration around new product innovations and expand our
coverage of high margin channels.
Improve operating efficiency.
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 four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
Beverage
Concentrates
Our Beverage Concentrates segment is a brand ownership business.
In this segment we manufacture beverage concentrates and syrups
in the United States and Canada. Most of the brands in this
segment are CSD brands. In 2007, our Beverage Concentrates
segment had net sales of $1.3 billion (before elimination
of intersegment transactions).
In 2007, Dr Pepper, our largest CSD brand, represented
approximately one-half of our Beverage Concentrates segment net
sales and volume of over half a billion case sales, with each
case representing 288 fluid ounces of finished beverage. 7UP,
Sunkist, A&W and Canada Dry together represented
approximately 30% of our Beverage
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Concentrates net sales. Other brands in our Beverage
Concentrates segment include: Schweppes, RC, Diet Rite, Vernors,
Squirt, Sundrop, Welchs and Country Time and the
concentrate forms of Hawaiian Punch and Snapple.
We are the industry leader in flavored CSDs with a 36.5% market
share in the United States for 2007, as measured by retail sales
according to ACNielsen. We are also the third largest CSD brand
owner as measured by 2007 retail sales in the United States and
Canada and we own a leading brand in most of the CSD categories
in which we compete.
Almost all of our beverage concentrates are manufactured at our
plant in St. Louis, Missouri. The beverage concentrates are
shipped to third-party bottlers, as well as to our own Bottling
Group, who combine the beverage concentrates with carbonation,
water and sweeteners, package it in PET and glass bottles and
aluminum cans, and sell it as a finished CSD to retailers.
Concentrate prices historically have been reviewed and adjusted
on an annual basis.
Syrup is shipped to fountain customers, such as fast food
restaurants, who mix the syrup with water and carbonation to
create a finished beverage at the point of sale to consumers. Dr
Pepper represents most of our fountain channel net sales. In
2007, net sales to the fountain channel constituted
approximately 37% of our Dr Pepper beverage concentrates
and syrup net sales and approximately 18% of our total CSD
concentrates and syrup net sales were to the fountain channel.
Our Beverage Concentrates brands are sold by our bottlers,
including our own Bottling Group, through all major retail
channels including supermarkets, fountains, mass merchandisers,
club stores, vending machines, convenience stores, gas stations,
small groceries, drug chains and dollar stores. Unlike the
majority of our other CSD brands, approximately three-fourths of
Dr Pepper volumes are distributed through the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems.
Coca-Cola
Enterprises and Pepsi Bottling Group each constitute between 10%
to 15% of the volume of our Beverage Concentrates segment.
We expect that our CSD brands will continue to play a central
role in our brand portfolio. We intend to continue to invest in
our CSD brands and focus on expanding distribution, increasing
our offerings of CSDs packaged for immediate consumption,
concentrating on growing demographics such as the Hispanic
population and broadening our brands consumer base to
geographic regions of the United States where we are
under-represented. For example, we plan to capitalize on the
opportunities that we believe exist for the Dr Pepper brand
on the east and west coasts and elsewhere in the Northeast,
while continuing to develop increased consumption in the
heartland markets (including Texas, Oklahoma, Louisiana and
Arkansas) where the brand historically has enjoyed strong
consumer appeal. In addition, we plan to continue to grow Diet
Dr Pepper through increased fountain availability, consumer
trial and selective product innovation.
Finished
Goods
Our Finished Goods segment is a brand ownership and a bottling
business and, to a lesser extent, a distribution business. In
this segment, we primarily manufacture and distribute finished
beverages and other products in the United States and Canada.
Most of the beverages in this segment are 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 2007, our
Finished Goods segment had net sales of $1.6 billion
(before elimination of intersegment transactions).
In 2007, Snapple, our largest brand in our Finished Goods
segment, represented approximately 26% of our Finished Goods
segment net sales. Motts, Hawaiian Punch and Clamato
together represented more than 40% of our 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
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to manufacture our finished beverages include aluminum cans and
ends, glass bottles, PET bottles and caps, HFCS and juices.
We sell our Finished Goods brands through all major retail
channels, including supermarkets, fountains, mass merchandisers,
club stores, vending machines, convenience stores, gas stations,
small groceries, drug chains and dollar stores. In 2007,
Wal-Mart Stores, Inc., the largest customer of our Finished
Goods segment, accounted for approximately 16% of our net sales
in this segment.
We plan to continue to invest in our 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 both
beverage concentrates purchased from brand owners (including our
Beverage Concentrates segment) and finished beverages purchased
from brand owners and bottlers (primarily our Finished Goods
segment). In addition, a small portion of our Bottling Group net
sales come from bottling beverages and other products for
private label owners or others for a fee (which we refer to as
co-packing). In 2007, our Bottling Group segment had net sales
of $3.1 billion (before elimination of intersegment
transactions).
We are the fourth largest bottler in the United States by net
sales.
Approximately three-fourths of our 2007 Bottling Group net sales
of branded products come from our own brands, such as Snapple,
Mistic, Stewarts, Nantucket Nectars and Yoo-Hoo, with the
remaining from the distribution of third-party brands such as
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 approximately 9,000 employees, including sales
representatives, merchandisers, drivers and warehouse workers.
Our Bottling Groups product portfolio is sold within the
United States through approximately 200,000 retailer accounts
across all major retail channels. In 2007, Wal-Mart Stores, Inc.
accounted for approximately 10% of our Bottling Groups net
sales.
Our integrated business model provides opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. Our strengthened
route-to-market
following our bottling acquisitions has enabled us to increase
the market share of our brands (as measured by volume) in many
of those markets served by the bottlers we acquired. We plan to
continue to invest in our Bottling Group and focus on
strengthening our route-to-market and by creating greater
geographic manufacturing and distribution coverage.
Mexico
and the Caribbean
Our Mexico and the Caribbean segment is a brand ownership and a
bottling and distribution business. This segment participates
mainly in the carbonated mineral water, flavored CSD, bottled
water and vegetable juice categories, with particular strength
in carbonated mineral water and grapefruit flavored CSDs. In
2007, our Mexico and the Caribbean segment had net sales of
$418 million. In 2007, our operations in Mexico represented
approximately 90% of the net sales of this segment.
We are the #3 CSD company in Mexico (as measured by volume in
2006) behind
Coca-Cola
and PepsiCo, with a 5.2% market share according to Canadean.
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In 2007, Peñafiel, Squirt, Clamato and Aguafiel together
represented more than 80% of our Mexico and the Caribbean
segments net sales.
In Mexico, we manufacture and distribute our products through
our bottling operations and third-party bottlers and
distributors. In the Caribbean, we distribute our products
through third-party bottlers and distributors. In Mexico, we
also participate in a joint venture to manufacture Aguafiel
brand water with Acqua Minerale San Benedetto. We provide
expertise in the Mexican beverage market and Acqua Minerale San
Benedetto provides expertise in water production and new
packaging technologies.
We sell our finished beverages through all major Mexican retail
channels, including the mom and pop stores,
supermarkets, hypermarkets, and on premise channels.
Marketing
Our marketing strategy is to grow our brands through
continuously providing new solutions to meet consumers
changing preferences and needs. We identify those preferences
and needs and develop innovative solutions to address those
opportunities. These solutions include new and reformulated
products, improved packaging design, pricing and enhanced
availability. We use advertising, media, merchandising, public
relations and promotion to provide maximum impact for our brands
and messages.
Research
and Development
Our research and development team is focused on developing high
quality products 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 2007, our largest retailer was Wal-Mart Stores,
Inc., representing approximately 10% 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
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manufacturers, such as Cott Corp. We have lower exposure to some
of the faster growing non-carbonated and bottled water segments
in the overall liquid refreshment beverage market. As a result,
although we have increased our market share in the overall U.S.
CSD market, we have lost share in the overall U.S. liquid
refreshment beverage market over the past several years. In
Canada and Mexico, we compete with many of these same
international companies as well as a number of regional
competitors.
Manufacturing
As of December 31, 2007, we operated 25 manufacturing
facilities across the United States and Mexico. Almost all of
our CSD beverage concentrates are manufactured at a single plant
in St. Louis, Missouri. All of our manufacturing facilities
are either regional manufacturing facilities, with the capacity
and capabilities to manufacture many brands and packages,
facilities with particular capabilities that are dedicated to
certain brands or products, or smaller bottling plants with a
more limited range of packaging capabilities. We intend to build
and open a new, multi-product, manufacturing facility in
Southern California within the next several years.
We employ approximately 5,000 full-time manufacturing
employees in our facilities, including seasonal workers. We have
a variety of production capabilities, including hot fill,
cold-fill and aseptic bottling processes, and we manufacture
beverages in a variety of packaging materials, including
aluminum, glass and PET cans and bottles and a variety of
package formats, including single-serve and multi-serve packages
and
bag-in-box
fountain syrup packaging.
In 2007, 88% of our manufactured volumes were related to our
brands and 12% to third-party and private-label products. We
also use third-party manufacturers to co-pack for us on a
limited basis.
We own property, plant and equipment, net of accumulated
depreciation, totaling $796 million and $681 million
in the United States and $72 million and $74 million
in international locations as of December 31, 2007 and
2006, respectively.
Raw
Materials
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, HFCS and other sweeteners, juice, fruit, electricity,
fuel and water. The cost of the raw materials can fluctuate
substantially. For example, aluminum, glass, PET and HFCS prices
increased significantly in 2007 and 2006. In addition, we are
significantly impacted by increases in fuel costs due to the
large truck fleet we operate in our distribution businesses.
Under many of our supply arrangements for these raw materials,
the price we pay fluctuates along with certain changes in
underlying commodities costs, such as aluminum in the case of
cans, natural gas in the case of glass bottles, resin in the
case of PET bottles and caps, corn in the case of HFCS and pulp
in the case of paperboard packaging. Manufacturing costs for our
Finished Goods segment, where we manufacture and bottle finished
beverages, are higher (as a percentage of our net sales) than
our Beverage Concentrates segment, as the Finished Goods segment
requires the purchase of a much larger portion of the packaging
and ingredients.
Warehousing
and Distribution
As of December 31, 2007, our warehouse and distribution
network consisted of 21 manufacturing facilities and
approximately 200 distribution centers in the United
States, as well as 4 manufacturing facilities and approximately
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
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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 outsourcing provider located in
India to provide certain back office transactional processing
services, including accounting, order entry and other
transactional services.
Intellectual
Property and Trademarks
Our Intellectual Property.
We possess a
variety of intellectual property rights that are important to
our business. We rely on a combination of trademarks,
copyrights, patents and trade secrets to safeguard our
proprietary rights, including our brands and ingredient and
production formulas for our products.
Our Trademarks.
Our trademark portfolio
includes more than 2,000 registrations and applications in the
United States, Canada, Mexico and other countries. Brands we own
through various subsidiaries in various jurisdictions include:
Dr Pepper, 7UP, A&W, Canada Dry, RC, Schweppes, Squirt,
Crush, Peñafiel, Aguafiel, Snapple, Motts, Hawaiian
Punch, Clamato, Mistic, Nantucket Nectars, Mr & Mrs T,
ReaLemon, Accelerade and Deja Blue. We own trademark
registrations for all of these brands in the United States, and
we own trademark registrations for some but not all of these
brands in Canada and Mexico. We also own a number of smaller
regional brands. Some of our other trademark registrations are
in countries where we do not currently have any significant
level of business. In addition, in many countries outside the
United States, Canada and Mexico, our rights in many of our
brands, including our Dr Pepper trademark and formula, have been
sold to third parties including, in certain cases, to
competitors such as
Coca-Cola.
Trademarks Licensed from Others.
We license
various trademarks from third parties, which licenses generally
allow us to manufacture and distribute on a country-wide basis.
For example, we license from third parties the Sunkist,
Welchs, Country Time, Orangina, Stewarts, Holland
House and Margaritaville trademarks, and we license from Cadbury
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
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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 (we closed
our Waterloo, New York facility in March 2008). Our largest
manufacturing facilities are in St. Louis, Missouri; Northlake,
Illinois; Irving, Texas; Ottumwa, Iowa; Houston, Texas;
Williamson, New York; Carteret, New Jersey; Carlstadt, New
Jersey and Aspers, Pennsylvania. We also operate approximately
200 distribution centers across the United States.
Canada.
Our last plant in Canada, St.
Catharines, was closed in 2007. Beverage concentrates sold to
bottlers and finished beverages sold to retailers and
distributors are supplied principally from our
U.S. locations.
Mexico.
Our Mexico and Caribbean
operations principal office is leased in Mexico City. In
Mexico, as of December 31, 2007, we owned three
manufacturing facilities and one joint venture manufacturing
facility and we had 21 additional direct distribution centers, 4
of which were owned and 17 of which were leased.
We believe our facilities in the United States and Mexico are
well-maintained and adequate for our present operations. We
periodically review our space requirements, and we believe we
will be able to acquire new space and facilities as and when
needed on reasonable terms. We also look to consolidate and
dispose or sublet facilities we no longer need, as and when
appropriate.
Employees
At December 31, 2007, we employed approximately
20,000 full-time employees, including seasonal workers.
In the United States, we have approximately
17,000 full-time employees. We have many union collective
bargaining agreements covering approximately
5,000 full-time employees. Several agreements cover
multiple locations. These agreements often address working
conditions as well as wage rates and benefits. In Mexico and the
Caribbean, we employ approximately 3,000 full-time
employees and are also party to collective bargaining
agreements. We do not have a significant number of employees in
Canada.
We believe we have good relations with our employees.
Regulatory
Matters
We are subject to a variety of federal, state and local laws and
regulations in the countries in which we do business.
Regulations apply to many aspects of our business including our
products and their ingredients, manufacturing, safety, labeling,
transportation, recycling, advertising and sale. For example,
our products, and their manufacturing, labeling, marketing and
sale in the United States are subject to various aspects of the
Federal Food, Drug, and Cosmetic Act, the Federal Trade
Commission Act, the Lanham Act, state consumer protection laws
and state warning and labeling laws. In Canada and Mexico, the
manufacture, distribution, marketing and sale of our many
products are also subject to similar statutes and regulations.
We and our bottlers use various refillable and non-refillable,
recyclable bottles and cans in the United States and other
countries. Various states and other authorities require
deposits, eco-taxes or fees on certain containers. Similar
legislation or regulations may be proposed in the future at
local, state and federal levels, both in the United States and
elsewhere. In Mexico, the government has encouraged the soft
drinks industry to comply voluntarily with collection and
recycling programs of plastic material, and we have taken steps
to comply with these programs.
Environmental,
Health and Safety Matters
We operate many manufacturing, bottling and distribution
facilities. In these and other aspects of our business, we are
subject to a variety of federal, state and local environment,
health and safety laws and regulations. We maintain
environmental, health and safety policies and a quality,
environmental, health and safety program designed to ensure
compliance with applicable laws and regulations.
Legal
Matters
We are occasionally subject to litigation or other legal
proceedings relating to our business. Set forth below is a
description of our significant pending legal matters. Although
the estimated range of loss, if any, for the pending legal
matters described below cannot be estimated at this time, we do
not believe that the outcome of any of these, or
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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 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 an appeal of
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. We cannot
predict the outcome of such an audit.
Corporate
Information
We were incorporated in Delaware on October 24, 2007. The
address of our principal executive offices is 5301 Legacy Drive,
Plano, Texas 75024. Our telephone number is
(972) 673-7000.
We were formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and will have
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
85
law or contractual obligations to consummate and make effective
the transactions contemplated by the separation agreement and
the ancillary agreements.
Related Party Balances.
The separation
agreement provides for the settlement and capitalization of our
related party debt and other balances. We have borrowed an
aggregate of $3.9 billion under the new credit facilities
in connection with the separation. These borrowings, together
with cash on hand, will be used to settle the foregoing related
party debt and other balances, eliminate Cadbury Schweppes
net investment in us, purchase certain assets from Cadbury
Schweppes related to our business, pay $92 million of fees
and expenses related to the new credit facilities and provide us
with $100 million of cash on hand immediately after the
separation. Any related party debt and other balances that are
not settled with the proceeds from our new credit facilities and
our cash on hand will be capitalized by Cadbury Schweppes.
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 U.K. Financial Services Authority by the other party after
the distribution date based upon information that is furnished
in writing by such party for inclusion in a filing by the other
party; and
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any breach by such party of the separation agreement, the
ancillary agreements or any agreements between the parties
specifically contemplated by the separation agreement or any
ancillary agreement to remain in effect following the separation.
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Legal Matters.
In general, each party to the
separation agreement 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 hold for use or will own or hold for use following the
separation (the DPS Marks). Under the separation
agreement, we and Cadbury Schweppes and its affiliates will,
among other things, have a royalty-free license of
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limited scope to continue to use the Cadbury Marks or the DPS
Marks, as applicable, for up to fifteen (15) months in
connection with its ongoing business. The separation agreement
also will include licenses of certain copyrights and design
rights from us to Cadbury Schweppes and its affiliates, and from
Cadbury Schweppes to us.
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 that sets forth the rights and
obligations of Cadbury Schweppes and us (along with our
respective subsidiaries) with respect to taxes, including the
computation and apportionment of tax liabilities relating to
taxable periods before and after the separation and distribution
and the responsibility for payment of those tax liabilities
(including any subsequent adjustments to such tax liabilities).
In general, under the terms of the tax-sharing and
indemnification agreement, we and Cadbury Schweppes will each be
responsible for taxes imposed on our respective businesses and
subsidiaries for all taxable periods, whether ending on, before
or after the date of separation and distribution. However, we
will be responsible for taxes attributable to certain assets of
the Cadbury Schweppes global confectionery business while owned
by us and Cadbury Schweppes will be responsible for taxes
attributable to certain assets of the Americas Beverages
business while owned by Cadbury Schweppes.
In addition, we and Cadbury Schweppes have undertaken certain
restructuring transactions in anticipation of the separation and
distribution (including transfers of confectionery business
assets by us to Cadbury Schweppes) and we have participated in
various other transactions with Cadbury Schweppes in taxable
periods prior to the separation and distribution. Cadbury
Schweppes will, subject to certain conditions, and absent a
change-in-control
of us as described below, pay or indemnify us for taxes imposed
on us in respect of these transactions including taxes resulting
from either (i) a change in applicable tax law after the
separation and distribution and prior to the filing of the
relevant tax return, or (ii) a subsequent adjustment by a
taxing authority. These potential tax indemnification
obligations of Cadbury Schweppes could be for significant
amounts.
Notwithstanding these tax indemnification obligations of Cadbury
Schweppes, if the treatment of these transactions as reported
were successfully challenged by a taxing authority, we generally
would be required under applicable tax law to pay the resulting
tax liabilities in the event that either (i) Cadbury
Schweppes were to default on their obligations to us, or
(ii) we breached a covenant or we failed to file tax
returns, cooperate or contest tax matters as required by the
tax-sharing and indemnification agreement, which breach or
failure caused such tax liabilities. In addition, if we are
involved in certain
change-in-control
transactions including certain acquisitions of our stock
representing more than 35% of the voting power represented by
our issued and outstanding stock and certain changes to the
membership of our board of directors, the obligations of Cadbury
Schweppes to indemnify us for additional taxes in respect of the
restructuring and other transactions will terminate and Cadbury
Schweppes will have no further obligations to indemnify us on
account of such transactions. Thus, since we have primary
liability for income taxes in respect of these transactions, if
a taxing authority successfully challenges the treatment of one
or
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more of these transactions, and Cadbury Schweppes fails to, is
not required to or cannot indemnify or reimburse us, our
resulting tax liability could be for significant amounts and
could have a material adverse effect on our results of
operations, cash flows and financial condition.
We generally will be required to indemnify Cadbury Schweppes for
any liabilities, taxes and other charges that are imposed on
Cadbury Schweppes, including as a result of the separation and
distribution failing to qualify for non-recognition treatment
for U.S. federal income tax purposes, if such liabilities,
taxes or other charges are attributable to a breach by us of our
representations or covenants. The covenants contained in the
tax-sharing and indemnification agreement, for example,
generally contain restrictions on our ability to
(a) discontinue the active conduct of the historic business
relied upon for purposes of the private letter ruling issued by
the IRS, or liquidate, merge or consolidate the company
conducting such active business, (b) undertake certain
transactions pursuant to which our stockholders would dispose of
a substantial amount of our common stock, or (c) take any
action inconsistent with the written statements and
representations furnished to the IRS in connection with the
private letter ruling request. Notwithstanding the foregoing, we
will be permitted to take actions restricted by such covenants
if Cadbury Schweppes provides us with prior written consent, or
we provide Cadbury Schweppes with a private letter ruling or
rulings from the IRS, or an unqualified opinion of counsel that
is satisfactory to Cadbury Schweppes, to the effect that such
action will not affect the tax-free nature of the separation and
distribution or certain restructuring transactions, but we will
remain liable for any liabilities, taxes and other charges
imposed on Cadbury Schweppes as a result of the separation and
distribution or such restructuring transactions failing to
qualify as tax-free transactions as a result of such action. Our
potential tax indemnification obligations could be for
significant amounts.
Furthermore, the tax-sharing and indemnification agreement will
set forth the rights of the parties in respect of the
preparation and filing of tax returns, the control of audits or
other tax proceedings and assistance and cooperation in respect
of tax matters, in each case, for taxable periods ending on or
before or that otherwise include the date of separation and
distribution. In addition, with respect to taxable periods
before or that include the separation and distribution, Cadbury
Schweppes will have significant control over the reporting of
various restructuring transactions on our tax returns and over
proceedings where Cadbury Schweppes is indemnifying us for taxes
that are involved in such proceedings. Moreover, in certain
instances, where we realize tax savings in respect of separation
transaction costs paid, or various taxes previously indemnified
against or otherwise paid, by Cadbury Schweppes we may be
required to return a portion of that tax savings to Cadbury
Schweppes.
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.
88
In addition, the employee matters agreement provides for the
treatment of holders of awards granted under the Cadbury
Schweppes employee share schemes who are current and former
employees of our company at the time of separation.
Share Options.
Outstanding share options held
by our employees under the Cadbury Schweppes share option
schemes will, if not exercised at or before the time that the
Cadbury Schweppes scheme of arrangement is sanctioned by the
United Kingdom regulatory authorities, be converted into options
over Cadbury plc ordinary shares pursuant to the exchange ratio
described below that is intended to preserve the
intrinsic value of pre-separation options.
Replacement options will be subject to the same terms and
conditions as the existing options under the applicable Cadbury
Schweppes share option scheme. Depending on the applicable
Cadbury Schweppes share option scheme, the options over Cadbury
plc ordinary shares must be exercised either within
12 months of the separation (or, if later, the third
anniversary of the original grant of the options) or
3 months after the separation in the case of the Cadbury
Schweppes employee share purchase plans (to the extent of the
accumulated savings) or the replacement option will be cancelled
without payment.
An exchange ratio will be used to calculate the number and
exercise price of Cadbury plc replacement options that our
current and former employees will receive at the time of
separation upon the exchange of their Cadbury Schweppes options.
This exchange ratio will be calculated by dividing the closing
price of a Cadbury Schweppes ordinary share on the last day of
trading (i.e., May 1, 2008) by the closing price of a
Cadbury plc ordinary share on the first day of trading (i.e.,
May 2, 2008), in each case as reported on the London Stock
Exchange. The holder will receive a number of replacement
options equal to the exchange ratio multiplied by the number of
Cadbury Schweppes options held by such holder. The exercise
price of each Cadbury plc replacement option will be determined
by dividing the exercise price of the Cadbury Schweppes option
by the exchange ratio.
Restricted Stock.
Restricted stock granted to
our employees under the Cadbury Schweppes international share
award plan will be converted into Cadbury plc ordinary shares
and shares of our common stock (in the same manner as other
Cadbury Schweppes shareholders) and will be released in full as
soon as practicable after the separation.
Restricted Stock Units.
Performance awards
granted to our employees under the Cadbury Schweppes long term
incentive plan, the Cadbury Schweppes bonus share retention plan
and the Cadbury Schweppes international share award plan will
have their performance measures tested at the time of
separation, time pro-rated (based on service through the date of
separation) and converted into an award over shares of our
common stock pursuant to the exchange ratio described below that
is intended to preserve the intrinsic value of the
pre-separation performance awards (after testing of performance
measures and time pro-rating). The converted performance awards
will be subject to the same terms and conditions as the existing
awards and will be paid out at the end of the applicable normal
performance period or at the normal vesting date.
Awards to our employees under the Cadbury Schweppes bonus share
retention plan that are not subject to performance vesting but
are subject to time vesting will be time pro-rated (based on
service through the date of separation) and converted into an
award over shares of our common stock pursuant to the exchange
ratio described below that is intended to preserve the
intrinsic value of the pre-separation awards (after
time pro-rating). The converted awards will be subject to the
same terms and conditions as the existing awards and will be
paid out at the normal vesting date. Awards under the Cadbury
Schweppes international share award plan that are neither
performance related nor subject to time vesting will be
converted into awards over shares of our common stock pursuant
to the exchange ratio described below that is intended to
preserve the intrinsic value of the pre-separation
awards. The converted awards will be subject to the same terms
and conditions as the existing awards and will be paid out at
the normal vesting date.
Awards granted to our employees under the Cadbury Schweppes long
term incentive plan which are not performance related will be
converted into awards over Cadbury plc ordinary shares pursuant
to the exchange ratio described below that is intended to
preserve the intrinsic value of the pre-separation
awards. The converted awards will be subject to the same terms
and conditions as the existing awards. The shares will be
released in full as soon as practicable after the separation.
89
An exchange ratio will be used to calculate the number of DPS
restricted stock units that our current and former employees
will receive at the time of separation upon the exchange of
their Cadbury Schweppes restricted stock units. This exchange
ratio will be calculated by dividing the closing price of a
Cadbury Schweppes ordinary share on the last day of trading
(i.e., May 1, 2008) on the London Stock Exchange by the
closing price of a share of DPS common stock on the first day of
trading (i.e., May 7, 2008) on the New York Stock Exchange.
The holder will receive a number of DPS restricted stock units
equal to the exchange ratio multiplied by the number of Cadbury
Schweppes restricted stock units held by such holder.
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 agreements relating
to the use and protection of intellectual property where the
intellectual property is separately owned by us, Cadbury
Schweppes and certain third parties in different countries, as
is the case with Dr Pepper and certain other brands. These also
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 related party debt
arrangements as of December 31, 2007. All of the following
debt will be settled in connection with the separation.
Cadbury Ireland Limited.
The total principal
we owed to Cadbury Ireland Limited was $40 million at
December 31, 2007 and 2006, respectively. The debt bears
interest at a floating rate based on
3-month
LIBOR. The interest rates were 5.31% and 5.36% at
December 31, 2007 and 2006, respectively. The outstanding
principal balance is payable on demand and is included in the
current portion of long-term debt. We recorded $2 million,
$2 million and $1 million of interest expense related
to the debt for 2007, 2006 and 2005, respectively.
Cadbury Schweppes Finance plc.
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
$511 million and $2,937 million at December 31,
2007 and 2006, respectively. At December 31, 2007 and 2006,
$511 million and $2,387 million of the debt was based
upon a floating rate ranging between LIBOR plus 1.5% to LIBOR
plus 2.5%. The remaining principal balance of $550 million
at December 31, 2006 had stated fixed interest rates
ranging from 5.76% to 5.95%. We recorded $65 million,
$175 million and $99 million of interest expense
related to these notes for 2007, 2006 and 2005, respectively.
Cadbury Schweppes Overseas Limited.
The total
principal we owed to Cadbury Schweppes Overseas Limited was
$0 million and $22 million at December 31, 2007
and 2006, respectively. We settled the note in November 2007.
The debt bore interest at a floating rate based on Mexican LIBOR
plus 1.5%. The actual interest rate was 9.89% at
December 31, 2006. We recorded $2 million,
$15 million and $40 million of interest expense
related to the note for 2007, 2006 and 2005, respectively.
Cadbury Adams Canada, Inc.
The total principal
we owed to Cadbury Adams Canada, Inc. was $0 million and
$15 million at December 31, 2007 and 2006,
respectively and is payable on demand. The debt bore interest at
a floating rate based on 1 month Canadian LIBOR. The
interest rate was 4.26% at December 31, 2006. We recorded
$2 million of interest expense related to the debt for 2007
and less than $1 million for both 2006 and 2005.
Cadbury Schweppes Americas Holding BV.
We have
a variety of debt agreements with Cadbury Schweppes Americas
Holding BV with maturity dates ranging from 2009 to 2017. These
agreements had a combined outstanding principal balance of
$2,468 million at December 31, 2007 and bear interest
at a floating interest rate ranging between
6-month
USD
LIBOR plus 0.75% and
6-month
USD
LIBOR plus 1.75%. We recorded $149 million of interest
expense related to this debt for 2007.
Cadbury Schweppes Treasury America.
The total
principal we owed to Cadbury Schweppes Treasury America was
$0 million and $235 million at December 31, 2007
and 2006, respectively. The debt bore interest at a
90
rate of 7.25% per annum. We repurchased the debt on May 23,
2007. We recorded $7 million and $11 million of
interest expense related to this debt for 2007 and 2006,
respectively.
The related party payable balances of $175 million and
$183 million at December 31, 2007 and 2006,
respectively, represent non-interest bearing payable balances
with companies owned by Cadbury Schweppes and related party
accrued interest payable balances associated with interest
bearing notes described in note 10 to our combined
financial statements. The non-interest bearing payable balance
was $75 million and $158 million at December 31,
2007 and 2006, respectively, and the payables are due within one
year. The accrued interest payable balance was $11 million
and $25 million at December 31, 2007 and 2006,
respectively. The intercompany current payable was
$89 million as of December 31, 2007. All of the
related party payable will be settled 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
$1,527 million and $579 million at December 31,
2007 and 2006, respectively. We recorded $57 million,
$25 million and $36 million of interest income related
to these notes for 2007, 2006 and 2005, respectively.
Allocated
Expenses
Cadbury Schweppes has allocated certain costs to us, including
costs in respect of certain corporate functions provided for us
by Cadbury Schweppes. These allocations have been based on the
most relevant allocation method for the service provided. To the
extent expenses have been paid by Cadbury Schweppes 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 as a
percentage of net sales or headcount. We were allocated
$161 million, $142 million and $115 million of
costs in 2007, 2006 and 2005, 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.
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 $1 million, $1 million and
$9 million for 2007, 2006 and 2005, respectively.
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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.
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Name
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Age*
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Position
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Wayne R. Sanders
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60
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Chairman
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Larry D. Young
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53
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President, Chief Executive Officer and Director
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John O. Stewart
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49
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Executive Vice President, Chief Financial Officer and Director
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James L. Baldwin, Jr.
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46
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Executive Vice President and General Counsel
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Rodger L. Collins
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49
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President Bottling Group Sales
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Randall E. Gier
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46
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Executive Vice President Marketing and R&D
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Pedro Herrán Gacha
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46
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President Mexico and the Caribbean
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Derry L. Hobson
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57
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Executive Vice President Supply Chain
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James J. Johnston, Jr.
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51
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President Finished Goods and Concentrate Sales
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Lawrence N. Solomon
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52
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Executive Vice President Human Resources
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John L. Adams
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63
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Director
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Terence D. Martin
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64
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Director
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Pamela H. Patsley
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50
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Director
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Ronald G. Rogers
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59
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Director
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Jack L. Stahl
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54
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Director
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M. Anne Szostak
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57
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Director
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*
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As of December 31, 2007
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Wayne R. Sanders, Chairman.
Mr. Sanders
will serve as Chairman of the Board of Directors and chairman of
the nominating and corporate governance committee upon the
separation. Mr. Sanders served as the Chairman and the
Chief Executive Officer of Kimberly-Clark Corporation from 1992
until his retirement in 2003. Mr. Sanders currently serves
on the boards of directors of Texas Instruments Incorporated and
Belo Corp. He previously served on the board of directors of
Adolph Coors Company. Mr. Sanders is also a National
Trustee and Governor of the Boys & Girls Club of
America and was a member of the Marquette University Board of
Trustees from 1992 to 2007, serving as Chairman from 2001 to
2003.
Larry D. Young, President, Chief Executive Officer and
Director.
Mr. Young has served as President
and Chief Executive Officer of Cadbury Schweppes Americas
Beverages business since October 2007. Mr. Young joined
Cadbury Schweppes Americas Beverages as President and
Chief Operating Officer of the Bottling Group segment and Head
of Supply Chain in 2006 after our acquisition of DPSUBG, where
he had been President and Chief Executive Officer since May
2005. From 1997 to 2005, Mr. Young served as President and
Chief Operating Officer of Pepsi-Cola General Bottlers, Inc. and
Executive Vice President of Corporate Affairs at PepsiAmericas,
Inc. Mr. Young became a director in October 2007.
John O. Stewart, Executive Vice President, Chief Financial
Officer and Director.
Mr. Stewart has served
as 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. Mr. Stewart became a director in
October 2007.
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
92
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 February 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 March 2004.
Prior to that, he was President of Cadbury Schweppes Beverages
Mexico, a position he had held since January 2000.
Derry L. Hobson, Executive Vice President Supply
Chain.
Mr. Hobson has served as Executive
Vice President of Supply Chain for Cadbury Schweppes
Americas Beverages business since October 2007. Mr. Hobson
joined the business as Senior Vice President of Manufacturing in
2006 through our acquisition of DPSUBG where he had been
Executive Vice President since 1999. Prior to joining our
Bottling Group, Mr. Hobson was President and Chief
Executive Officer of Sequoia Pacific Systems from 1993 to 1999.
From 1988 to 1993, Mr Hobson was Senior Vice President of
Operations at Perrier Group.
James J. Johnston, Jr., President 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 first Senior Vice President, then Executive
Vice President of Strategy. From October 1997 to December 2003,
Mr. Johnston served as Senior Vice President of Licensing.
From November 1993 to October 1997, Mr. Johnston served as
Senior Vice President of System Marketing.
Lawrence N. Solomon, Executive Vice President
Human Resources.
Mr. Solomon has served as
Executive Vice President of Human Resources of Cadbury
Schweppes Americas Beverages business since March 2004.
From May 1999 to March 2004, he served as Senior Vice President
of Human Resources for
Dr Pepper/Seven
Up, prior to which he served on Cadbury Schweppes global
human resources team.
John L. Adams, Director.
Mr. Adams will
serve as a director upon the separation. Mr. Adams served
as Executive Vice President of Trinity Industries, Inc. from
January 1999 to June 2005 and held the position of Vice Chairman
from July 2005 to March 2007. Prior to joining Trinity
Industries, Mr. Adams spent 25 years in various
positions with Texas Commerce Bank, N.A. and its successor,
Chase Bank of Texas, National Association. From 1997 to 1998, he
served as Chairman and Chief Executive Officer of Chase Bank of
Texas. Mr. Adams currently serves on the boards of
directors of Trinity Industries, Inc. and Group 1 Automotive,
Inc., where he has served as chairman since April 2005. He
previously served on the boards of directors of American Express
Bank Ltd. and Phillips Gas Company.
Terence D. Martin, Director.
Mr. Martin
will serve as a director and chairman of the audit committee
upon the separation. Mr. Martin served as Senior Vice
President and Chief Financial Officer of Quaker Oats Company
from 1998 until his retirement in 2001. From 1995 to 1998, he
was Executive Vice President and Chief Financial Officer of
General Signal Corporation. Mr. Martin was Chief Financial
Officer and Member of the Executive Committee of American
Cyanamid Company from 1991 to 1995 and served as Treasurer from
1988 to 1991. Since 2002, Mr. Martin has served on the
board of directors of Del Monte Foods Company and currently
serves as the chairman of its audit committee.
Pamela H. Patsley, Director.
Ms. Patsley
will serve as a director upon the separation. Ms. Patsley
served as Senior Executive Vice President of First Data
Corporation from March 2000 to October 2007 and President of
First Data International from May 2002 to October 2007. She
retired from those positions in October 2007. From 1991 to 2000,
she served as President and Chief Executive Officer of
Paymentech, Inc., prior to its acquisition by First Data.
93
Ms. Patsley also previously served as Chief Financial
Officer of First USA, Inc. Ms. Patsley currently serves on
the boards of directors of Molson Coors Brewing Company and
Texas Instruments Incorporated, and she is the chair of the
audit committee of Texas Instruments Incorporated.
Ronald G. Rogers, Director.
Mr. Rogers
will serve as a director upon the separation. Mr. Rogers
has served in various positions with Bank of Montreal between
1972 and 2007. From 2002 to 2007, he served as Deputy Chair,
Enterprise Risk & Portfolio Management, BMO Financial
Group and from 1994 to 2002, he served as Vice Chairman,
Personal & Commercial Client Group. Prior to 1994,
Mr. Rogers held various executive vice president positions
at Bank of Montreal.
Jack L. Stahl, Director.
Mr. Stahl will
serve as a director and chairman of the compensation committee
upon the separation. Mr. Stahl served as Chief Executive
Officer and President of Revlon, Inc. from February 2002 until
his retirement in September 2006. From February 2000 to March
2001, he served as President and Chief Operating Officer of The
Coca-Cola
Company and previously served as Chief Financial Officer and
Senior Vice President of The
Coca-Cola
Companys North America Group and Senior Vice President of
The
Coca-Cola
Companys Americas Group. Mr. Stahl currently serves
on the board of directors of Schering-Plough Corporation.
M. Anne Szostak, Director.
Ms. Szostak will serve as
a director upon the separation. Since June 2004,
Ms. Szostak has served as President and Chief Executive
Officer of Szostak Partners LLC, a consulting firm that advises
executive officers on strategic and human resource issues. From
1998 until her retirement in 2004, she served as Executive Vice
President and Corporate Director Human Resources and
Diversity of FleetBoston Financial Corporation. She also served
as Chairman and Chief Executive Officer of Fleet
Bank Rhode Island from 2001 to 2003.
Ms. Szostak currently is a director of Belo Corp.,
ChoicePoint, Inc., Tupperware Brands Corporation and Spherion
Corporation, where she serves as chair of the compensation
committee.
Board of
Directors
At the time of the distribution, we expect that our board of
directors will consist of at least seven 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.
Our amended and restated certificate of incorporation and
by-laws will provide that the directors will be classified with
respect to the time for which they hold office, into three
classes. Class I directors will have an initial term
expiring in 2009, Class II directors will have an initial
term expiring in 2010 and Class III directors will have an
initial term expiring in 2011. We expect that Class I will
consist of Ms. Patsley, Mr. Stewart and
Ms. Szostak, Class II will consist of Mr. Adams,
Mr. Martin and Mr. Rogers and Class III will
consist of Mr. Sanders, Mr. Stahl and Mr. Young.
For more information, see Description of Capital
Stock Anti-Takeover Effects of Various Provisions of
Delaware Law and Our Certificate of Incorporation and
By-laws Composition of the Board.
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. We expect that our board of directors will 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
94
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
Mr. Adams, Mr. Martin and Ms. Patsley, with
Mr. Martin serving as chair. We expect that, upon
completion of the separation from Cadbury Schweppes,
Mr. Adams, Mr. Martin and Ms. Patsley will each
qualify as an 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 nominating and corporate governance committee will consist
of Mr. Martin, Mr. Sanders and
Mr. Stahl, with Mr. Sanders 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 Mr. Rogers,
Mr. Stahl and Ms. Szostak, with Mr. Stahl
serving as chair.
Code
of Ethics
Prior to the completion of the separation, we expect that our
board of directors 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.
Procedures
for Approval of Related Persons Transactions
Prior to the completion of the separation, we expect that our
board of directors will adopt a written policy to be followed in
connection with certain related persons transactions involving
our company. Under this policy, we expect our board of directors
will delegate to our audit committee the responsibility for
reviewing and approving transactions with related persons (as
defined in the policy) in which we were or are to be a
participant, including, but not limited to, any financial
transaction, arrangement or indebtedness, guarantee of
indebtedness, or any series of similar transactions in which the
amount involved exceeds $120,000. In addition, we expect our
board to empower our General Counsel to initially review all
such transactions and refer to the audit committee for approval
of transactions which our General Counsel determines that the
related person may have a direct or indirect material interest.
In approving related persons transactions, we expect our audit
committee to determine, among other things, whether each related
persons transaction referred to the audit committee was the
product of fair dealing and whether it was fair to our company.
Under this policy, we intend to remind our directors and
executive officers of their obligation to inform us of any
related persons transaction and any proposed related persons
transaction. In addition, from time to time, we intend to review
our records and inquire of our directors and executive officers
to identify any person who may be
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considered a related person. Using this information, we intend
to search our books and records for any related persons
transactions in which our company was or is to be a participant.
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 $100,000,
which the director may elect to receive in cash or defer and
receive shares of our common stock pursuant to a deferred
compensation plan to be adopted by us in connection with the
separation, and an annual equity grant of restricted stock units
of $100,000. In addition, the chairperson of the audit committee
and the compensation committee will receive an annual equity
grant of restricted stock units of $30,000 and $25,000,
respectively. 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.
Mr. Sanders, as Chairman, is entitled to an annual retainer of
$100,000, which he may elect to receive in cash or to defer and
receive shares of our common stock pursuant to a deferred
compensation plan to be adopted by us in connection with the
separation. Mr. Sanders will also receive an annual equity grant
of our common stock equal to $200,000. Shares acquired through
the deferral of his annual retainer and through the annual
equity grant will vest on the third anniversary of the date of
grant. In addition, in recognition of Mr. Sanders services
to us in connection with the separation, he will receive a
one-time founders equity grant upon the separation of our
common stock equal to $900,000 that will vest in equal amounts
on each of the first, second and third anniversary of the date
of grant.
Compensation
Discussion and Analysis
Introduction
In 2007, our named executive officers (the NEOs)
were Larry Young, John Stewart, Randall Gier, James Johnston,
Pedro Herrán, Gilbert Cassagne and John Belsito.
Historically, each NEO has been covered by the Cadbury Schweppes
executive compensation program. This Compensation Discussion and
Analysis describes the historical compensation arrangements for
our NEOs. 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.
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.
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
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consumer goods companies of similar market capitalization to our
business (the DPS Comparator Group). The DPS
Comparator Group consisted of the following companies:
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Anheuser-Busch
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ConAgra
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Hershey
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PepsiAmericas
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Brown-Forman
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Constellation Brands
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Smucker
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Pepsi Bottling Group
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Campbell Soup
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General Mills
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Kellogg
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Sara Lee
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Coca-Cola
Enterprises
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Heinz
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Molson Coors
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Wrigley
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The
Executive Compensation Program
Overview
Historically, Cadbury Schweppes generally targeted a competitive
level of total compensation, including base salary, annual cash
incentive compensation, and long-term share-based incentive
compensation, based on the attainment of certain pre-established
performance measures.
Base
Salary
Cadbury Schweppes provided a base salary to each NEO, which was
reviewed on an annual basis. NEOs were eligible for merit-based
increases based on their prior year performance, market
competitiveness of their salary and peer group data.
In setting the base salary of Mr. Cassagne in 2007, the
remuneration committee of the board of directors of Cadbury
Schweppes considered Mr. Cassagnes performance and
benchmark information from the Towers Perrin Survey. In setting
the base salary of the other NEOs in 2007, Mr. Stitzer and
Mr. Cassagne considered each individuals performance
and the market competitiveness of their salary as described
above.
In October 2007, Mr. Youngs base salary was increased
from $647,000 to $800,000 and Mr. Stewarts base
salary was increased from $420,000 to $500,000.
Mr. Youngs increase was attributable to his promotion
to President and Chief Executive Officer of our company and
Mr. Stewarts increase was attributable to his
expanded role to include information technology and shared
business services along with additional duties he will undertake
as the Chief Financial Officer of a public company. The
increases for Mr. Young and Mr. Stewart were
established taking into account median base salaries of similar
executive officers in the DPS Comparator Group.
Annual
Cash Incentive Compensation
NEOs participated in the Cadbury Schweppes annual incentive
plan, a short-term cash incentive plan based on the attainment
of overall short-term business results. Each NEO was assigned an
annual incentive target between 65% and 100% of each NEOs
annual base salary (the Target Award). In the event
performance targets were met for each fiscal year, the NEOs were
eligible to receive a cash payment equal to their Target Award.
Performance measures were determined by the remuneration
committee of the board of directors of Cadbury Schweppes to take
account of current business plans and conditions and to provide
incentives to NEOs to achieve key short-term performance targets.
In 2007, Target Awards were based on the achievement of
financial performance targets for underlying economic profit
(defined as underlying operating profit from operations less a
charge for the weighted average cost of capital) and growth in
revenue. The remuneration committee of the board of directors of
Cadbury Schweppes believed that these performance targets were
key drivers of our business in the short-term.
In 2007, Mr. Herrán, who has primary responsibility
for our Mexico and the Caribbean segment, was eligible for a
Target Award based 50% on the performance targets achieved by
our Mexico and the Caribbean segment and 50% on the performance
targets achieved by our business. Each of the other NEOs,
including Mr. Young, was eligible for Target Awards based
only upon the performance targets achieved by our business. In
each case, the weighting of the performance targets was based
60% on underlying economic profit and 40% on growth in revenue.
In 2007, each NEO was provided the opportunity to voluntarily
defer all or part of his 2006 annual incentive plan award (which
otherwise would have been paid in cash in March 2007) and invest
such award in Cadbury
98
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.
Annual incentive amounts for 2007 were determined in February
2008 and are set forth in the Non Equity Incentive Plan
Compensation column of the Summary Compensation Table.
Based on a review of the financial performance targets achieved
for 2007, cash payments were below each NEOs Target Award.
Long-Term
Share-Based Incentives
Bonus Share Retention Plan.
The Cadbury
Schweppes bonus share retention plan enabled participants to
elect to defer all or part of their annual incentive plan awards
in the form of an investment in Cadbury Schweppes ordinary
shares. Senior executives, including the NEOs, were eligible to
participate in the bonus share retention plan. To the extent
that participants elected to invest in shares, the plan enabled
them to earn an additional matching grant of Cadbury Schweppes
ordinary shares (up to 100% of their investment), provided that
Cadbury Schweppes attained certain performance targets over a
three-year performance period and the participant was
continuously employed by Cadbury Schweppes through the date that
the award is settled. All of our current NEOs participated in
the bonus share retention plan, with a deferral ranging from 25%
to 100% of their annual incentive plan award.
The determination of matching shares awarded for 2007 was
determined in February 2008 and is set forth in the Stock
Awards column of the Option Exercises and Stock Vested
Table. Based on a review of the financial performance targets
achieved for the
2005-2007
performance period, the number of shares vested was below the
median of the number of matching shares that each NEO was
eligible to receive for the performance period.
Long Term Incentive Plan.
Under Cadbury
Schweppes long term incentive plan, NEOs and other senior
executives were eligible, at the discretion of the remuneration
committee of the board of directors of Cadbury Schweppes, to
receive a designated number of Cadbury Schweppes ordinary shares
conditional on the achievement of certain performance targets.
The vesting of the shares awarded under Cadbury Schweppes
long term incentive plan in 2007 was based 50% on underlying
earnings per share growth and 50% on total shareholder return
growth relative to an international group of peer companies
equally weighted over a performance period beginning on
January 1, 2007 and ending on December 31, 2009. Total
shareholder return is defined as share price growth assuming
reinvested dividends. At the end of the three-year performance
period, the remuneration committee of the board of directors of
Cadbury Schweppes will determine how much of the award has been
earned. These shares accrue dividend equivalents through the
end of the performance period (which will only be paid to the
extent the performance targets are achieved). The vesting of
these shares is dependent on the executive being continuously
employed with Cadbury Schweppes through the date the award was
settled.
In 2007, the remuneration committee of the board of directors of
Cadbury Schweppes granted shares under the long term incentive
plan to NEOs. Mr. Cassagne was entitled to shares with a
value ranging up to 120% of his base salary and the other NEOs
were entitled to shares with a value ranging up to 100% of their
base salaries based on the performance targets achieved during
the performance period.
The determination of the number of shares awarded for 2007 was
determined in February 2008 and is set forth in the Stock
Awards column of the Option Exercises and Stock Vested
Table. Based on a review of the financial performance targets
achieved for the
2005-2007
performance period, the number of shares vested was 55% of the
maximum number of shares that each NEO was eligible to receive
for the performance period.
Other
Equity Plans
Historically, up to and including 2005, annual awards of share
options were granted to the NEOs under the Cadbury Schweppes
share option plan. In addition, restricted share awards were
granted to certain NEOs under the Cadbury Schweppes
international share award plan.
99
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.
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.
100
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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514,402
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112,168
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510,400
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35,000
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197,411
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2,041,647
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President and Chief Executive Officer(1)
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John O. Stewart,
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2007
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425,654
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407,965
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218,266
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5,000
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78,288
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1,135,173
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Executive Vice President and Chief Financial Officer
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Randall E. Gier,
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2007
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456,577
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335,509
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329,539
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190,378
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55,000
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57,186
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1,424,189
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Executive Vice President, Marketing and R&D
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James J. Johnston, Jr.,
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2007
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435,962
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241,532
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98,678
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182,497
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75,000
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52,151
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1,085,820
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President, Finished Goods and Concentrate Sales
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Pedro Herrán Gacha,
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2007
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431,427
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370,375
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89,966
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89,998
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50,000
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619,936
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1,651,702
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President, Mexico and the Caribbean
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Gilbert M. Cassagne,
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2007
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714,808
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448,019
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322,341
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448,406
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910,000
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2,257,202
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5,100,776
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Former President and Chief Executive Officer(2)
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John L. Belsito,
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2007
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470,354
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193,466
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77,652
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241,414
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120,000
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80,280
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1,186,812
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Former President, Snapple Distributors(3)
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(1)
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Mr. Young was appointed President and Chief Executive
Officer on October 10, 2007.
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(2)
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Mr. Cassagne, formerly President and Chief Executive
Officer, left the company effective October 12, 2007.
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(3)
|
|
Mr. Belsito, formerly President, Snapple Distributors, left
the company effective December 19, 2007.
|
|
(4)
|
|
The amounts shown in this column represent the base salary
reported on each
Form W-2
for each of our NEOs for 2007. Due to our payroll practices, the
amounts shown reflect base salary earned between
December 21, 2006 and December 22, 2007. Base salary
earned between December 23, 2007 and December 31, 2007
will be reported on the 2008
Form W-2
and reflected in the Summary Compensation Table in our 2009
proxy statement.
|
|
(5)
|
|
The amounts shown in this column represent the dollar amount of
the accounting expense recognized for financial statement
reporting purposes for 2007 for all outstanding stock awards
granted to the NEOs pursuant to the international share award
plan, the bonus share retention plan and the long-term incentive
plan, in accordance with the rules of SFAS 123(R). For
Mr. Cassagne and Mr. Belsito, these amounts also
include the dollar amount of the accounting expense recognized
for outstanding stock awards granted pursuant to the integration
share success plan. The amounts disregard adjustment for
forfeiture assumptions and do not reflect amounts realized or
paid to the NEOs in 2007 or prior years. Assumptions used to
calculate these amounts (disregarding forfeiture assumptions)
are included in note 14 to our audited combined financial
statements. For further information on the stock awards granted
in 2007, see the Grants of Plan-Based Awards Table.
|
|
(6)
|
|
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 14 to our
audited combined financial statements. No option awards were
granted to the NEOs in 2007.
|
101
|
|
|
(7)
|
|
The amounts shown in this column represent the annual incentive
awards for 2007 that were paid to our NEOs in March 2008
pursuant to the annual incentive plan.
|
|
(8)
|
|
The amounts shown in this column represent an estimate of the
aggregate change during 2007 in the actuarial present value of
accumulated benefits under the personal pension account plan,
the pension equalization plan and the supplemental executive
retirement plan (as applicable), as described in more detail
below in the Pension Benefits Table. The change in the actuarial
present value of the accumulated benefits under the plans was
determined in accordance with SFAS 87. Assumptions used to
calculate these amounts are included in note 13 to our
audited combined financial statements and include amounts that
the NEOs may not be currently entitled to receive because such
amounts are not vested.
|
|
(9)
|
|
The amounts shown in this column represent the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perquisites ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability
|
|
Company
|
|
|
|
|
|
|
Automobile
|
|
Service
|
|
Income
|
|
Contributions
|
|
Other
|
|
|
|
|
Allowance
|
|
Allowance
|
|
Premiums
|
|
($)(a)
|
|
($)(b)
|
|
Total ($)
|
|
Mr. Young
|
|
|
30,010
|
|
|
|
19,000
|
|
|
|
4,214
|
|
|
|
27,002
|
|
|
|
117,185
|
|
|
|
197,411
|
|
Mr. Stewart
|
|
|
21,544
|
|
|
|
14,000
|
|
|
|
1,986
|
|
|
|
16,883
|
|
|
|
23,875
|
|
|
|
78,288
|
|
Mr. Gier
|
|
|
19,944
|
|
|
|
14,000
|
|
|
|
3,314
|
|
|
|
18,120
|
|
|
|
1,808
|
|
|
|
57,186
|
|
Mr. Johnston
|
|
|
13,670
|
|
|
|
14,000
|
|
|
|
2,965
|
|
|
|
17,549
|
|
|
|
3,967
|
|
|
|
52,151
|
|
Mr. Herrán
|
|
|
65,413
|
|
|
|
14,000
|
|
|
|
3,307
|
|
|
|
17,114
|
|
|
|
520,102
|
|
|
|
619,936
|
|
Mr. Cassagne
|
|
|
25,627
|
|
|
|
24,000
|
|
|
|
2,531
|
|
|
|
28,703
|
|
|
|
2,176,341
|
|
|
|
2,257,202
|
|
Mr. Belsito
|
|
|
23,515
|
|
|
|
21,000
|
|
|
|
|
|
|
|
18,688
|
|
|
|
17,077
|
|
|
|
80,280
|
|
|
|
|
|
(a)
|
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.
|
|
|
(b)
|
The amounts shown reflect the
following costs: for Mr. Young, $117,185 for club
membership dues and expenses; for Mr. Stewart, $1,875 for
executive physical and $22,000 for home sale bonus; for
Mr. Gier, $1,808 for executive physical; for
Mr. Johnston, $3,967 for sporting events; for
Mr. Herrán, $23,450 for education expenses, $84,155
for security expenses, $206,228 for tax equalization expenses,
$43,156 for location allowance, $53,954 for foreign service
premium, $101,789 for housing allowance, $2,300 for tax
preparation expenses, $1,078 for cost of living adjustments,
$3,296 for
10-year
service award and $696 for club membership dues and expenses;
for Mr. Cassagne, $2,171,154 for separation payments and
$5,187 for
25-year
service award; and for Mr. Belsito, $2,075 for executive
physical and $15,002 for merit bonus. For additional information
about further amounts payable to Mr. Cassagne and
Mr. Belsito, see Separation Arrangements
Related to Mr. Cassagne and Mr. Belsito.
|
102
Grants of
Plan-Based Awards
The following table sets forth information regarding equity plan
awards and non-equity incentive plan awards by Cadbury Schweppes
to our NEOs for 2007.
Grants of
Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
Estimated Future Payouts Under
|
|
Equity
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
Equity Incentive Plan Awards(2)
|
|
Incentive
|
|
|
|
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Plan Awards
|
|
|
|
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(3)($)
|
|
|
|
|
|
Larry D. Young
|
|
|
2/15/07
|
|
|
|
200,000
|
|
|
|
800,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,968
|
|
|
|
|
|
|
|
63,230
|
|
|
|
477,041
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,745
|
|
|
|
|
|
|
|
59,363
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
|
2/15/07
|
|
|
|
85,514
|
|
|
|
342,055
|
|
|
|
513,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,616
|
|
|
|
|
|
|
|
32,054
|
|
|
|
241,833
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
3,385
|
|
|
|
20,792
|
|
|
|
|
|
|
|
|
|
Randall E. Gier
|
|
|
2/15/07
|
|
|
|
74,588
|
|
|
|
298,350
|
|
|
|
447,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,764
|
|
|
|
|
|
|
|
35,886
|
|
|
|
270,743
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
|
|
|
|
18,675
|
|
|
|
121,500
|
|
|
|
|
|
|
|
|
|
James J. Johnston, Jr.
|
|
|
2/15/07
|
|
|
|
71,500
|
|
|
|
286,000
|
|
|
|
429,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,320
|
|
|
|
|
|
|
|
34,400
|
|
|
|
259,532
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
|
|
|
|
5,878
|
|
|
|
38,250
|
|
|
|
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
|
2/15/07
|
|
|
|
70,525
|
|
|
|
282,100
|
|
|
|
423,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,178
|
|
|
|
|
|
|
|
33,930
|
|
|
|
255,986
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
|
|
|
|
12,215
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
|
2/15/07
|
|
|
|
175,073
|
|
|
|
700,290
|
|
|
|
1,050,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,322
|
|
|
|
|
|
|
|
27,740
|
|
|
|
209,285
|
|
|
|
|
|
|
|
|
|
John L. Belsito
|
|
|
2/15/07
|
|
|
|
94,319
|
|
|
|
377,275
|
|
|
|
565,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,632
|
|
|
|
|
|
|
|
15,440
|
|
|
|
116,488
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
2,196
|
|
|
|
49,770
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts shown in the first row of these columns for each NEO
represent the potential payouts of annual cash incentive
compensation granted to our NEOs in 2007 under the annual
incentive plan subject to the achievement of certain performance
measures. The actual amount of the awards made to the NEOs and
paid in cash will be set forth in the Non-Equity Incentive
Plan Compensation column of the Summary Compensation Table
after payment is made.
|
|
(2)
|
|
The amounts shown in the second row of these columns for each
NEO represent the threshold and maximum payouts of conditional
shares granted to our NEOs pursuant to the long term incentive
plan, subject to the achievement of certain performance
measures. The performance measures are applied over a three-year
performance period beginning on January 1, 2007 and ending
on December 31, 2009. For more information regarding the
terms of the conditional share awards, see the section entitled
Long-Term Share-Based
Incentives Long Term Incentive Plan.
|
|
|
|
The amounts shown in the third row of these columns for each NEO
represent matched shares granted by Cadbury Schweppes on the
portion of the annual incentive award that each NEO earned in
2006 and elected to defer under the bonus share retention plan
on March 4, 2007 in the form of Cadbury Schweppes ordinary
shares (basic shares). In accordance with the terms
of the bonus share retention plan, each NEO is eligible for
(i) an award equal to 40% of the number of his basic shares
if he remains employed through the date the award is paid in the
first quarter of 2010 (as shown in the column
Threshold Estimated Future Payouts Under
Equity Incentive Plan Awards) and (ii) an award equal
to 60% of the number of his basic shares if certain performance
measures are achieved during the three-year period beginning on
January 1, 2007 and ending on December 31, 2009 and
the NEO remains employed through the date the award is paid in
the first quarter of 2010. The amounts shown in the column
Maximum Estimated Future Payouts Under Equity
Incentive Plan Awards represent the total maximum number
of matched shares that the NEO is eligible to receive.
|
|
(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.
|
103
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
|
|
|
|
|
|
|
|
10.98
|
|
|
|
5/27/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,745
|
|
|
|
294,515
|
|
|
|
35,618
|
|
|
|
441,778
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,666
|
|
|
|
764,858
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,230
|
|
|
|
784,256
|
|
|
|
3/29/07
|
(5)
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
11/30/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
16,794
|
|
|
|
2,031
|
|
|
|
25,191
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,668
|
|
|
|
281,156
|
|
|
|
11/6/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,054
|
|
|
|
397,573
|
|
|
|
3/29/07
|
(5)
|
Randall E. Gier
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
8.48
|
|
|
|
3/26/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/26/04
|
(3)
|
|
|
|
59,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
8/29/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,973
|
|
|
|
24,472
|
|
|
|
2,960
|
|
|
|
36,714
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
92,652
|
|
|
|
11,205
|
|
|
|
138,978
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,546
|
|
|
|
416,079
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,886
|
|
|
|
445,102
|
|
|
|
3/29/07
|
(5)
|
James J. Johnston, Jr.
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
8.86
|
|
|
|
9/11/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/11/98
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
8.15
|
|
|
|
9/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/99
|
(3)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
64,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
|
|
31,814
|
|
|
|
3,848
|
|
|
|
47,728
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
29,160
|
|
|
|
3,527
|
|
|
|
43,746
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,546
|
|
|
|
416,079
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,400
|
|
|
|
426,671
|
|
|
|
3/29/07
|
(5)
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
8.86
|
|
|
|
9/11/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/11/98
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
8.15
|
|
|
|
9/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/99
|
(3)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
6.62
|
|
|
|
3/14/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/14/03
|
(3)
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
8/29/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
148,839
|
|
|
|
|
|
|
|
|
|
|
|
2/16/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,995
|
|
|
|
49,551
|
|
|
|
5,993
|
|
|
|
74,333
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
60,602
|
|
|
|
7,329
|
|
|
|
90,903
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,626
|
|
|
|
342,652
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,930
|
|
|
|
420,842
|
|
|
|
3/29/07
|
(5)
|
Gilbert M. Cassagne
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
145,500
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,830
|
|
|
|
345,182
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,351
|
|
|
|
748,548
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,740
|
|
|
|
344,066
|
|
|
|
3/29/07
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
620,162
|
|
|
|
6/30/06
|
(7)
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
John L. Belsito
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
8.93
|
|
|
|
3/16/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/16/01
|
(3)
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
34,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
26,084
|
|
|
|
3,155
|
|
|
|
39,132
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
10,890
|
|
|
|
1,318
|
|
|
|
16,347
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,688
|
|
|
|
182,179
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,178
|
|
|
|
386,708
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,440
|
|
|
|
191,506
|
|
|
|
3/29/07
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
124,032
|
|
|
|
6/30/06
|
(7)
|
|
|
|
(1)
|
|
The option exercise prices were converted from pounds sterling
to U.S. dollars based on a December 31, 2007 currency
exchange rate of 1 pound sterling to 1.9973 U.S. dollars.
|
|
(2)
|
|
The amount for each row represents the total number of shares or
other rights awarded under an equity incentive plan that have
not vested multiplied by the closing price of a Cadbury
Schweppes ordinary share on the London Stock Exchange on
December 31, 2007. The price of an ordinary share was
converted from pounds sterling to U.S. dollars based on a
December 31, 2007 currency exchange rate of 1 pound
sterling to 1.9973 U.S. dollars.
|
|
(3)
|
|
Share Option Plan.
An option grant does not become
exercisable until performance vesting criteria have been
satisfied. No portion of the option may be exercised unless the
performance measure is satisfied on the third anniversary of the
grant date.
|
|
(4)
|
|
Bonus Share Retention Plan.
The amounts in the
Number of Shares or Units of Stock That Have Not
Vested column will vest on the third anniversary of the
applicable grant date if the NEO is employed with Cadbury
Schweppes on such date. The amounts in Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested column will vest based on Cadbury
Schweppes achieving the maximum compound annual growth in
aggregate underlying economic profit target over a three-year
performance period. Payout could range up to 100% of the
conditional shares disclosed. Pursuant to these terms:
|
|
|
|
|
|
Mr. Gier, Mr. Johnston, Mr. Herrán and Mr. Belsito
were each granted an award subject to a performance period from
January 1, 2006 to December 31, 2008 and a vesting
date of March 2009; and
|
|
|
|
Mr. Young, Mr. Stewart, Mr. Gier, Mr. Johnston, Mr.
Herrán and Mr. Belsito were each granted an award subject
to a performance period from January 1, 2007 to
December 31, 2009 and a vesting date of March 2010.
|
In addition, the amounts shown in the following table represent
the number of Cadbury Schweppes ordinary shares (the basic
shares) that each NEO received on the applicable grant
date upon his election to defer all or a portion of their prior
year annual incentive plan awards into the bonus share retention
plan.
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Number of Basic Shares
|
|
Mr. Young
|
|
|
3/4/07
|
|
|
|
59,363
|
|
Mr. Stewart
|
|
|
3/4/07
|
|
|
|
3,385
|
|
Mr. Gier
|
|
|
3/4/06
|
|
|
|
4,933
|
|
|
|
|
3/4/07
|
|
|
|
18,675
|
|
Mr. Johnston
|
|
|
3/4/06
|
|
|
|
6,413
|
|
|
|
|
3/4/07
|
|
|
|
5,878
|
|
Mr. Herrán
|
|
|
3/4/06
|
|
|
|
9,988
|
|
|
|
|
3/4/07
|
|
|
|
12,215
|
|
Mr. Cassagne
|
|
|
|
|
|
|
|
|
Mr. Belsito
|
|
|
3/4/06
|
|
|
|
8,765
|
|
|
|
|
3/4/07
|
|
|
|
8,240
|
|
105
|
|
|
(5)
|
|
Long Term Incentive Plan.
Share grants will vest on the
third anniversary of the applicable grant date if the NEO is
employed with Cadbury Schweppes on such date and based on the
achievement of compound annual growth in the aggregate
underlying earnings per share target of Cadbury Schweppes and
total shareholder return relative to an index of peer companies
of Cadbury Schweppes over the applicable performance period.
Vesting could range up to 100% of the conditional shares
disclosed. Pursuant to these terms:
|
|
|
|
|
|
Mr. Cassagne and Mr. Belsito were granted an award
subject to a retest for the performance period from
January 1, 2003 to December 31, 2008 and a vesting
date of March 2009;
|
|
|
|
all of the NEOs were granted an award subject to a three-year
performance period from January 1, 2006 to
December 31, 2008 and a vesting date of March 2009; and
|
|
|
|
all the NEOs were granted an award subject to a three-year
performance period from January 1, 2007 to
December 31, 2009 and a vesting date of March 2010.
|
|
|
|
(6)
|
|
International Share Award Plan
. For Mr. Gier and
Mr. Herrán, the share awards will vest on the third
anniversary of the grant date. For Mr. Stewart, the share
award will vest in equal installments on the second and third
anniversary of the grant date.
|
|
(7)
|
|
Integration Success Share Plan
. Awards under the
integration success share plan are payable in the first quarter
of 2008, subject to compliance with restrictive covenants in the
individuals employment agreement. For further information,
see Separation Arrangements Related to Mr. Cassagne
and Mr. Belsito.
|
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
|
|
|
|
|
|
|
|
|
|
|
21,051
|
(5)
|
|
|
229,870
|
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(4)
|
|
|
258,780
|
|
Randall E. Gier
|
|
|
|
|
|
|
|
|
|
|
13,270
|
(5)
|
|
|
144,904
|
|
|
|
|
|
|
|
|
|
|
|
|
6,531
|
(6)
|
|
|
71,316
|
|
James J. Johnston, Jr.
|
|
|
|
|
|
|
|
|
|
|
12,563
|
(5)
|
|
|
137,184
|
|
|
|
|
|
|
|
|
|
|
|
|
2,028
|
(6)
|
|
|
22,145
|
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
200,931
|
|
|
|
10,811
|
(5)
|
|
|
118,053
|
|
Gilbert M. Cassagne
|
|
|
|
|
|
|
|
|
|
|
40,857
|
(5)
|
|
|
446,145
|
|
John L. Belsito
|
|
|
20,000
|
|
|
|
28,440
|
|
|
|
23,732
|
(5)
|
|
|
259,146
|
|
|
|
|
(1)
|
|
The amounts shown in this column reflect the aggregate number of
Cadbury Schweppes ordinary shares underlying the options that
were exercised in 2007.
|
|
(2)
|
|
The amounts shown in this column are calculated by multiplying
(x) the difference between the closing price on the London
Stock Exchange of a Cadbury Schweppes ordinary share on the date
of exercise and the exercise price of the options by
(y) the number of Cadbury Schweppes ordinary shares
acquired upon exercise. The amounts shown in this column were
converted from pounds sterling to U.S. dollars based on the
currency exchange rate on the date of exercise.
|
|
(3)
|
|
The amounts shown in this column are calculated by multiplying
(x) the closing price of a Cadbury Schweppes ordinary share
on the London Stock Exchange on the date of vesting by
(y) the number of Cadbury Schweppes ordinary shares
acquired upon vesting. The amounts shown in this column were
converted from pounds sterling to U.S. dollars based on the
currency exchange rate on the date of vesting.
|
|
(4)
|
|
The amount shown reflects the number of awards under the
international share award plan that vested in 2007.
|
|
(5)
|
|
The amounts shown reflect the number of Cadbury Schweppes
ordinary shares awarded for the 2005-2007 performance period
under the long term incentive plan.
|
|
(6)
|
|
The amount shown reflects the number of Cadbury Schweppes
ordinary shares awarded for the 2005-2007 performance period
under the bonus share retention plan.
|
107
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
|
|
|
|
245,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
15.08
|
|
|
|
235,000
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
|
Personal Pension Account Plan
|
|
|
|
10.39
|
|
|
|
135,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
10.39
|
|
|
|
225,000
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
|
Personal Pension Account Plan
|
|
|
|
25.74
|
|
|
|
685,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
25.74
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
|
25.74
|
|
|
|
455,000
|
|
|
|
|
|
John L. Belsito
|
|
|
Personal Pension Account Plan
|
|
|
|
20.20
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
20.20
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts shown reflect the actuarial present value of
benefits accumulated under the respective plans in accordance
with the assumptions included in note 13 to our audited
combined financial statements. These amounts assume that each
NEO retires at age 65. The discount rate used to determine
the present value of accumulated benefits is 6.20%. The present
values assume no pre-retirement mortality and utilize the RP
2000 healthy white collar male and female mortality tables
projected to calendar year 2015.
|
Personal
Pension Account Plan
NEOs are provided with retirement benefits under the Cadbury
Schweppes personal pension account plan (the PPA
Plan), a tax-qualified defined benefit pension plan
covering full-time and part-time employees with at least one
year of service who were actively employed as of
December 31, 2006. The PPA Plan was closed to employees who
were hired after December 31, 2006.
The PPA Plan provides a retirement benefit to participants based
on a percentage of the participants annual compensation
(which includes base salary and annual incentive award). The
percentage, which is based on age and years of service, varies
as follows:
|
|
|
|
|
|
|
|
|
|
|
Age/Service Credit Percentage
|
|
|
Compensation up to
|
|
Compensation over
|
Age Plus Years of Service
|
|
Taxable Wage Base
|
|
Taxable Wage Base
|
|
Less than 35
|
|
|
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
|
%
|
108
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
109
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
|
|
|
34,737
|
|
|
|
9,263
|
|
|
|
7,500
|
|
|
|
|
|
|
|
156,323
|
|
James J. Johnston, Jr.
|
|
|
18,987
|
|
|
|
8,438
|
|
|
|
3,706
|
|
|
|
|
|
|
|
73,105
|
|
Pedro Herrán Gacha
|
|
|
14,450
|
|
|
|
8,257
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
51,154
|
|
Gilbert M. Cassagne
|
|
|
146,942
|
|
|
|
19,592
|
|
|
|
58,338
|
|
|
|
|
|
|
|
1,556,013
|
|
John L. Belsito
|
|
|
14,746
|
|
|
|
9,831
|
|
|
|
12,872
|
|
|
|
|
|
|
|
229,612
|
|
|
|
|
(1)
|
|
The amounts shown in this column represent the aggregate amount
of contributions made by our NEOs to the SSP in 2007. These
amounts are included in the Salary column of the
Summary Compensation Table.
|
|
(2)
|
|
The amounts shown in this column represent the aggregate amount
of employer contributions to the NEOs accounts under the
SSP in 2007. These amounts are also included in the All
Other Compensation column of the Summary Compensation
Table.
|
|
(3)
|
|
The amounts shown in this column represent the aggregate amount
of interest or other earnings credited to the NEOs
accounts under the SSP in 2007.
|
Executive
Employment Agreements
Consistent with our past practices, we have entered into
executive employment agreements with each of our NEOs at the
time they became an executive officer. Each agreement is between
the NEO and our subsidiary, CBI Holdings, Inc., CBI Holdings,
Inc. will be our wholly-owned subsidiary upon separation and is
the United States legal entity in which U.S. corporate functions
for Cadbury Schweppes Americas Beverages business were
historically included. 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
110
continuation period. The NEOs are also entitled to outplacement
services for their salary continuation period and certain
payments under the qualified and non-qualified pension plans. In
the event a NEO is terminated without cause or
resigns for good reason, he is entitled to have his
unvested accrued benefits under the PEP automatically vested.
Such NEO will also be entitled to have his accrued and unvested
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.
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
$
|
510,400
|
|
|
|
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
|
|
|
$
|
1,032,408
|
|
|
$
|
1,032,408
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
125,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
2,955,710
|
|
|
$
|
5,991,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
0
|
|
|
$
|
400,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
400,000
|
|
|
$
|
218,266
|
|
|
|
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
|
|
|
$
|
2,498,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
0
|
|
|
$
|
223,763
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
298,350
|
|
|
$
|
190,378
|
|
|
|
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
|
|
|
$
|
709,391
|
|
|
$
|
709,391
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
114,246
|
|
|
$
|
114,246
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
164,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,857,029
|
|
|
$
|
3,049,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
0
|
|
|
$
|
214,500
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
286,000
|
|
|
$
|
182,497
|
|
|
|
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
|
|
|
$
|
690,823
|
|
|
$
|
690,823
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,357,740
|
|
|
$
|
2,362,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
0
|
|
|
$
|
211,575
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
282,100
|
|
|
$
|
89,998
|
|
|
|
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
|
|
|
$
|
600,292
|
|
|
$
|
600,292
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
266,856
|
|
|
$
|
266,856
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,620,399
|
|
|
$
|
2,521,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount shown represents salary continuation in an amount
equal to (x) annual base salary and (y) Target Award.
The amount shown represents 100% for Mr. Young and
Mr. Stewart and 75% for Mr. Gier, Mr. Johnston
and Mr. Herrán, in each case, according to the terms
of their respective executive employment agreements.
|
|
(2)
|
|
The amount shown represents a lump sum cash payment equal to the
annual base salary for Mr. Young and Mr. Stewart and
75% of the annual base salary for Mr. Gier,
Mr. Johnston and Mr. Herrán.
|
|
(3)
|
|
The amount shown represents a lump sum payment under the annual
incentive plan equal to the Target Award for Mr. Young and
Mr. Stewart and equal to 75% of the Target Award for
Mr. Gier, Mr. Johnston and Mr. Herrán.
|
|
(4)
|
|
The amount shown under the Death/Disability column
represents each NEOs Target Award, pro-rated through the
assumed employment termination date. The amount shown under the
Termination Without Cause or Resignation for Good
Reason column represents a lump sum cash payment equal to
each NEOs
|
113
|
|
|
|
|
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
114
Target Award under the annual incentive plan; (2) a lump
sum payment equal to his annual incentive plan payment,
pro-rated through his employment termination date and based on
the actual performance targets achieved for the year in which
such termination of employment occurred; (3) salary
continuation for up to 12 months equal to a total of
$853,200 (subject to mitigation for new employment);
(4) medical, dental and vision benefits continuation for
the salary continuation period; (5) his accrued vested
award under the bonus share retention plan and long term
incentive plan; (6) an award under the integration success
share plan of 10,000 Cadbury Schweppes ordinary shares in the
first quarter of 2008; and (7) transitional employment
services for 12 months. Pursuant to the terms of the
Cadbury Schweppes share option plan, Mr. Belsito will be
able to exercise all of his vested stock options, as of his
departure date, until December 18, 2008. In addition,
Mr. Belsito will be able to exercise 100% of his unvested
performance options for 12 months following the third
anniversary of the date of grant, to the extent the performance
targets are met at the end of the three-year performance period.
To the extent the performance targets are not met at the end of
the third anniversary, the performance targets will be reviewed
again at the fifth anniversary of the date of grant. If the
performance targets are met, Mr. Belsito will be entitled
to exercise the options for 12 months following the
satisfaction of the performance period. If the performance
targets are not met, all of his unvested options will be
forfeited.
The tables below include the actual termination payments accrued
by Mr. Cassagne and Mr. Belsito as of their date of
separation on October 12, 2007 and December 19, 2007,
respectively.
|
|
|
|
|
|
|
|
|
|
|
Separation from
|
Name
|
|
Compensation Element
|
|
Service Payment
|
|
Gilbert M. Cassagne
|
|
Salary Continuation Payments(1)
|
|
$
|
1,800,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
900,000
|
|
|
|
Lump Sum Annual Incentive Plan Payment(3)
|
|
$
|
900,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
448,406
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
227,868
|
|
|
|
Long Term Incentive Plan(6)
|
|
$
|
2,281,155
|
|
|
|
Integration Success Share
Plan(7)
|
|
$
|
612,712
|
|
|
|
Other(9)
|
|
$
|
90,756
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,260,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John L. Belsito
|
|
Salary Continuation Payments(1)
|
|
$
|
853,200
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
474,000
|
|
|
|
Lump Sum Annual Incentive Plan Payment(3)
|
|
$
|
379,200
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
241,414
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
67,437
|
|
|
|
Long Term Incentive Plan(6)
|
|
$
|
1,280,622
|
|
|
|
Integration Success Share
Plan(7)
|
|
$
|
124,588
|
|
|
|
Bonus Share Retention Plan(8)
|
|
$
|
304,729
|
|
|
|
Other(9)
|
|
$
|
23,006
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,748,196
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
115
|
|
|
(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 9,000,000 shares. In the
discretion of our compensation committee, 2,000,000 of these
shares of common stock may be granted in the form of incentive
stock options. If any shares covered by an award are cancelled,
forfeited, terminated, expire unexercised or are settled through
issuance of consideration other than shares of our common stock
(including, without limitation, cash), these shares will again
become available for award under the stock incentive plan.
Eligibility.
Awards may be made under the
stock incentive plan to any employee of the company or its
subsidiaries, or any of our non-employee directors or
consultants. 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
116
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 unit awards) or
performance awards. The terms of the awards will be embodied in
an award agreement and awards may be granted singly, in
combination or in tandem. All or part of an award may be subject
to such terms and conditions established by our compensation
committee, including, but not limited to, continuous service
with the company and its subsidiaries, achievement of specific
business objectives and attainment of performance goals. No
award may be repriced without shareholder approval.
|
|
|
|
|
Stock Options and Stock Appreciation
Rights.
The stock incentive plan permits the
granting of stock options to purchase shares of common stock and
stock appreciation rights. The exercise price of each stock
option and stock appreciation right may not be less than the
fair market value of our common stock on the date of grant. The
term of each stock option or stock appreciation right will be
set by our compensation committee and may not exceed ten years
from the date of grant. Our compensation committee will
determine the date each stock option or stock appreciation right
may be exercised and the period of time, if any, after
retirement, death, disability or other termination of employment
during which stock options or stock appreciation rights may be
exercised. In general, a grantee may pay the exercise price of
an option in cash or shares of common stock. Our compensation
committee may allow the grantee to exercise an option by means
of a cashless exercise. With respect to the initial grant of
stock options to be made in connection with the separation, our
compensation committee has determined that, due to possible
price fluctuations in our common stock during the first trading
days on the New York Stock Exchange following the separation,
the initial grants will be determined using the volume weighted
average price of our common stock as reported on the New York
Stock Exchange on the first trading day.
|
|
|
|
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.
|
|
|
|
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:
|
|
|
|
|
|
revenue and income measures (including those relating to
revenue, gross margin, income from operations, net income, net
sales 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);
|
117
|
|
|
|
|
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);
|
|
|
|
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.
Under the plan, during any one-year period, participants may not
be granted options or stock appreciation rights exercisable for
more than 500,000 shares of common stock or stock awards
exercisable for more than 250,000 shares of common stock.
Adjustments.
If any changes in shares of
common stock resulting from stock splits, stock dividends,
reorganizations, recapitalizations, any merger or consolidation
of the company, or any other event that affects our
capitalization occurs, the terms of any outstanding awards and
the number of shares of common stock issuable under the stock
incentive plan may be adjusted in order to prevent enlargement
or dilution of the benefits or potential benefits intended to be
made available under the stock incentive plan.
Section 162(m) of the Internal Revenue
Code.
Section 162(m) limits us to an annual
deduction for federal income tax purposes of $1,000,000 for
compensation paid to covered employees. Performance-based
compensation is excluded from this limitation. The stock
incentive plan is designed to permit our compensation committee
to grant awards that qualify as performance-based for purposes
of satisfying the conditions of Section 162(m).
Assignability.
No award under the stock
incentive plan is assignable or otherwise transferable, unless
otherwise determined by our compensation committee.
Amendment, Modification and Termination.
The
stock incentive plan will terminate automatically ten years
after its effective date, which 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.
|
118
|
|
|
|
|
For the exercise of a stock option to qualify for the foregoing
tax treatment, the grantee generally must be an employee of the
company from the date the stock option is granted through a date
within three months before the date of exercise of the stock
option.
|
|
|
|
If all of the foregoing requirements are met, except the
applicable capital gains holding period requirement discussed
above, the grantee will recognize ordinary income upon the
disposition of the shares in an amount generally equal to the
excess of the fair market value of the shares at the time the
stock option was exercised over the stock option exercise price,
but not in excess of the gain realized on the sale. The balance
of the realized gain, if any, will be short-term or long-term
capital gain. We will be allowed a tax deduction to the extent
the grantee recognizes ordinary income, subject to our
compliance with Section 162(m) and to certain tax reporting
requirements.
|
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Restricted Stock.
A grantee who is awarded
restricted stock under the stock incentive plan will not
recognize any taxable income for federal income tax purposes in
the year of the award, provided that the shares are
nontransferable and subject to a substantial risk of forfeiture.
However, the grantee may elect under Section 83(b) of the
Internal Revenue Code to recognize ordinary income in the year
of the award in an amount equal to the fair market value of the
shares on the date of the award, less the purchase price, if
any, determined without regard to the restrictions. If the
grantee does not make such a Section 83(b) election, the
fair market value of the shares on the date the restrictions
lapse, less the purchase price, if any, will be treated as
ordinary income to the grantee and will be taxable in the year
the restrictions lapse. We will be entitled to a tax deduction
in the same amount and generally at the same time as the grantee
recognizes ordinary income.
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Restricted Stock Units.
A grantee who is
awarded a restricted stock unit under the stock incentive plan
will not recognize any taxable income for federal income tax
purposes and the company will not be entitled to a tax
deduction, in each case at that time. When the restricted stock
unit award vests and shares are transferred to the grantee, the
grantee will recognize ordinary income in an amount equal to the
fair market value of the transferred shares at such time less
any cash consideration which the grantee paid for the shares,
and the company will be entitled to a corresponding deduction.
Any gain or loss realized upon the grantees sale or
exchange of the shares will be treated as long-term or
short-term capital gain or loss. The grantees basis for
the shares will be the amount recognized as taxable compensation
plus any cash consideration which the grantee paid for the
shares. The grantees holding period for the shares will
begin on the day after the date the shares are transferred to
the grantee.
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Performance Awards.
The grant of a performance
award under the stock incentive plan will not be a taxable event
for the company. The payment of the award is taxable to a
grantee as ordinary income. If we comply with applicable
reporting requirements and with the restrictions of
Section 162(m), we will be entitled to a tax deduction in
the same amount and generally at the same time as the grantee
recognizes ordinary income.
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119
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 review and determine the terms,
conditions and limitations applicable to the awards. For
individuals participating in the cash incentive plan for 2008,
the weighting of the performance goals currently will be based
60% on our underlying operating profit and 40% on our net sales
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
120
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
2,250,000 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.
121
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.
122
OWNERSHIP
OF OUR COMMON STOCK
The following table sets forth the expected beneficial ownership
of our common stock calculated as of April 10, 2008, based
upon the distribution of 0.12 shares of our common stock
for every 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 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 253.5 million shares of common stock
outstanding, based on approximately 2.1 billion ordinary
shares of Cadbury Schweppes outstanding on April 14, 2008.
Following the distribution, we will have approximately
57,000 holders of our common stock, based upon such number
of Cadbury Schweppes shareholders as of April 14, 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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Wayne R. Sanders
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0
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*
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Larry D. Young
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1,617
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*
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John O. Stewart
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1,764
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*
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James L. Baldwin, Jr.
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2,008
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*
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Rodger L. Collins
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0
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*
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Randall E. Gier
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8,356
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*
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Pedro Herrán Gacha
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2,132
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*
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Derry L. Hobson
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0
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*
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James J. Johnston, Jr.
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7,810
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*
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Lawrence N. Solomon
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6,069
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*
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John L. Adams
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0
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*
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Terence D. Martin
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0
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*
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Pamela H. Patsley
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0
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*
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Ronald G. Rogers
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0
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*
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Jack L. Stahl
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0
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*
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M. Anne Szostak
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0
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*
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All executive officers and directors as a group (16 persons)
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29,756
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*
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123
DESCRIPTION
OF INDEBTEDNESS
Overview
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a senior credit agreement that provides a term loan A facility
and a revolving credit facility (collectively, the senior
credit facility) and a
364-day
bridge credit agreement that provides a bridge loan facility. On
April 11, 2008, the senior credit agreement was amended and
restated to increase the amount of the term loan A facility by
$300 million to $2.2 billion and the bridge loan
agreement was amended and restated to reduce the bridge loan
facility by a corresponding amount to $1.7 billion.
On April 11, 2008, we borrowed $2.2 billion under the
term loan A facility and $1.7 billion under the bridge loan
facility. All of the proceeds from the borrowings under the term
loan A facility and the bridge loan facility were placed into
collateral accounts. The principal conditions to the release of
the funds from such collateral accounts are:
(i) the accuracy of representations and warranties with
respect to the separation;
(ii) the accuracy of representations and warranties
relating to the subsidiary guarantees to be delivered at the
time of separation and the absence of specified defaults
relating to insolvency of our company or any of our guarantors;
(iii) the execution and delivery of the subsidiary
guarantees, along with the delivery of customary corporate
certificates, resolutions, opinions and other information
relating to the guarantors;
(iv) the absence of governmental orders, judgments or
decrees enjoining or prohibiting the financing transactions;
(v) the maintenance by us of specified investment grade
corporate and debt ratings from the funding date through
April 30, 2008; and
(vi) the occurrence of an agreed upon marketing period
prior to the release from the collateral accounts in which to
market notes that may be issued by us to refinance any
borrowings under the bridge loan facility.
The funds released from the collateral accounts will be used to
settle related-party debt and other balances with Cadbury
Schweppes, eliminate Cadbury Schweppes net investment in
us, purchase certain assets from Cadbury Schweppes related to
our business and pay $92 million of fees and expenses
related to the new credit facilities.
We do not expect to make any borrowings under the revolving
credit facility at the time of the separation (except to the
extent replacing certain existing letters of credit).
In addition, we intend to offer $1.7 billion aggregate
principal amount of senior unsecured notes. If the notes
offering is successfully completed prior to the separation, we
intend to deposit the net proceeds of the offering into an
escrow account, following which the borrowings under the bridge
loan facility will be released from the collateral account
containing such funds and returned to the lenders. In the event
less than $1.7 billion of notes are issued in the notes
offering, the amount of borrowings repaid under the bridge loan
facility will equal the amount of the net proceeds received from
the offering. If the separation has been consummated, the net
proceeds will be released to us from the escrow account. The
notes would have terms that would differ from those contemplated
for the bridge loan, including longer maturities and higher
interest rates. We cannot assure you that the notes offering
will be successfully completed or what the terms of the notes
would be. The separation is not conditional upon the completion
of a notes offering.
If the separation is not consummated prior to 3:00 p.m. (New
York City time) on May 13, 2008, or if Cadbury Schweppes
publicly announces that it has determined to abandon the
separation prior that time, the borrowings under the term loan A
facility and the borrowings under the bridge loan facility now
held in collateral accounts will be released and used to repay
the amounts due under those facilities. If we have issued the
notes and the separation is not consummated, the net proceeds of
the notes offering, together with funds Cadbury Schweppes has
agreed to pay to us, will be used to redeem all of the notes.
124
The documentation relating to the senior credit facility and
bridge loan facility contains certain provisions that allow the
bookrunners to increase the interest rates or yield of the
loans, add collateral, reallocate up to $200 million
between the term loan A facility and the bridge loan
facility (and vice versa) and modify other terms and aspects of
the facilities, in each case within a limit agreed upon by us.
The following is a description of the material terms of the
senior credit facility and the bridge loan facility and a brief
discussion of the senior unsecured notes we intend to offer. The
summaries of the facilities are qualified in their entirety by
the specific terms and provisions of the amended and restated
senior credit agreement and the amended and restated bridge loan
agreement, respectively, copies of which are included as
exhibits to the registration statement of which this information
statement is a part. You should read these documents carefully.
The specific terms and provisions of the notes (if offered and
issued) will be governed by an indenture, a copy of which we
will file with the SEC after any issuance of notes.
Senior
Credit Facility
On March 10, 2008, we entered into a senior credit
agreement with J.P. Morgan Securities Inc. and Banc of
America Securities LLC, as joint lead arrangers,
J.P. Morgan Securities Inc., Banc of America Securities
LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC, as joint bookrunners, Bank
of America, N.A., as syndication agent, JPMorgan Chase Bank,
N.A., as administrative agent, Goldman Sachs Credit Partners
L.P., Morgan Stanley Senior Funding, Inc. and UBS Securities
LLC, as documentation agents and the lenders parties thereto.
The senior credit agreement was amended and restated on
April 11, 2008.
Our new senior credit agreement provides senior unsecured
financing of up to $2.7 billion, consisting of:
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a senior unsecured term loan A facility in an aggregate
principal amount of $2.2 billion with a term of five
years; and
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a revolving credit facility in an aggregate principal amount of
$500 million with a term of five years, none of which is
expected to be drawn at the time of the separation (except to
the extent replacing certain existing letters of credit) and all
of which is expected to be available for working capital and
general corporate purposes. Up to $75 million of the
revolving credit facility is available for the issuance of
letters of credit.
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On April 11, 2008, we borrowed an aggregate of
$2.2 billion under the term loan A facility. The proceeds
of the borrowing were placed in a collateral account to be
released in accordance with the senior credit agreement.
Interest
Rates and Fees
Borrowings under the senior credit facility will bear interest
at a floating rate per annum based upon the London interbank
offered rate for dollars (LIBOR) or the alternate
base rate (ABR), in each case plus an applicable
margin which varies based upon our debt ratings, from 1.00% to
2.50%, in the case of LIBOR loans and 0.00% to 1.50% in the case
of ABR loans. The alternate base rate means the greater of
(a) JPMorgan Chase Banks prime rate and (b) the
federal funds effective rate plus
1
/
2
of 1%. We anticipate, based on our expected debt ratings, that
at the time of the separation the applicable margin for LIBOR
loans will be 2.00% and for ABR loans will be 1.00%.
Interest is payable on the last day of the interest period, but
not less than quarterly, in the case of any LIBOR loan and on
the last day of March, June, September and December of each year
in the case of any ABR loan.
An unused commitment fee is payable quarterly to the lenders on
the unused portion of the commitments in respect of the
revolving credit facility equal to .15% to .50% (depending upon
our debt ratings and expected to be .30% at the time of the
separation) per annum.
Prepayments
We may voluntarily prepay outstanding loans under the senior
credit facility at any time, in whole or in part, plus accrued
and unpaid interest and certain breakage costs, subject to prior
notice.
125
Maturity
and Amortization
We are required to pay annual amortization (payable in equal
quarterly installments) on the aggregate principal amount of the
term loan A facility equal to: (i) 10% per year for
installments due in the first and second years following the
initial date of funding, (ii) 15% per year for installments
due in the third and fourth years following the initial date of
funding, and (iii) 50% for installments due in the fifth
year following the initial date of funding.
Principal amounts outstanding under the revolving credit
facility are due and payable in full at maturity.
Guarantees
All obligations under the senior credit facility will be
guaranteed by each of our existing and future direct and
indirect domestic material subsidiaries, subject to certain
exceptions.
Certain
Covenants and Events of Default
The senior credit facility contains customary negative covenants
that, among other things, restrict our ability to:
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incur debt at subsidiaries that are not guarantors;
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incur liens;
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merge or sell, transfer, lease or otherwise dispose of all or
substantially all assets;
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make investments, loans, advances, guarantees and acquisitions;
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enter into transactions with affiliates; and
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enter into agreements restricting our ability to incur liens or
the ability of subsidiaries to make distributions.
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These covenants are subject to certain exceptions described in
the senior credit agreement.
In addition, the senior credit facility will require us to
comply with the following financial covenants:
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a maximum total leverage ratio covenant; and
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a minimum interest coverage ratio covenant.
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The senior credit facility will also contain certain usual and
customary representations and warranties, affirmative covenants
and events of default.
Bridge
Loan Facility
On March 10, 2008, we entered into a 364-day bridge credit
agreement with J.P. Morgan Securities Inc. and Banc of
America Securities LLC, as joint lead arrangers,
J.P. Morgan Securities Inc., Banc of America Securities
LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC, as joint bookrunners, Bank
of America, N.A., as syndication agent, JPMorgan Chase Bank,
N.A., as administrative agent, Goldman Sachs Credit Partners
L.P., Morgan Stanley Senior Funding, Inc. and UBS Securities
LLC, as documentation agents and the lenders parties thereto.
The bridge credit agreement was amended and restated on
April 11, 2008.
Our new bridge credit agreement provides a senior unsecured
bridge loan facility in an aggregate principal amount of
$1.7 billion with a term of 364 days from the date we
fund the bridge loan facility. On April 11, 2008, we
borrowed an aggregate of $1.7 billion under the bridge loan
facility. The proceeds of the borrowing were placed in a
collateral account to be released in accordance with the bridge
credit agreement.
If the notes offering is successfully completed prior to the
separation, we expect to repay in full the $1.7 billion
borrowed under the bridge loan facility. In the event less than
$1.7 billion of notes are issued in the offering, the
amount of borrowings repaid under the bridge loan facility will
equal the amount of the net proceeds received from the offering.
126
Interest
Rates and Fees
Borrowings under the bridge loan facility will bear interest at
a floating rate per annum based upon LIBOR or ABR, in each case
plus an applicable margin which varies based upon our debt
ratings, from 1.00% to 2.50%, in the case of LIBOR loans and
0.00% to 1.50% in the case of ABR loans. We anticipate, based on
our expected debt ratings, that at the time of the separation
the applicable margin for LIBOR loans will be 2.00% and for ABR
loans will be 1.00%.
Interest is payable on the last day of the interest period, but
not less than quarterly, in the case of any LIBOR loan and on
the last day of March, June, September and December of each year
in the case of any ABR loan.
Prepayments
We may voluntarily prepay outstanding loans under the bridge
loan facility at any time, in whole or in part, plus accrued and
unpaid interest and certain breakage costs, subject to prior
notice.
Under the bridge loan facility, we will be required to prepay
outstanding bridge loans, subject to certain exceptions, with
net proceeds from any:
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asset sales, insurance claims and condemnation
proceedings; and
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debt and equity issuances.
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Prior to the funding of the bridge loan facility, the
commitments thereunder will be subject to reduction to the
extent we receive net proceeds from certain debt and equity
issuances.
Guarantees
All obligations under the bridge loan facility will be
guaranteed by each of our existing and future direct and
indirect domestic material subsidiaries, subject to certain
exceptions.
Certain
Covenants and Events of Default
The bridge loan facility contains covenants and events of
default substantially similar to those contained in the senior
credit facility, subject in each case to such variations as are
customary for a bridge loan facility.
Senior
Unsecured Notes
We intend to offer $1.7 billion aggregate principal amount
of senior unsecured notes. We expect the notes will rank pari
passu with all of our present and future senior unsecured
indebtedness and senior to all of our present and future
subordinated indebtedness. We also expect the notes would be
guaranteed by our existing and future subsidiaries that
guarantee any of our other indebtedness. In addition, we expect
the notes to have maturities that range from 5 to 30 years
and have terms and other conditions that are appropriate in
light of market conditions at the time the notes are offered.
127
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 forms of 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 800,000,000 shares
of common stock, par value $0.01 per share, and
15,000,000 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
approximately 253.5 million 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 will be entitled to one vote for
each share on all matters to be voted upon by the common
stockholders and there will be 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 will 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 will have no preemptive or
conversion rights or other subscription rights and there will
not be any 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 will be 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 will be 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 will have 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, would be 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 will 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.
Composition of the Board.
Our amended and
restated certificate of incorporation and by-laws will provide
that the directors will be classified with respect to the time
for which they hold office, into three classes. One class of
directors will be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2009, another class
will be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2010 and a third class
will be originally elected for a term expiring at the annual
meeting of stockholders to be held in
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2011, with each director to hold office until his or her
successor is duly elected and qualified. Commencing with the
2009 annual meeting of stockholders, directors elected to
succeed directors whose terms then expire will be elected for a
term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold
office until such persons successor is duly elected and
qualified.
Board Vacancies to be Filled by Remaining Directors and Not
Stockholders.
Our amended and restated certificate of
incorporation and by-laws will provide that any vacancies,
including any newly created directorships, on the board of
directors, will be filled by the affirmative vote of the
majority of the remaining directors then in office, even if such
directors constitute less than a quorum, or by a sole remaining
director.
Removal of Directors by Stockholders.
Our
amended and restated certificate of incorporation and by-laws
will provide that directors may be removed by stockholders only
for cause and only by the affirmative vote of the holders of at
least two-thirds of the votes which all stockholders would be
entitled to cast in any annual election of directors.
Stockholder Action.
Our amended and restated
certificate of incorporation and by-laws will preclude
stockholders from calling special meetings and taking action or
passing resolutions by written consent.
Advance Notice of Director Nominations and Stockholder
Proposals.
Our amended and restated by-laws will establish
advance notice procedures for stockholders to make nominations
of candidates for election as directors or to bring other
business before the annual meeting of stockholders. As will be
specified in our amended and restated by-laws, director
nominations and the proposal of business to be considered by
stockholders may be made only pursuant to a notice of meeting,
at the direction of the board of directors, or by a stockholder
who is entitled to vote at the meeting and who has complied with
the advance notice procedures that will be provided for in our
amended and restated by-laws.
To be timely, a nomination of a director by a stockholder or
notice for business to be brought before an annual meeting by a
stockholder must be delivered to the secretary at our principal
executive offices not less than 90 days nor more than
120 days prior to the first anniversary of the preceding
years annual meeting; provided, however, that in the event
that the date of an annual meeting is advanced by more than
30 days or delayed by more than 60 days from such
anniversary date, for notice by the stockholder to be timely, it
must be delivered not earlier than the 120th day prior to such
annual meeting and not later than the close of business on the
later of the 90th day prior to such annual meeting or the 10th
day following the day on which notice of such annual meeting was
mailed or public announcement of the date of such meeting is
first made, whichever first occurs. For purposes of the annual
meeting of stockholders held following the end of 2008, the date
of the preceding years annual meeting will be deemed to be
April 23, 2008.
In the event a special meeting of stockholders is called for the
purpose of electing one or more directors, any stockholder
entitled to vote may nominate a person or persons as specified
in our amended and restated by-laws, but only if the stockholder
notice is delivered to the secretary at our principal executive
offices not earlier than the 120th day prior to such special
meeting and not later than the close of business on the later of
(x) the 90th day prior to such special meeting and
(y) the 10th day following the day on which notice of the
date of such special meeting was mailed or public disclosure of
the date of such special meeting was made, whichever first
occurs.
Amendments to the Certificate of Incorporation and By-laws.
Our amended and restated certificate of incorporation and
by-laws will require an affirmative vote of two-thirds of the
voting power of the outstanding shares to amend certain
provisions of our amended and restated certificate of
incorporation or by-laws, including the ability of stockholders
to call special meetings or act by written consent, the size of
the board, the director removal provisions, filling vacancies on
the board, indemnification of directors and officers, advance
notice provisions, and supermajority voting requirements.
Delaware Anti-Takeover Statute.
We will be
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 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
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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 will 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 will include 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 will also provide 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 will
also be 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 will 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 have applied to list our common stock 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.
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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 February 15,
2008, Cadbury Schweppes board of directors approved the
distribution of our common stock to the shareholders of Cadbury
Schweppes. On April 11, 2008, shareholders of Cadbury
Schweppes voted to approve the separation and distribution.
Cadbury Schweppes believes that the separation of its Americas
Beverages business from its global confectionery business 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 that it
intended 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
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would separate the Americas Beverages business from its global
confectionery business. 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 held a general meeting of shareholders on
April 11, 2008 to consider proposals related to the
reorganization, separation and the distribution. Such proposals
were approved by more than 75% of votes cast at the shareholder
meeting. Immediately before the general meeting, a shareholder
meeting convened by the High Court of Justice of England and
Wales (the U.K. Court) was held and the proposals
considered at such meeting were approved.
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 U.K. law. Pursuant to
the scheme of arrangement, all outstanding Cadbury Schweppes
ordinary shares will be cancelled and holders will receive
(1) Cadbury plc ordinary shares, which will be the ongoing
ownership interest in the global confectionery business and its
other beverages business and (2) 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
us. In return for the transfer of the Americas Beverages
business to us, we will distribute shares of our 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 U.K. 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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0.64 Cadbury plc ordinary shares for every Cadbury Schweppes
ordinary share that they hold at the Scheme Record Time (as
defined below); and
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0.36 Cadbury plc beverage shares for every Cadbury
Schweppes ordinary share that they hold at the Scheme Record
Time. The Cadbury plc beverage shares will be
non-transferable and each 0.36 of a beverage share will
represent the right to receive 0.12 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
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scheme of arrangement becomes effective. The Scheme Record Time
is expected to be 6:00 p.m. (United Kingdom time) on
May 1, 2008.
The scheme of arrangement is subject to various conditions,
including, among others, the 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 April 29, 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 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 0.12 shares of our common stock for every
0.36 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. (United Kingdom time)
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 May 6, 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 May 1, 2008.
Conditions
to the Distribution
We expect that the distribution will be completed on May 7,
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 0.12 shares of our common stock for every
0.36 Cadbury plc beverage shares 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 of our common
stock, on or about May 16, 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 253.5 million shares of our
common stock will be issued and outstanding immediately
following the distribution, based upon the distribution of
0.12 shares of our common stock for each Cadbury Schweppes
ordinary share, and the approximate number of outstanding
Cadbury Schweppes ordinary shares on April 14, 2008. 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 April 11, 2008, shareholders of Cadbury Schweppes voted
to approve the separation and the distribution. 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.
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Cadbury
Schweppes American Depositary Receipts
Certain holders 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 Depositary 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 will:
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receive 0.64 ADRs of Cadbury plc, which will be listed on
the New York Stock Exchange, for each Cadbury Schweppes ADR that
they hold at the Depositary Record Time (expected to be 5:00 pm
(New York time) on May 1, 2008); and
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be entitled to receive 0.48 shares of our common stock,
which will be listed on the New York Stock Exchange, for each
Cadbury Schweppes ADR that they hold at the Depositary Record
Time.
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Market
for Our Common Stock
There is currently no trading market for our common stock. We
have applied to list our common stock 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 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.
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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 issued by 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, domiciled and resident or 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 our common stock.
136
For a 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 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. U.K. Holders are advised that clearance
under section 138 of the Taxation of Chargeable Gains Act
1992 has been obtained from U.K. H.M. Revenue and Customs
(HMRC) that it is satisfied that this condition has
been met.
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. This 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. However, as the amount of cash received should be
small as compared to the value of his holding of our
common stock or Cadbury plc ordinary shares, as the case
may be, a U.K. Holder may, under current practice of 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 part
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.
U.K. Holders of our common stock who are resident for tax
purposes in the U.K. will, in general, be subject to U.K. 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
U.K. 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 has
announced that the taxation of U.K. resident individuals owning
shares in non-U.K. resident companies will change from
April 6, 2008. In particular, the non-repayable one-ninth
dividend tax credit that is currently available in respect of
U.K. dividends will be extended to dividends from non-U.K.
resident companies, subject to certain conditions which have yet
to be finalized.
U.K. Holders who are companies should be aware that the U.K.
Government is presently consulting on changes to the tax regime
for foreign dividends.
137
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 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. for tax purposes 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.
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
138
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 under the Cadbury plc reduction of capital.
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 nearest £5 in the case of stamp duty).
This liability for stamp duty or stamp duty reserve tax will
strictly be accountable 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. However, U.K. 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.
139
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 and
received 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 or
loss. The private letter ruling is 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 does 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
misstatement of a
140
controlling fact or a change of law. Thus, if one or more of the
controlling facts or representations contained in the private
letter ruling request 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 general approach in the private letter ruling issued by 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. More
particularly, the private letter ruling issued by the IRS
disregards the form of the separation and distribution for U.S.
federal income tax purposes and, instead, treats the separation
and distribution for such purposes as (i) an exchange by Cadbury
Schweppes stockholders of Cadbury Schweppes ordinary shares for
Cadbury plc ordinary shares in a transaction qualifying for
non-recognition treatment under Section 368(a)(1)(F) of the
Internal Revenue Code, (ii) a distribution of the common stock
of Cadbury Schweppes Americas Inc., the parent corporation of
the Americas Beverages business, to holders of Cadbury plc
ordinary shares in a transaction qualifying for non-recognition
treatment under Section 355 of the Internal Revenue Code, and
(iii) an exchange of Cadbury Schweppes Americas Inc. common
stock for our common stock in a transaction qualifying for
non-recognition treatment under Section 368(a)(1)(F) of the
Internal Revenue Code.
Following such 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
141
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 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, contrary to the IRS private letter ruling and 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, 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 for tax purposes in the
U.K. and does not carry 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 where such shares have been
used, held or acquired for the purpose of such branch, agency or
permanent establishment).
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.
142
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 subsequent disposal or
deemed 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.
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 under the Cadbury plc reduction of capital.
No U.K. stamp duty will be payable by a U.S. 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.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 accountable 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. However,
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.
143
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.
144
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.
After separation, we plan to make available, on our website
www.drpeppersnapple.com, 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?
145
DR PEPPER
SNAPPLE GROUP, INC.
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
Combined Financial Statements:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Combined Balance Sheets as of December 31, 2007 and
December 31, 2006
|
|
|
F-3
|
|
Combined Statements of Operations for the Fiscal Years Ended
December 31, 2007, December 31, 2006 and
January 1, 2006
|
|
|
F-4
|
|
Combined Statements of Cash Flows for the Fiscal Years Ended
December 31, 2007, December 31, 2006 and
January 1, 2006
|
|
|
F-5
|
|
Combined Statements of Changes in Invested Equity for the Fiscal
Years Ended December 31, 2007, December 31, 2006,
January 1, 2006 and January 2, 2005
|
|
|
F-6
|
|
Notes to Combined Financial Statements
|
|
|
F-7
|
|
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, 2007 and 2006, and
the related combined statements of operations, cash flows and
changes in invested equity for the fiscal years ended
December 31, 2007, December 31, 2006 and
January 1, 2006. These combined financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards as established by the Auditing Standards
Board (United States) and in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such combined financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2007 and 2006, and the results
of its operations and its cash flows for the fiscal years ended
December 31, 2007, December 31, 2006 and
January 1, 2006 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1, the combined financial statements
of the Company include allocation of certain general corporate
overhead costs from Cadbury Schweppes plc. These costs may not
be reflective of the actual level of costs which would have been
incurred had the Company operated as a separate entity apart
from Cadbury Schweppes plc.
As discussed in Note 2 and Note 9 to the combined
financial statements, the Company changed its method of
accounting for stock based employee compensation as of
January 3, 2005 and changed its method of accounting for
uncertainties in income taxes as of January 1, 2007,
respectively.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 20, 2008 (April 14, 2008 as to paragraph 2 and 3 in
Note 17)
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 2)
|
|
$
|
67
|
|
|
$
|
35
|
|
Accounts receivable (Note 2):
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $20 and $14, respectively)
|
|
|
538
|
|
|
|
562
|
|
Other
|
|
|
59
|
|
|
|
18
|
|
Related party receivable (Note 16)
|
|
|
66
|
|
|
|
5
|
|
Note receivable from related parties (Note 16)
|
|
|
1,527
|
|
|
|
579
|
|
Inventories (Notes 2 and 4)
|
|
|
325
|
|
|
|
300
|
|
Deferred tax assets (Notes 2 and 9)
|
|
|
81
|
|
|
|
61
|
|
Prepaid and other current assets (Note 2)
|
|
|
76
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,739
|
|
|
|
1,632
|
|
Property, plant and equipment, net (Notes 2 and 6)
|
|
|
868
|
|
|
|
755
|
|
Investments in unconsolidated subsidiaries (Note 7)
|
|
|
13
|
|
|
|
12
|
|
Goodwill (Notes 2 and 8)
|
|
|
3,183
|
|
|
|
3,180
|
|
Other intangible assets, net (Notes 2 and 8)
|
|
|
3,617
|
|
|
|
3,651
|
|
Other non-current assets (Note 2)
|
|
|
100
|
|
|
|
107
|
|
Non-current deferred tax assets (Notes 2 and 9)
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Invested Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (Note 5)
|
|
$
|
812
|
|
|
$
|
788
|
|
Related party payable (Note 16)
|
|
|
175
|
|
|
|
183
|
|
Current portion of long-term debt payable to related parties
(Note 10)
|
|
|
126
|
|
|
|
708
|
|
Income taxes payable (Notes 2 and 9)
|
|
|
22
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,135
|
|
|
|
1,691
|
|
Long-term debt payable to third parties (Note 10)
|
|
|
19
|
|
|
|
543
|
|
Long-term debt payable to related parties (Note 10)
|
|
|
2,893
|
|
|
|
2,541
|
|
Deferred tax liabilities (Notes 2 and 9)
|
|
|
1,324
|
|
|
|
1,292
|
|
Other non-current liabilities
|
|
|
136
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,507
|
|
|
|
6,096
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
5,001
|
|
|
|
3,249
|
|
Accumulated other comprehensive income
|
|
|
20
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-3
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
2,085
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
1,179
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
Impairment of intangible assets (Note 8)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Restructuring costs (Notes 2 and 12)
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
Other expense (income)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
Provision for income taxes (Notes 2 and 9)
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
Cumulative effect of change in accounting policy, net of tax
(Note 14)
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-4
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years End
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
Impairment of assets
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
Employee stock-based compensation expense
|
|
|
21
|
|
|
|
17
|
|
|
|
22
|
|
Excess tax benefit on stock-based compensation
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Deferred income taxes
|
|
|
55
|
|
|
|
14
|
|
|
|
56
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Other, net
|
|
|
|
|
|
|
(6
|
)
|
|
|
8
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in trade accounts receivable
|
|
|
32
|
|
|
|
(42
|
)
|
|
|
8
|
|
(Increase) decrease in related party receivables
|
|
|
(57
|
)
|
|
|
(2
|
)
|
|
|
14
|
|
(Increase) decrease in other accounts receivable
|
|
|
(38
|
)
|
|
|
46
|
|
|
|
(40
|
)
|
(Increase) decrease in inventories
|
|
|
(14
|
)
|
|
|
13
|
|
|
|
18
|
|
(Increase) decrease in prepaid expenses other current assets
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
(29
|
)
|
Increase in other non-current assets
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
(19
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(5
|
)
|
|
|
(104
|
)
|
|
|
34
|
|
Increase in related party payables
|
|
|
12
|
|
|
|
13
|
|
|
|
17
|
|
Increase in income taxes payable
|
|
|
10
|
|
|
|
2
|
|
|
|
1
|
|
(Decrease) increase in other non-current liabilities
|
|
|
(10
|
)
|
|
|
8
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
603
|
|
|
|
581
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
(30
|
)
|
|
|
(435
|
)
|
|
|
|
|
Purchases of investments and intangible assets
|
|
|
(2
|
)
|
|
|
(53
|
)
|
|
|
(35
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
98
|
|
|
|
53
|
|
|
|
36
|
|
Purchases of property, plant and equipment
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
6
|
|
|
|
16
|
|
|
|
5
|
|
Payments on notes receivables
|
|
|
1,008
|
|
|
|
166
|
|
|
|
680
|
|
Issuances of notes receivables
|
|
|
(1,937
|
)
|
|
|
(91
|
)
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
2,845
|
|
|
|
2,086
|
|
|
|
124
|
|
Repayment of long-term debt
|
|
|
(3,455
|
)
|
|
|
(2,056
|
)
|
|
|
(279
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
Cash distributions to Cadbury Schweppes
|
|
|
(213
|
)
|
|
|
(80
|
)
|
|
|
(381
|
)
|
Change in Cadbury Schweppes net investment
|
|
|
1,334
|
|
|
|
(23
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
31
|
|
|
|
7
|
|
|
|
51
|
|
Currency translation
|
|
|
1
|
|
|
|
|
|
|
|
(42
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
35
|
|
|
|
28
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transfers of property, plant and equipment to other
Cadbury Schweppes companies
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
14
|
|
Non-cash transfers of operating assets and liabilities to other
Cadbury Schweppes companies
|
|
|
22
|
|
|
|
16
|
|
|
|
22
|
|
Non-cash conversion of debt to equity contribution
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Non-cash reduction in long term debt from Cadbury Schweppes net
investment
|
|
|
263
|
|
|
|
383
|
|
|
|
|
|
Cadbury Schweppes or related entities acquisition payments
reflected through Cadbury Schweppes net investment
|
|
|
17
|
|
|
|
23
|
|
|
|
27
|
|
Non-cash issuance of note payable related to acquisition
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Non-cash assumption of debt related to acquisition payments by
Cadbury Schweppes
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Non-cash transfer of related party receivable to Cadbury
Schweppes company
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Operating liabilities expected to be reimbursed by Cadbury
Schweppes
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Non-cash reclassifications upon FIN 48 adoption
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
257
|
|
|
$
|
204
|
|
|
$
|
165
|
|
Income taxes paid
|
|
|
34
|
|
|
|
14
|
|
|
|
14
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-5
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadbury
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Schweppes
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Net
|
|
|
Comprehensive
|
|
|
Invested
|
|
|
Comprehensive
|
|
|
|
Investment
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance as of 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 pension liability
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of 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 pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
3,249
|
|
|
|
1
|
|
|
|
3,250
|
|
|
|
|
|
Net income
|
|
|
497
|
|
|
|
|
|
|
|
497
|
|
|
$
|
497
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
1,484
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
Distributions
|
|
|
(213
|
)
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
Adoption of FIN 48 (Note 9)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
5,001
|
|
|
$
|
20
|
|
|
$
|
5,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-6
DR PEPPER
SNAPPLE GROUP, INC.
As of December 31, 2007 and December 31, 2006
and for the fiscal years
ended December 31, 2007, December 31, 2006 and
January 1, 2006
(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 in connection with
the separation of the Company from Cadbury Schweppes through the
distribution of all its outstanding common shares to Cadbury
Schweppes shareholders. The initial capitalization was two
dollars. Prior to its ownership of Cadbury Schweppes
Americas Beverages business, the Company did not have any
operations. The Company conducts operations in the United
States, Canada, Mexico and parts of the Caribbean.
The Companys key brands include Dr Pepper, Snapple, 7UP,
Motts, Sunkist, Hawaiian Punch, A&W, Canada Dry,
Schweppes, Squirt, Clamato, Peñafiel, Mr & Mrs T,
and Margaritaville.
Basis
of Presentation
The accompanying combined financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America
(U.S. GAAP).
The combined financial statements have been prepared on a
carve-out basis from Cadbury Schweppes
consolidated financial statements using the historical results
of operations, assets and liabilities attributable to Cadbury
Schweppes Americas Beverages business and include
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverage information is our
predecessor financial information. The Company eliminates from
its financial results all intercompany transactions between
entities included in the combination and the intercompany
transactions with its equity method investees.
The combined financial statements may not be indicative of the
Companys future performance and do not necessarily reflect
what its combined results of operations, financial position and
cash flows would have been had the Company operated as an
independent company during the periods presented. To the extent
that an asset, liability, revenue or expense is directly
associated with the Company, it is reflected in the accompanying
combined financial statements.
Cadbury Schweppes currently provides certain corporate functions
to the Company and costs associated with these functions have
been allocated to the Company. These functions include corporate
communications, regulatory, human resources and benefit
management, treasury, investor relations, corporate controller,
internal audit, Sarbanes Oxley compliance, information
technology, corporate and legal compliance, and community
affairs. The costs of such services have been allocated to the
Company based on the most relevant allocation method to the
service provided, primarily based on relative percentage of
revenue or headcount. Management believes such allocations are
reasonable; however, they may not be indicative of the actual
expense that would have been incurred had the Company been
operating as an independent company for the periods presented.
The charges for these functions are included primarily in
selling, general and administrative expenses in the
Combined Statements of Operations.
The total invested equity represents Cadbury Schweppes
interest in the recorded net assets of the Company. The net
investment balance represents the cumulative net investment by
Cadbury Schweppes in the Company through that date, including
any prior net income or loss or other comprehensive income or
loss attributed to the Company. Certain transactions between the
Company and other related parties within the Cadbury Schweppes
group, including allocated expenses, are also included in
Cadbury Schweppes net investment.
F-7
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The fiscal years presented are the year ended December 31,
2007, which is referred to as 2007, the year ended
December 31, 2006, which is referred to as
2006, and the 52-week period ended January 1,
2006, which is referred to as 2005. Effective 2006,
the Companys fiscal year ends on December 31 of each year.
Prior to 2006, the Companys fiscal year end date
represented the Sunday closest to December 31 of each year.
|
|
2.
|
Significant
Accounting Policies
|
Use of
Estimates
The process of preparing financial statements in conformity with
U.S. GAAP requires the use of estimates and judgments that
affect the reported amount of assets, liabilities, revenue and
expenses. These estimates and judgments are based on historical
experience, future expectations and other factors and
assumptions the Company believes to be reasonable under the
circumstances. These estimates and judgments are reviewed on an
ongoing basis and are revised when necessary. Actual amounts may
differ from these estimates. The Companys most significant
estimates and judgments include those relating to: revenue
recognition, income taxes, pension and postretirement benefit
obligations, stock based compensation and valuations of goodwill
and other intangibles. Changes in estimates are recorded in the
period of change.
Revenue
Recognition
The Company recognizes sales revenue when all of the following
have occurred: (1) delivery, (2) persuasive evidence
of an agreement exists, (3) pricing is fixed or
determinable and (4) collection is reasonably assured.
Delivery is not considered to have occurred until the title and
the risk of loss passes to the customer according to the terms
of the contract between the Company and the customer. The timing
of revenue recognition is largely dependent on contract terms.
For sales to other customers that are designated in the contract
as
free-on-board
destination, revenue is recognized when the product is delivered
to and accepted at the customers delivery site.
In addition, the Company offers a variety of incentives and
discounts to bottlers, customers and consumers through various
programs to support the distribution of its products. These
incentives and discounts include cash discounts, price
allowances, volume based rebates, product placement fees and
other financial support for items such as trade promotions,
displays, new products, consumer incentives and advertising
assistance. These incentives and discounts, collectively
referred to as trade spend, are reflected as a reduction of
gross sales to arrive at net sales. Trade spend for 2007 and
2006 includes the effect of the Companys bottling
acquisitions (see Note 3) where the amounts of such
spend are larger than those related to other parts of its
business. The aggregate deductions from gross sales recorded by
the Company in relation to these programs were approximately
$3,159 million, $2,440 million, and $928 million
in 2007, 2006 and 2005, respectively. Net sales are also
reported net of sales taxes and other similar taxes.
Transportation
and Warehousing Costs
The Company incurred $736 million, $582 million and
$292 million of transportation and warehousing costs in
2007, 2006 and 2005, respectively. These amounts, which
primarily relate to shipping and handling costs, are included in
selling, general and administrative expenses.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and investments in
short-term, highly liquid securities, with original maturities
of three months or less.
Concentration
of Credit Risk
Financial instruments which subject the Company to potential
credit risk consist of its cash and cash equivalents and
accounts receivable. The Company places its cash and cash
equivalents with high credit
F-8
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
quality financial institutions. Deposits with these financial
institutions may exceed the amount of insurance provided;
however, these deposits typically are redeemable upon demand
and, therefore, the Company believes the financial risks
associated with these financial instruments are minimal.
The Company performs ongoing credit evaluations of its
customers, and generally does not require collateral on its
accounts receivable. The Company estimates the need for
allowances for potential credit losses based on historical
collection activity and the facts and circumstances relevant to
specific customers and records a provision for uncollectible
accounts when collection is uncertain. The Company has not
experienced significant credit related losses to date.
No single customer accounted for 10% or more of the
Companys trade accounts receivable for any period
presented.
The principal raw materials the Company uses in the business are
aluminum cans and ends, glass bottles, PET bottles and caps,
paperboard packaging, high fructose corn syrup and other
sweeteners, juice, fruit, electricity, fuel and water. Some raw
materials the Company uses are available from only a few
suppliers. If these suppliers are unable or unwilling to meet
requirements, the Company could suffer shortages or substantial
cost increases.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. Past-due status is based on
contractual terms on a
customer-by-customer
basis. The Company determines the required allowance using
information such as its customer credit history, industry and
market segment information, economic trends and conditions,
credit reports and customer financial condition. The estimates
can be affected by changes in the industry, customer credit
issues or customer bankruptcies. Account balances are charged
off against the allowance when it is determined that the
receivable will not be recovered.
Activity in the allowance for doubtful accounts was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of the year
|
|
$
|
14
|
|
|
$
|
10
|
|
|
$
|
12
|
|
Net charge to costs and expenses
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
Acquisition of subsidiaries
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Write-offs
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
20
|
|
|
$
|
14
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined for U.S. inventories substantially by
the
last-in,
first-out (LIFO) valuation method and for
non-U.S. inventories
by the
first-in,
first-out (FIFO) valuation method. Inventories
include raw materials,
work-in-process,
finished goods, packing materials, advertising materials, spare
parts and other supplies. The costs of finished goods
inventories include raw materials, direct labor and indirect
production and overhead costs. Reserves for excess and obsolete
inventories are based on an assessment of slow-moving and
obsolete inventories, determined by historical usage and demand.
Excess and obsolete inventory reserves were $17 million and
$7 million as of December 31, 2007 and 2006,
respectively.
Income
Taxes
Income taxes are computed and reported on a separate return
basis and accounted for using the asset and liability approach
under Statement of Financial Accounting Standards
(SFAS) No. 109,
Accounting for Income Taxes
(SFAS 109). This method involves
determining the temporary differences between combined assets
and
F-9
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
liabilities recognized for financial reporting and the
corresponding combined amounts recognized for tax purposes and
computing the tax-related carryforwards at the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The resulting amounts are deferred tax assets or liabilities and
the net changes represent the deferred tax expense or benefit
for the year. The total of taxes currently payable per the tax
return and the deferred tax expense or benefit represents the
income tax expense or benefit for the year for financial
reporting purposes.
The Company periodically assesses the likelihood of realizing
its deferred tax assets based on the amount of deferred tax
assets that the Company believes is more likely than not to be
realized. The Company bases its judgment of the recoverability
of its deferred tax asset, which includes U.S. federal and,
to a lesser degree, state and foreign net operating loss, or
NOL, carryforwards, primarily on historical earnings, its
estimate of current and expected future earnings, prudent and
feasible tax planning strategies, and current and future
ownership changes.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and amortization, plus capitalized
interest on borrowings during the actual construction period of
major capital projects. Significant improvements which
substantially extend the useful lives of assets are capitalized.
The costs of major rebuilds and replacements of plant and
equipment are capitalized, and expenditures for repairs and
maintenance which do not improve or extend the life of the
assets are expensed as incurred. When property, plant and
equipment is sold or retired, the costs and the related
accumulated depreciation are removed from the accounts, and the
net gains or losses are recorded in gain on disposal of
property and intangible assets. Leasehold improvements are
amortized over the shorter of the estimated useful life of the
assets or the lease term.
For financial reporting purposes, depreciation is computed on
the straight-line method over the estimated useful asset lives
as follows:
|
|
|
|
|
Asset
|
|
Useful Life
|
|
|
Buildings and improvements
|
|
|
25 to 40 years
|
|
Machinery and equipment
|
|
|
5 to 14 years
|
|
Vehicles
|
|
|
5 to 8 years
|
|
Vending machines
|
|
|
5 to 7 years
|
|
Computer software
|
|
|
3 to 8 years
|
|
Estimated useful lives are periodically reviewed and, when
warranted, are updated. 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.
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.
F-10
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Company conducts impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company uses present value and other valuation techniques to
make this assessment. If the carrying amount of an intangible
asset exceeds its fair value, an impairment loss is recognized
in an amount equal to that excess.
Impairment tests for goodwill include comparing the fair value
of the respective reporting units, which are the Companys
segments, with their carrying amount, including goodwill.
Goodwill is evaluated using a two-step impairment test at the
reporting unit level. The first step compares the carrying
amount of a reporting unit, including goodwill, with its fair
value. If the carrying amount of a reporting unit exceeds its
fair value, a second step is completed to determine the amount
of goodwill impairment loss to record. In the second step, an
implied fair value of the reporting units goodwill is
determined by allocating the fair value of the reporting unit to
all of the assets and liabilities other than goodwill. The
amount of impairment loss is equal to the excess of the carrying
amount of the goodwill over the implied fair value of that
goodwill.
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 Assets
|
|
Useful Life
|
|
|
Brands
|
|
|
5 to 15 years
|
|
Bottler agreements and distribution rights
|
|
|
2 to 16 years
|
|
Customer relationships and contracts
|
|
|
5 to 10 years
|
|
Other
Assets
The Company provides support to certain customers to cover
various programs and initiatives to increase net sales. Costs of
these programs and initiatives are recorded in prepaid
expenses and other current assets and other
non-current assets. These costs include contributions to
customers or vendors for cold drink equipment used to market and
sell the Companys products.
The long-term portion of the costs for these programs is
recorded in other non-current assets and subsequently amortized
over the period to be directly benefited. These costs amounted
to $86 million and $100 million, net of accumulated
amortization, for 2007 and 2006, respectively. The amounts of
these incentives are amortized based upon a methodology
consistent with the Companys contractual rights under
these arrangements. The amortization charge for the cost of
contributions to customers or vendors for cold drink equipment
was $9 million, $16 million and $17 million for
2007, 2006 and 2005, respectively, and was recorded in
selling, general and administrative expenses in the
Combined Statements of Operations. The amortization charge for
the cost of other programs and incentives was $10 million,
$10 million and $11 million for 2007, 2006 and 2005,
respectively, and was recorded as a deduction from gross sales.
Research
and Development
Research and development costs are expensed when incurred and
amounted to $24 million, $24 million and
$21 million for 2007, 2006 and 2005, respectively. These
expenses are recorded in selling, general and
administrative expenses in the Combined Statements of
Operations.
F-11
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Advertising
Expense
Advertising costs are expensed when incurred and amounted to
approximately $387 million, $374 million and
$377 million for 2007, 2006 and 2005, respectively. These
expenses are recorded in selling, general and
administrative expenses in the Combined Statements of
Operations.
Restructuring
Costs
The Company periodically records facility closing and
reorganization charges when a facility for closure or other
reorganization opportunity has been identified, a closure plan
has been developed and the affected employees notified, all in
accordance with SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146).
Foreign
Currency Translation
The functional currency of the Companys operations outside
the U.S. is the local currency of the country where the
operations are located. The balance sheets of operations outside
the U.S. are translated into U.S. Dollars at the end
of year rates. The results of operations for the fiscal year are
translated into U.S. Dollars at an annual average rate,
calculated using month end exchange rates.
The following table sets forth exchange rate information for the
periods and currencies indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yearly
|
|
Mexican Peso to U.S. Dollar Exchange Rate
|
|
Year End
|
|
|
Average
|
|
|
2007
|
|
|
10.91
|
|
|
|
10.91
|
|
2006
|
|
|
10.79
|
|
|
|
10.86
|
|
2005
|
|
|
10.64
|
|
|
|
10.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yearly
|
|
Canadian Dollar to U.S. Dollar Exchange Rate
|
|
Year End
|
|
|
Average
|
|
|
2007
|
|
|
1.00
|
|
|
|
1.07
|
|
2006
|
|
|
1.17
|
|
|
|
1.13
|
|
2005
|
|
|
1.17
|
|
|
|
1.21
|
|
Differences on exchange arising from the translation of opening
balances sheets of these entities to the rate ruling at the end
of the financial year are recognized in accumulated other
comprehensive income. The exchange differences arising
from the translation of foreign results from the average rate to
the closing rate are also recognized in accumulated other
comprehensive income. Such translation differences are
recognized as income or expense in the period in which the
Company disposes of the operations.
Transactions in foreign currencies are recorded at the
approximate rate of exchange at the transaction date. Assets and
liabilities resulting from these transactions are translated at
the rate of exchange in effect at the balance sheet date. All
such differences are recorded in results of operations and
amounted to less than $1 million, $5 million and
$2 million in 2007, 2006 and 2005, respectively.
Fair
Value of Financial Instruments
Pursuant to SFAS No. 107,
Disclosure about Fair
Value of Financial Instruments
(SFAS 107),
the Company is required to disclose an estimate of the fair
value of its financial instruments as of December 31, 2007
and 2006. SFAS 107 defines the fair value of financial
instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
F-12
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The carrying amounts reflected in the Combined Balance Sheets
for cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value due to the
short-term nature of their maturities.
The Companys long-term debt was subject to variable and
fixed interest rates that approximated market rates in 2007,
2006 and 2005. As a result, the Company believes the carrying
value of long-term debt approximates fair value for these
periods.
The carrying amount of the Companys outstanding
foreign-currency swaps is equivalent to fair value as of the
respective dates in the Combined Balance Sheets.
Stock-Based
Compensation
On January 3, 2005, the Company adopted Statement of
Financial Accounting Standards No. 123(R),
Share-Based
Payment
(SFAS 123(R)). SFAS 123(R)
requires the recognition of compensation expense in the Combined
Statement of Operations related to the fair value of employee
share-based awards. The Company selected the modified
prospective method of transition; accordingly, prior periods
have not been restated. Upon adoption of SFAS 123(R), for
awards which are classified as liabilities, the Company was
required to reclassify the Accounting Principles Board Opinion
No. 25,
Accounting for Stock Issued to
Employees,
(APB 25) historical compensation cost from equity to
liability and to recognize the difference between this and the
fair value liability through the statement of operations.
Under SFAS 123(R), the Company recognizes the cost of all
unvested employee stock options on a straight-line attribution
basis over their respective vesting periods, net of estimated
forfeitures. In addition, the Company has certain employee share
plans that contain inflation indexed earnings growth performance
conditions. SFAS 123(R) requires plans with such
performance criteria to be accounted for under the liability
method. The liability method, as set out in SFAS 123(R),
requires a liability be recorded on the balance sheet until
awards have vested. Also, in calculating the income statement
charge for share awards under the liability method as set out in
SFAS 123(R), the fair value of each award must be
remeasured at each reporting date until vesting.
The stock-based compensation plans in which the Companys
employees participate are described further in Note 14.
Pension
and Postretirement Benefits
The Company has several pension and postretirement plans
covering employees who satisfy age and length of service
requirements. There are nine stand-alone and five multi-employer
pension plans and five stand-alone and one multi-employer
postretirement plans. Depending on the plan, pension and
postretirement benefits are based on a combination of factors,
which may include salary, age and years of service. One of the
nine stand-alone plans is an unfunded pension plan that provides
supplemental pension benefits to certain senior executives, and
is accounted for as a defined contribution plan.
Pension expense has been determined in accordance with the
principles of SFAS No. 87,
Employers
Accounting for Pensions
which requires use of the
projected unit credit method for financial
reporting. The Company adopted the provisions of
SFAS No. 158,
Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans An amendment of Financial Accounting Standards
Board Statements No. 87, 88, 106, and 132(R)
(SFAS 158) related to recognizing the
funded status of a benefit plan and the disclosure requirements
on December 31, 2006. The Company has elected to defer the
change of measurement date as permitted by SFAS 158 until
December 31, 2008. The Companys policy is to fund
pension plans in accordance with the requirements of the
Employee Retirement Income Security Act. Employee benefit plan
obligations and expenses included in the Combined Financial
Statements are determined from actuarial analyses based on plan
assumptions, employee demographic data, years of service,
compensation, benefits and claims paid and employer
contributions.
F-13
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Cadbury Schweppes sponsors the five multi-employer pension plans
in which the Companys employees participate, and therefore
the Company accounts for these as defined contribution plans.
The expense related to the postretirement plans has been
determined in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions
(SFAS 106). As stated in
SFAS 106, the Company accrues the cost of these benefits
during the years that employees render service to us.
New
Accounting Standards
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS 141(R)), which amends the principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.
SFAS 141(R) is effective for its Company on January 1,
2009, and the Company will apply SFAS 141(R) prospectively
to all business combinations subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51
(SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
noncontrolling interests. SFAS 160 is effective for fiscal
years beginning after December 15, 2008. The Company will
apply SFAS 160 prospectively to all applicable transactions
subsequent to the effective date.
In June 2007, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 06-11
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11),
which requires entities to record tax benefits on dividends or
dividend equivalents that are charged to retained earnings for
certain share-based awards to additional paid-in capital. In a
share-based payment arrangement, employees may receive dividends
or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, and
share options until the exercise date. Generally, the payment of
such dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional
paid-in capital should be included in the pool of excess tax
benefits available to absorb tax deficiencies on share-based
payment awards.
EITF 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those years. The Company
believes the adoption of
EITF 06-11
will not have a material impact on its combined financial
statements.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
including an amendment to FASB Statement No. 115
(SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain
other items at fair value. Unrealized gains and losses on items
for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date.
SFAS 159 is effective for the Company January 1, 2008.
The Company does not plan to apply SFAS 159 to any of its
existing financial assets or liabilities and believes that the
adoption of SFAS 159 would not have a material impact on
its financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about
fair value measurements. SFAS 157 is effective for the
Company January 1, 2008. A one-year deferral is in effect
for nonfinancial assets and nonfinancial liabilities that are
measured on a nonrecurring basis. The Company believes that the
adoption of SFAS 157 will not have a material impact on its
financial statements.
On May 2, 2006, the Company acquired approximately 55% of
the outstanding shares of Dr Pepper/Seven Up Bottling Group,
Inc. (DPSUBG), which, combined with the
Companys pre-existing 45% ownership, resulted in the
Companys full ownership of DPSUBG. DPSUBGs principal
operations are the bottling and distribution of
F-14
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
beverages produced by the Companys Beverage Concentrates
and Finished Goods segments, and certain beverages produced by
third parties, all in North America. The Company acquired DPSUBG
to strengthen the
route-to-market
of its North American beverage business.
The purchase price for the approximately 55% of DPSUBG the
Company did not previously own was approximately
$370 million, which consisted of $347 million cash
paid by the Company and $23 million in related expenses
paid by Cadbury Schweppes. The full purchase price was funded
through related party debt with the subsidiaries of Cadbury
Schweppes.
The acquisition was accounted for as a purchase under
SFAS No. 141
Business Combinations
. The
following table summarizes the allocation of the purchase price
to approximately 55% of DPSUBGs assets and liabilities:
|
|
|
|
|
|
|
At
|
|
|
|
May 2,
|
|
|
|
2006
|
|
|
Current assets
|
|
$
|
182
|
|
Investments
|
|
|
1
|
|
Property, plant and equipment
|
|
|
190
|
|
Intangible assets
|
|
|
410
|
|
|
|
|
|
|
Total assets acquired
|
|
|
783
|
|
Current liabilities
|
|
|
184
|
|
Long-term debt
|
|
|
358
|
|
Deferred tax liabilities
|
|
|
146
|
|
Other liabilities
|
|
|
131
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
819
|
|
Net liabilities assumed
|
|
|
(36
|
)
|
Cash acquired
|
|
|
10
|
|
Goodwill
|
|
|
396
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
370
|
|
|
|
|
|
|
Included within the allocation of the purchase price in the
table above are $410 million of intangible assets which
includes indefinite lived Company-related bottler agreements of
$282 million, $70 million of customer relationships
and contracts and $48 million of non-Company-related
bottler agreements being amortized over five to 10 years;
and other intangible assets of $10 million being amortized
over 10 years.
The results of DPSUBG have been included in the individual line
items within the Combined Statement of Operations from
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for by the equity method. Refer to
Note 7.
The following unaudited pro forma summary presents the results
of operations as if the acquisition of DPSUBG had occurred at
the beginning of each fiscal year. 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
|
|
|
|
|
|
|
|
|
|
|
F-15
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Company also acquired All American Bottling Company
(AABC) for $58 million on June 9, 2006,
Seven Up Bottling Company of San Francisco
(Easley) for $51 million on August 7, 2006
and Southeast-Atlantic Beverage Corporation (SeaBev)
for $53 million on July 11, 2007. Goodwill of
$20 million and identifiable intangible assets of
$63 million were recorded. These acquisitions further
strengthen the
route-to-market
of the Companys North American beverage business.
The goodwill associated with these transactions has been
assigned to the Bottling Group, Beverage Concentrates and
Finished Goods segments. The amounts assigned to these segments
were $195 million, $322 million and $233 million,
respectively. The goodwill represents benefits of the
acquisitions that are in addition to the fair value of the net
assets acquired and the anticipated increased profitability
arising from the future revenue and cost synergies arising from
the combination. None of the goodwill is deductible for tax
purposes.
Supplemental
schedule of noncash investing activities:
In conjunction with the acquisitions of SeaBev, DPSUBG, AABC and
Easley, the following liabilities were assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
SeaBev
|
|
|
DPSUBG
|
|
|
AABC
|
|
|
Easley
|
|
|
Fair value of assets acquired
|
|
$
|
76
|
(1)
|
|
$
|
1,189
|
|
|
$
|
64
|
|
|
$
|
99
|
|
Cash consideration paid by the Company
|
|
|
|
|
|
|
(347
|
)
|
|
|
(58
|
)
|
|
|
(51
|
)
|
Cash expenses paid by Cadbury Schweppes
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
76
|
|
|
|
819
|
|
|
|
6
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash purchase price was paid by Cadbury Schweppes and increased
related party debt balance accordingly.
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
110
|
|
|
$
|
105
|
|
Work in process
|
|
|
|
|
|
|
5
|
|
Finished goods
|
|
|
245
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Inventories at FIFO cost
|
|
|
355
|
|
|
|
324
|
|
Reduction to LIFO cost
|
|
|
(30
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
325
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
Percent of inventory accounted for by:
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
92
|
%
|
|
|
91
|
%
|
FIFO
|
|
|
8
|
%
|
|
|
9
|
%
|
F-16
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Trade accounts payable
|
|
$
|
257
|
|
|
$
|
256
|
|
Customer rebates
|
|
|
200
|
|
|
|
184
|
|
Accrued compensation
|
|
|
127
|
|
|
|
96
|
|
Other current liabilities
|
|
|
228
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
812
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
90
|
|
|
$
|
79
|
|
Buildings and improvements
|
|
|
284
|
|
|
|
265
|
|
Machinery and equipment
|
|
|
570
|
|
|
|
472
|
|
Vending machines
|
|
|
282
|
|
|
|
258
|
|
Software
|
|
|
125
|
|
|
|
105
|
|
Construction-in-progress
|
|
|
120
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
1,471
|
|
|
|
1,254
|
|
Less: accumulated depreciation and amortization
|
|
|
(603
|
)
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
868
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, the amount reflected in
building and improvements and machinery and
equipment at cost included $23 million and
$1 million of assets under capital lease, respectively. As
of December 31, 2007 and 2006, the net book value of assets
under capital lease was $22 million and $23 million,
respectively.
Depreciation expense amounted to $120 million,
$94 million and $48 million in 2007, 2006 and 2005,
respectively.
Capitalized interest was $6 million, $3 million and
$1 million during 2007, 2006 and 2005, respectively.
|
|
7.
|
Investments
in Unconsolidated Subsidiaries
|
The Company has investments in 50% owned Mexican joint ventures
accounted for under the equity method of accounting. The
carrying value of the investments was $13 million and
$12 million as of December 31, 2007 and 2006,
respectively.
Dr
Pepper/Seven Up Bottling Group
In 2005, Cadbury Schweppes purchased approximately 5% of DPSUBG,
increasing its investment to approximately 45%. On May 2,
2006, the Company purchased the remaining 55% of DPSUBG. As a
result DPSUBG became a fully-owned subsidiary and its results
were combined from that date forward. Refer to Note 3. As
of May 1, 2006 and as of January 1, 2006, the Company
owned approximately 45% of DPSUBG. As of January 2,
F-17
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
2005, the investment in DPSUBG was approximately 40%. The
following schedules summarize DPSUBGs reported financial
information:
|
|
|
|
|
|
|
As of
|
|
|
|
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,
|
|
|
For The
|
|
|
|
2006
|
|
|
Year Ended
|
|
|
|
to May 1,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
708
|
|
|
$
|
2,042
|
|
Cost of goods sold
|
|
|
469
|
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
239
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
32
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of the goodwill for the fiscal
years ended December 31, 2007 and 2006 by reporting unit
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage
|
|
|
Finished
|
|
|
Bottling
|
|
|
Mexico and
|
|
|
|
|
|
|
Concentrates
|
|
|
Goods
|
|
|
Group
|
|
|
the Caribbean
|
|
|
Total
|
|
|
Balance as of January 1, 2006
|
|
$
|
1,415
|
|
|
$
|
989
|
|
|
$
|
2
|
|
|
$
|
38
|
|
|
$
|
2,444
|
|
Acquisitions
|
|
|
322
|
|
|
|
233
|
|
|
|
186
|
|
|
|
|
|
|
|
741
|
|
Changes due to currency and other
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
188
|
|
|
$
|
37
|
|
|
$
|
3,180
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Changes due to currency and other
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
1,731
|
|
|
$
|
1,220
|
|
|
$
|
195
|
|
|
$
|
37
|
|
|
$
|
3,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of the
Companys intangible assets other than goodwill as of
December 31, 2007 and December 31, 2006 are as follows:
F-18
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
Acquisitions,
|
|
|
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
(Disposals) &
|
|
|
Changes Due
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2007
|
|
(years)
|
|
|
Amount
|
|
|
(Write-offs)
|
|
|
to Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
3,096
|
|
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
3,087
|
|
|
$
|
|
|
|
$
|
3,087
|
|
Bottler agreements
|
|
|
|
|
|
|
392
|
|
|
|
6
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
Distributor rights
|
|
|
|
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
9
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
(17
|
)
|
|
|
12
|
|
Customer relationships
|
|
|
7
|
|
|
|
73
|
|
|
|
3
|
|
|
|
|
|
|
|
76
|
|
|
|
(20
|
)
|
|
|
56
|
|
Bottler agreements
|
|
|
7
|
|
|
|
64
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
57
|
|
|
|
(19
|
)
|
|
|
38
|
|
Distributor rights
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,678
|
|
|
$
|
(5
|
)
|
|
$
|
1
|
|
|
$
|
3,674
|
|
|
$
|
(57
|
)
|
|
$
|
3,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
Acquisitions,
|
|
|
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
(Disposals) &
|
|
|
Changes Due
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2006
|
|
(years)
|
|
|
Amount
|
|
|
(Write-offs)
|
|
|
to Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
2,929
|
|
|
$
|
168
|
|
|
$
|
(1
|
)
|
|
$
|
3,096
|
|
|
$
|
|
|
|
$
|
3,096
|
|
Bottler agreements
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
Distributor rights
|
|
|
|
|
|
|
7
|
|
|
|
17
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
8
|
|
|
|
19
|
|
|
|
10
|
|
|
|
|
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
17
|
|
Customer relationships
|
|
|
7
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
(8
|
)
|
|
|
65
|
|
Bottler agreements
|
|
|
7
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
(7
|
)
|
|
|
57
|
|
Distributor rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension asset
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,957
|
|
|
$
|
722
|
|
|
$
|
(1
|
)
|
|
$
|
3,678
|
|
|
$
|
(27
|
)
|
|
$
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets was $30 million,
$19 million and $3 million in 2007, 2006 and 2005,
respectively. No impairment expense was recognized in 2006 and
2005. Amortization expense of these intangible assets over the
next five years is expected to be the following:
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Amortization
|
|
Year
|
|
Expense
|
|
|
2008
|
|
|
28
|
|
2009
|
|
|
24
|
|
2010
|
|
|
24
|
|
2011
|
|
|
12
|
|
2012
|
|
|
6
|
|
F-19
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
In 2007, the Company recorded impairment charges of
approximately $6 million, primarily related to the
Accelerade brand. The Accelerade brand is a component of the
Companys Finished Goods operating segment. The fair values
were determined using discounted cash flow analyses. Because the
fair values were less than the carrying values of the assets,
the Company recorded impairment charges to reduce the carrying
values of the assets to their respective fair values. These
impairment charges were recorded in impairment of
intangible assets in the Combined Statement of Operations.
In 2007, following the termination of the Companys
distribution agreements for glacéau products, it received a
payment of approximately $92 million. The Company
recognized a net gain of $71 million after the write-off of
associated assets.
In 2006, the Company sold the Slush Puppie business and certain
related assets, which included certain brands with net book
value of $14 million, to the ICEE Company for
$23 million. The Company also sold the Grandmas
Molasses brand and certain related assets, which had a net book
value of $0 million to B&G Foods for $30 million.
In 2005, the Company sold the Holland House brand, which had a
net book value of $0 million, for $36 million to
Mizkan Americas, Inc.
These financial statements reflect a tax provision as if the
Company filed its own separate tax return. The Company, however,
is included in the consolidated federal income tax return of
Cadbury Schweppes Americas, Inc. and subsidiaries.
Income before income taxes and cumulative effect of change in
accounting policy was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
$
|
650
|
|
|
$
|
698
|
|
|
$
|
706
|
|
Non-U.S.
|
|
|
169
|
|
|
|
110
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
819
|
|
|
$
|
808
|
|
|
$
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes attributable to continuing
operations has the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
199
|
|
|
$
|
220
|
|
|
$
|
176
|
|
State
|
|
|
33
|
|
|
|
40
|
|
|
|
32
|
|
Non-U.S.
|
|
|
41
|
|
|
|
23
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
273
|
|
|
|
283
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
29
|
|
|
|
10
|
|
|
|
44
|
|
State
|
|
|
4
|
|
|
|
7
|
|
|
|
26
|
|
Non-U.S.
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
49
|
|
|
|
15
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, 2006 and 2005, the reported amount of income tax
expense is different from the amount of income tax expense that
would result from applying the federal statutory rate due
principally to state taxes, tax reserves and the deduction for
domestic production activity.
F-20
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of income taxes computed at
the U.S. federal statutory tax rate to the income taxes
reported in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal income tax at 35%
|
|
$
|
287
|
|
|
$
|
283
|
|
|
$
|
283
|
|
State income taxes, net
|
|
|
26
|
|
|
|
28
|
|
|
|
30
|
|
Impact of
non-U.S.
operations
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
7
|
|
Other
|
|
|
11
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.3
|
%
|
|
|
36.9
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences giving rise to deferred
income tax assets and liabilities were:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
$
|
6
|
|
|
$
|
10
|
|
Compensation accruals
|
|
|
25
|
|
|
|
26
|
|
Inventory
|
|
|
19
|
|
|
|
10
|
|
Net operating loss and credit carryforwards
|
|
|
5
|
|
|
|
9
|
|
Accrued liabilities
|
|
|
47
|
|
|
|
40
|
|
Other
|
|
|
69
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(124
|
)
|
|
|
(104
|
)
|
Intangible assets
|
|
|
(1,269
|
)
|
|
|
(1,234
|
)
|
Other
|
|
|
(13
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,406
|
)
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(1,235
|
)
|
|
$
|
(1,222
|
)
|
|
|
|
|
|
|
|
|
|
The major temporary differences that give rise to the net
deferred tax liabilities are intangible assets and fixed asset
depreciation. The Company has approximately $56 million of
U.S. state and foreign net operating loss carryforwards as
of December 31, 2007. Of this total, $52 million are
state net operating losses. Net operating losses generated in
the U.S. state jurisdictions, if unused, will expire from
2008 to 2027. The
non-U.S. net
operating loss carryforwards of $4 million will expire from
2008 to 2016. No valuation allowance has been provided on
deferred tax assets as management believes it is more likely
than not that the deferred income tax assets will be fully
recoverable.
The Company files income tax returns in various
U.S. federal, state and local jurisdictions. The Company
also files income tax returns in various foreign jurisdictions,
principally in Canada, Mexico and the United Kingdom. The
U.S. and most state and local income tax returns for years
prior to 2003 are considered closed to examination by applicable
tax authorities. Federal income tax returns for 2004 and 2005
are currently under examination by the Internal Revenue Service.
Certain Canadian tax returns remain open for audit from 2001 and
forward, while the Mexican returns are open for tax years 2002
and forward.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which is an interpretation of
SFAS 109. The Company has adopted the provisions of
FIN 48 effective
F-21
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
January 1, 2007, as required. FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
Under FIN 48, the Company is required to determine whether
a tax position is more likely than not to be sustained upon
examination by tax authorities assuming that the relevant taxing
authorities have full knowledge of all relevant information. The
tax benefits related to uncertain tax positions to be recorded
in the financial statements should represent the maximum benefit
that has a greater than fifty percent likelihood of being
realized. Changes in judgment can occur between initial
recognition through settlement or ultimate de-recognition based
upon changes in facts, circumstances and information available
at each reporting date.
The cumulative effect of adopting FIN 48 was a
$16 million increase in tax reserves and a corresponding
decrease to opening retained earnings at January 1, 2007.
Upon adoption, the Companys amount of gross unrecognized
tax benefit at January 1, 2007 was $70 million.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Amount
|
|
|
Unrecognized tax benefits:
|
|
|
|
|
Amount at adoption of FIN 48
|
|
$
|
70
|
|
Tax positions taken in prior periods:
|
|
|
|
|
Gross increases
|
|
|
11
|
|
Gross decreases
|
|
|
(9
|
)
|
Tax positions taken in current period:
|
|
|
|
|
Gross increases
|
|
|
30
|
|
Gross decreases
|
|
|
|
|
Settlements with taxing authorities cash paid
|
|
|
(4
|
)
|
Lapse of applicable statute of limitations
|
|
|
|
|
|
|
|
|
|
Amount as of December 31, 2007
|
|
$
|
98
|
|
|
|
|
|
|
The gross balance of unrecognized tax benefits of
$98 million excluded $23 million of offsetting tax
benefits. The net unrecognized tax benefits of $75 million
includes $60 million that, if recognized, would benefit the
effective income tax rate. It is reasonably possible that the
effective tax rate will be impacted by the resolution of some
matters audited by various taxing authorities within the next
twelve months, but a reasonable estimate of such impact cannot
be made at this time.
The Company accrues interest and penalties on its uncertain tax
positions as a component of its provision for income taxes. The
amount of interest the Company accrued for uncertain tax
positions during 2007 was $3 million. There was also a
reduction of interest and penalties of $5 million related
to changes in estimates and payments during 2007. At
December 31, 2007, the Company had a total of
$14 million accrued for interest and penalties for its
uncertain tax positions.
F-22
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Long-term
Obligations
|
Debt
Payable to Related Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans payable to related parties, with various fixed and
floating interest rates(a)
|
|
$
|
3,019
|
|
|
$
|
3,249
|
|
Less Current portion
|
|
|
(126
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to related parties
|
|
$
|
2,893
|
|
|
$
|
2,541
|
|
|
|
|
|
|
|
|
|
|
(a) Debt agreements with related parties are as follows:
Cadbury
Ireland Limited (CIL)
Total principal owed to CIL was $40 million for both 2007
and 2006, respectively. The debt bears interest at a floating
rate based on
3-month
LIBOR. Actual rates were 5.31% and 5.36% at December 31,
2007 and 2006, respectively. The outstanding principal balance
is payable on demand and is included in current portion of
long-term debt. The Company recorded $2 million,
$2 million and $1 million of interest expense related
to the debt for 2007, 2006 and 2005, respectively.
Cadbury
Schweppes Finance plc, (CSFPLC)
The Company has a variety of debt agreements with CSFPLC with
maturity dates ranging from May 2008 to May 2011. These
agreements had a combined outstanding principal balance of
$511 million and $2,937 million as of
December 31, 2007 and 2006, respectively. As of
December 31, 2007 and 2006, $511 million and
$2,387 million of the debt was based upon a floating rate
ranging between LIBOR plus 1.5% to LIBOR plus 2.5%. The
remaining principal balance of $550 million as of
December 31, 2006 had a stated fixed rate ranging from
5.76% to 5.95%. The Company recorded $65 million,
$175 million and $99 million of interest expense
related to these notes for 2007, 2006 and 2005, respectively.
Cadbury
Schweppes Overseas Limited (CSOL)
Total principal owed to CSOL was $0 million and
$22 million as of December 31, 2007 and 2006,
respectively. The Company settled the note in November 2007. The
debt bore interest at a floating rate based on Mexican LIBOR
plus 1.5%. The actual interest rate was 9.89% at
December 31, 2006. The Company recorded $2 million,
$15 million and $40 million of interest expense
related to the note for 2007, 2006 and 2005, respectively.
Cadbury
Adams Canada, Inc. (CACI)
Total principal owed to CACI was $0 million and
$15 million as of December 31, 2007 and 2006,
respectively and is payable on demand. The debt bore interest at
a floating rate based on 1 month Canadian LIBOR. The actual
rate was 4.26% at December 31, 2006. The Company recorded
$2 million of interest expense related to the debt for 2007
and less than $1 million for both 2006 and 2005.
Cadbury
Schweppes Americas Holding BV (CSAHBV)
The Company has a variety of debt agreements with CSAHBV with
maturity dates ranging from 2009 to 2017. These agreements had a
combined outstanding principal balance of $2,468 million as
of December 31, 2007 and bear interest at a floating rate
ranging between
6-month
USD
LIBOR plus 0.75% to
6-month
USD
LIBOR plus 1.75%. The Company recorded $149 million of
interest expense related to these notes for 2007.
F-23
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Cadbury
Schweppes Treasury America (CSTA)
Total principal owed to CSTA was $0 million and
$235 million as of December 31, 2007 and 2006,
respectively. The note carried a stated rate of 7.25% per annum.
The note was purchased by an entity within the Company on
May 23, 2007. The Company recorded $7 million and
$11 million of interest expense related to these notes for
2007 and 2006, respectively.
Debt
Payable to Third Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .325%, due April 2008, payable in
Canadian Dollars)(2)
|
|
$
|
|
|
|
$
|
114
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .45%, due April 2010, payable in Canadian
Dollars)(2)
|
|
|
|
|
|
|
129
|
|
Bonds payable, 4.90% fixed interest rate. Interest payments due
semiannually. Principal due December 2008. Payable in Canadian
Dollars(3)
|
|
|
|
|
|
|
278
|
|
Capital leases
|
|
|
21
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21
|
|
|
|
545
|
|
Less current installments
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to third parties
|
|
$
|
19
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
CDOR is the average of the annual rates for Canadian Dollar
bankers acceptances having the specified term and face
amount of the banks named in Schedule 1 of the Canadian
Bank Act
|
|
(2)
|
|
On August 29, 2007, the Company transferred the notes
payable to bank obligations of $281 million to a subsidiary
of Cadbury Schweppes, with no potential for future recourse
against the Company.
|
|
(3)
|
|
On August 31, 2007, the Company paid off the outstanding
balance of bonds payable.
|
Long-Term
Debt Maturities
Long-term debt maturities, excluding capital leases, for the
next five years are as follows:
|
|
|
|
|
2008
|
|
$
|
126
|
|
2009
|
|
|
494
|
|
2010
|
|
|
|
|
2011
|
|
|
425
|
|
2012
|
|
|
740
|
|
Thereafter
|
|
|
1,234
|
|
|
|
|
|
|
|
|
$
|
3,019
|
|
|
|
|
|
|
Lines
of Credit
As of December 31, 2007, the Company had available credit
lines totaling $45 million. The Company had letters of
credit totaling $9 million outstanding under its existing
credit line facilities. Accordingly, the Companys maximum
borrowing base under these facilities was $36 million. The
Company also had additional unused letters of credit totaling
$23 million for its Bottling Group operations that were not
related to any existing credit facilities.
F-24
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 $46 million, $39 million and
$21 million in 2007, 2006 and 2005, respectively, and was
not offset by any sublease rental income. Future minimum lease
payments under capital and operating leases with initial or
remaining noncancellable lease terms in excess of one year as of
December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2008
|
|
$
|
72
|
|
|
$
|
5
|
|
2009
|
|
|
53
|
|
|
|
5
|
|
2010
|
|
|
45
|
|
|
|
5
|
|
2011
|
|
|
36
|
|
|
|
4
|
|
2012
|
|
|
29
|
|
|
|
4
|
|
Thereafter
|
|
|
46
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
281
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest at rates ranging from 6.5% to 12.6%
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
The future minimum lease commitments for leases that have been
expensed as part of restructuring provisions in earlier years
are not included in the above table. Of the $21 million
above, $19 million is included in long-term capital
lease obligations, and $2 million is included in
accounts payable and accrued expenses.
|
|
11.
|
Commitments
and Contingencies
|
Legal
Matters
The Company is occasionally subject to litigation or other legal
proceedings. Set forth below is a description of the
Companys significant pending legal matters and one
recently settled legal matter. Although the estimated range of
loss, if any, for the pending legal matters described below
cannot be estimated at this time, the Company does not believe
that the outcome of these, or any other, pending legal matters,
individually or collectively, will have a material adverse
effect on the business or financial condition of the Company
although such matters may have a materially adverse effect on
the Companys results of operations in a particular period.
Snapple
Distributor Litigation
In 2004, one of the Companys subsidiaries, Snapple
Beverage Corp., and several affiliated entities of Snapple
Beverage Corp., including Snapple Distributors, Inc., were sued
in United States District Court, Southern District of New York,
by 57 area route distributors for alleged price discrimination,
breach of contract, retaliation, tortious interference and
breach of the implied duty of good faith and fair dealing
arising out of their respective area route distributor
agreements. Each plaintiff sought damages in excess of
$225 million. The plaintiffs initially filed the case as a
class action but withdrew their class certification motion. They
are proceeding as individual plaintiffs but the cases have been
consolidated for discovery and procedural purposes. On
September 14, 2007, the court granted the Companys
motion for summary judgment, dismissing the plaintiffs
federal claims of price discrimination and dismissing, without
prejudice, the plaintiffs remaining claims under state
law. The plaintiffs have filed an appeal of the decision and may
decide to re-file the state law claims in state court. The
Company believes it has meritorious defenses with respect to the
appeal and will defend itself vigorously. However, there is no
assurance that the outcome of the appeal, or any trial, if
claims are refiled, will be in the Companys favor.
F-25
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. The
plaintiffs filed the case as a class action. The plaintiffs
allege that Snapples labeling of certain of its drinks is
misleading
and/or
deceptive. The plaintiffs seek unspecified damages on behalf of
the class, including enjoining Snapple from various labeling
practices, disgorging profits, reimbursing of monies paid for
product and treble damages. The Mehta case in New York has since
been dropped by the plaintiff. However, the attorneys in the
Holk, New Jersey case and a new plaintiff, Evan Weiner, have
since filed a new action in New York substantially similar to
the New Jersey action. In each case, the Company has filed
motions to dismiss the plaintiffs claims on a variety of
grounds. The Company believes it has meritorious defenses to the
claims asserted and will defend itself vigorously. However,
there is no assurance that the outcome of the Companys
motions or at trial will be in its favor.
Nicolas
Steele v. Seven Up/RC Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of
Southern California, Inc.
California Wage Audit
In 2007, one of the Companys subsidiaries, Seven Up/RC
Bottling Company Inc., was sued by Nicolas Steele, and in a
separate action by Robert Jones, in each case in Superior Court
in the State of California (Orange County), alleging that its
subsidiary failed to provide meal and rest periods and itemized
wage statements in accordance with applicable California wage
and hour law. The cases have been filed as class actions. The
classes, which have not yet been certified, consist of all
employees of one of the Companys subsidiaries who have
held a merchandiser or delivery driver position in southern
California in the past three years. The potential class size
could be substantially higher, due to the number of individuals
who have held these positions over the three year period. On
behalf of the classes, the plaintiffs claim lost wages, waiting
time penalties and other penalties for each violation of the
statute. The Company believes it has meritorious defenses to the
claims asserted and will defend itself vigorously. However,
there is no assurance that the outcome of this matter will be in
its favor.
The Company has been requested to conduct an audit of its meal
and rest periods for all non-exempt employees in California at
the direction of the California Department of Labor. At this
time, the Company has declined to conduct such an audit until
there is judicial clarification of the intent of the statute.
The Company cannot predict the outcome of such an audit.
Dr
Pepper Bottling Company of Texas, Inc. Shareholder
Litigation
On June 1, 2007, the Company settled a lawsuit brought in
1999 by certain stockholders of Dr Pepper Bottling Company of
Texas, Inc. for $47 million, which included
$15 million of interest. The lawsuit was assumed as part of
the DPSUBG acquisition (see Note 3) and was fully
reserved as of December 31, 2006.
Environmental,
Health and Safety Matters
The Company operates many manufacturing, bottling and
distribution facilities. In these and other aspects of the
Companys business, it is subject to a variety of federal,
state and local environment, health and safety laws and
regulations. The Company maintains environmental, health and
safety policies and a quality, environmental, health and safety
program designed to ensure compliance with applicable laws and
regulations. However, the nature of the Companys business
exposes it to the risk of claims with respect to environmental,
health and safety matters, and there can be no assurance that
material costs or liabilities will not be incurred in connection
with such claims. However, the Company is not currently named as
a party in any judicial or administrative proceeding relating to
environmental, health and safety matters which would materially
affect its operations.
F-26
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring charges during 2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beverage Concentrates
|
|
$
|
24
|
|
|
$
|
5
|
|
|
$
|
1
|
|
Finished Goods
|
|
|
20
|
|
|
|
3
|
|
|
|
3
|
|
Bottling Group
|
|
|
16
|
|
|
|
8
|
|
|
|
|
|
Mexico and Caribbean
|
|
|
7
|
|
|
|
3
|
|
|
|
1
|
|
Corporate
|
|
|
9
|
|
|
|
8
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring Costs
|
|
$
|
76
|
|
|
$
|
27
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company implements restructuring programs from time to time
and incurs costs that are designed to improve operating
effectiveness and lower costs. These programs have included
closure of manufacturing plants, reductions in force,
integration of back office operations and outsourcing of certain
transactional activities. When the Company implements these
programs, it incurs various charges, including severance and
other employment-related costs.
The charges recorded during 2007 are primarily related to the
following:
|
|
|
|
|
Organizational restructuring announced on October 10, 2007.
As of December 31, 2007, this restructuring, which was
intended to create a more efficient organization, resulted in
the reduction of approximately 450 employees in the
Companys corporate, sales and supply chain functions and
included approximately 98 employees in Plano, Texas,
131 employees in Rye Brook, New York and 54 employees
in Aspers, Pennsylvania, with the balance occurring at a number
of sites located in the United States, Canada and Mexico. The
restructuring also includes the closure of two manufacturing
facilities in Denver, Colorado (closed in December 2007) and
Waterloo, New York (due to close in March 2008). The employee
reductions and facilities closures are expected to be completed
by June 2008. As a result of this restructuring, the
Company recognized a charge of $32 million in 2007.
|
|
|
|
Continued integration of the Bottling Group, which was initiated
in 2006, resulted in charges of $21 million.
|
|
|
|
Integration of technology facilities initiated in 2007.
|
|
|
|
Closure of the St. Catharines facility initiated in 2007.
|
The charges recorded during 2006 are primarily related to the
following:
|
|
|
|
|
Integration of the Bottling Group initiated in 2006; and
|
|
|
|
Outsourcing initiatives of the Companys back office
operations service center and a reorganization of the
Companys IT operations initiated in 2006.
|
The charges recorded during 2005 are primarily related to the
following:
|
|
|
|
|
Implementation of additional phases of the Companys back
office operations service center initiated in 2004; and
|
|
|
|
Closure of the North Brunswick plant initiated in 2004.
|
The Company expects to incur approximately $42 million of
total pre-tax, non-recurring charges in 2008 with respect to the
restructuring items discussed above.
F-27
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 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
|
|
2007 Charges
|
|
|
47
|
|
|
|
3
|
|
|
|
10
|
|
|
|
5
|
|
|
|
11
|
|
|
|
76
|
|
2007 Cash payments
|
|
|
(22
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
(12
|
)
|
|
|
(52
|
)
|
Due to/from Cadbury Schweppes
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liabilities are included in accounts payable
and accrued expenses.
Restructuring charges recorded by each operating segment were as
follows:
Beverage
Concentrates
Beverage Concentrates recorded restructuring costs of
$24 million, $5 million and $1 million in 2007,
2006 and 2005, respectively. During 2007, the costs primarily
related to the organizational restructuring. There were also
additional costs related to various other cost reduction and
efficiency initiatives. The cost reduction and efficiency
initiatives primarily related to the alignment of management
information systems, the consolidation of the back office
operations from the acquired businesses, the elimination of
duplicate employees, and employee relocations. The Beverage
Concentrates segment expects to incur additional charges related
to these restructuring plans of approximately $15 million
over the next year.
During 2006 and 2005, the charges mainly related to the
integration of the Bottling Group with existing businesses of
American Beverages.
Finished
Goods
Finished Goods recorded restructuring costs of $20 million,
$3 million and $3 million in 2007, 2006 and 2005,
respectively. During 2007, the costs primarily related to the
organizational restructuring in a number of sites located in the
United States and Canada. The Finished Goods segment expects to
incur additional charges related to this restructuring plan of
approximately $11 million over the next year.
During 2006, the costs primarily related to the integration of
the Bottling Group. During 2005, the charges mainly related to
the integration of Finished Goods into the existing business of
Americas Beverages. These respective activities were completed
in 2007.
F-28
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Bottling
Group
Bottling Group recorded restructuring costs of $16 million
and $8 million in 2007 and 2006, respectively, primarily
related to the integration of the Bottling Group as discussed
above. Bottling Group expects to incur additional costs related
to their restructuring plan of approximately $13 million
over the next year.
Mexico
and the Caribbean
Mexico and the Caribbean recorded restructuring costs of
$7 million, $3 million and $1 million in 2007,
2006 and 2005, respectively. The costs primarily related to
restructuring actions initiated in 2003 to outsource the
activities of Mexico and the Caribbeans warehousing and
distribution processes. During 2007, there were also costs
related to the organizational restructuring in a number of sites
located in Mexico. The cumulative amount related to the
reduction in force incurred to date is $1 million. The
Company expects to incur additional costs related to this
restructuring plan of approximately $2 million over the
next year.
Corporate
The Company recorded corporate restructuring costs of
$9 million, $8 million and $5 million in 2007,
2006 and 2005, respectively. During 2007, the costs primarily
related to the organizational restructuring. The Company has
incurred cumulative costs of $3 million to date and expects
to incur additional costs related to this restructuring plan of
approximately $1 million over the next year.
During 2006, the costs primarily related to restructuring
actions initiated in 2006, and the human resource outsourcing
program that was initiated in 2005. No further costs are
expected to be incurred by the Company in respect of these
programs. During 2005, the charges mainly related to the
outsourcing of human resources activities in Latin America and
the global outsourcing of shared business services that were
both initiated in 2005. The human resource outsourcing program
was complete in 2005.
|
|
13.
|
Employee
Benefit Plans
|
Pension
and Postretirement Plans
The Company has nine stand-alone non-contributory defined
benefit plans each with a measurement date of September 30.
To participate in the defined benefit plans, employees must have
been employed by the Company for at least one year.
The Company has five stand-alone postretirement health care
plans, which provide benefits to a defined group of employees at
the discretion of the Company. These postretirement benefits are
limited to eligible expenses and are subject to deductibles,
co-payment provisions, and lifetime maximum amounts on coverage.
Employee benefit plan obligations and expenses included in the
combined financial statements are determined from actuarial
analyses based on plan assumptions; employee demographic data,
including years of service and compensation; benefits and claims
paid; and employer contributions. These funds are funded as
benefits are paid, and therefore do not have an investment
strategy or targeted allocations for plan assets.
Cadbury Schweppes sponsors five defined benefit plans and one
postretirement health care plan in which employees of the
Company participate. Expenses related to these plans were
determined by specifically identifying the costs for the
Companys participants.
SFAS 158 requires that beginning in 2008, assumptions used
to measure the Companys annual pension and postretirement
medical expenses be determined as of the balance sheet date and
all plan assets and liabilities be reported as of that date. For
fiscal years ending December 31, 2007 and prior, the
majority of the Companys pension and other postretirement
plans used a September 30 measurement date and all plan assets
and obligations were generally reported as of that date.
F-29
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
U.S.
Plans
The following table summarizes the components of net periodic
benefit cost for the U.S. defined benefit plans recognized
in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Curtailments/settlements
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the U.S. postretirement
plans was less than $0.5 million for 2007, 2006 and 2005.
The estimated prior service cost and estimated net loss for the
U.S. plans that will be amortized from accumulated other
comprehensive loss into periodic benefit cost in 2008 is each
less than $0.5 million.
The following table summarizes the projected benefit obligation
for U.S. plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
|
|
|
|
|
|
|
retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
As of beginning of year
|
|
$
|
58
|
|
|
$
|
21
|
|
|
$
|
6
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Acquired in business combinations
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
2
|
|
Actuarial gain/(loss)
|
|
|
(4
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Curtailments/settlements
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
46
|
|
|
$
|
58
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
46
|
|
|
$
|
57
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal assumptions related to the U.S. defined
benefit plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average discount rate
|
|
|
5.90
|
%
|
|
|
5.72
|
%
|
|
|
5.50
|
%
|
|
|
5.90
|
%
|
|
|
5.90
|
%
|
|
|
5.50
|
%
|
Expected long-term rate of return on assets
|
|
|
7.30
|
%
|
|
|
7.53
|
%
|
|
|
7.30
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
F-30
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table is a reconciliation of the U.S. defined
benefit pension plans assets:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As of beginning of year
|
|
$
|
56
|
|
|
$
|
19
|
|
Actual return of plan assets
|
|
|
7
|
|
|
|
2
|
|
Employer contribution
|
|
|
2
|
|
|
|
2
|
|
Acquired in business combinations
|
|
|
|
|
|
|
34
|
|
Actuarial gain/loss
|
|
|
|
|
|
|
1
|
|
Benefits paid
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Special termination benefits
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
53
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the U.S. post-retirement plans were
$1 million in 2007 and less than $0.5 million in 2006.
The expected long-term rate of return on U.S. pension fund
assets held by the Companys pension trusts was determined
based on several factors, including input from pension
investment consultants and projected long-term returns of broad
equity and bond indices. The plans historical returns were
also considered. The expected long-term rate of return on the
assets in the plans was based on an asset allocation assumption
of about 60% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 40% with fixed income
managers, with an expected long-term rate of return of about
5.5%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
The asset allocation for the U.S. defined benefit pension
plans for December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
60
|
%
|
Fixed income
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys funded status
for the U.S. plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(46
|
)
|
|
$
|
(58
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
Plan assets at fair value
|
|
|
53
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
7
|
|
|
$
|
(2
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
F-31
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes amounts recognized in the balance
sheets related to the U.S. plans as of December 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Non-current liabilities
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in
accumulated other comprehensive income for the
U.S. plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Net (gains) losses
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive (income) loss
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
10
|
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
6
|
|
Accumulated benefit obligation
|
|
|
10
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
9
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
The following table summarizes the expected cash activity for
the U.S. defined benefit plans and postretirement benefit
plans in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
Year
|
|
Pension Plans
|
|
Benefit Plans
|
|
Company contributions 2008
|
|
$
|
|
|
|
$
|
|
|
Benefit payments
|
|
|
|
|
|
|
|
|
2008
|
|
|
2
|
|
|
|
1
|
|
2009
|
|
|
2
|
|
|
|
1
|
|
2010
|
|
|
2
|
|
|
|
1
|
|
2011
|
|
|
2
|
|
|
|
1
|
|
2012
|
|
|
2
|
|
|
|
1
|
|
2013 - 2017
|
|
|
15
|
|
|
|
2
|
|
F-32
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
For measuring the expected postretirement benefit obligation for
the U.S. plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2007
|
|
9%
|
2008 - 2015
|
|
0.5% reduction each year
to an ultimate rate of 5%
in 2015
|
The effect of a 1% increase or decrease in health care trend
rates on the U.S. postretirement benefit plans would change
the benefit obligation at the end of the year and the service
cost plus interest cost by less than $0.5 million.
Foreign
Plans
The following table summarizes the components of net periodic
benefit cost related to foreign defined benefit plans recognized
in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the foreign postretirement
plans was less than $0.5 million for 2007, 2006 and 2005.
The estimated prior service cost and estimated net loss for the
foreign plans that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost in 2008 are
each less than $0.5 million.
The following table summarizes the projected benefit obligation
for foreign plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
As of beginning of year
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Exchange Adjustments
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain)/loss
|
|
|
(2
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
Benefits paid
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
20
|
|
|
$
|
18
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The principal assumptions related to the foreign defined benefit
plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
Pension Plans
|
|
Benefit Plans
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted-average discount rate
|
|
|
6.06
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
|
|
5.25
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
Expected long-term rate of return on assets
|
|
|
7.56
|
%
|
|
|
7.61
|
%
|
|
|
7.74
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
3.81
|
%
|
|
|
4.13
|
%
|
|
|
4.27
|
%
|
|
|
3.50
|
%
|
|
|
4.50
|
%
|
|
|
5.00
|
%
|
The following table is a reconciliation of the foreign defined
benefit pension plans assets:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As of beginning of year
|
|
$
|
16
|
|
|
$
|
14
|
|
Actual return of plan assets
|
|
|
|
|
|
|
2
|
|
Employer contribution
|
|
|
1
|
|
|
|
1
|
|
Exchange adjustments
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
17
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the foreign postretirement plans were less
than $0.5 million for 2007 and 2006.
The expected long-term rate of return on foreign pension fund
assets held by the Companys pension trusts was determined
based on several factors, including input from pension
investment consultants and projected long-term returns of broad
equity and bond indices. The plans historical returns were
also considered. The expected long-term rate of return on the
assets in the plans was based on an asset allocation assumption
of about 44% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 56% with fixed income
managers, with an expected long-term rate of return of about
5.9%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
The asset allocation for the foreign defined benefit pension
plans as of December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
44
|
%
|
|
|
43
|
%
|
Fixed income
|
|
|
56
|
%
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
F-34
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the Companys funded status
for the foreign plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
Plan assets at fair value
|
|
|
17
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
The following table summarizes amounts recognized in the
Combined Balance Sheets related to the foreign plans as of
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Non-current liabilities
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Accumulated other comprehensive (income) loss
|
|
|
5
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in accumulated
other comprehensive (income) loss for the foreign defined
benefit plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Net (gains) losses
|
|
|
5
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive (income) loss
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Projected benefit obligation
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
3
|
|
|
$
|
2
|
|
Accumulated benefit obligation
|
|
|
17
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
13
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
F-35
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the expected cash activity for
the foreign defined benefit plans and postretirement benefit
plans in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
Year
|
|
Pension Plans
|
|
Benefit Plans
|
|
Company contributions 2008
|
|
$
|
1
|
|
|
$
|
|
|
Benefit payments
|
|
|
|
|
|
|
|
|
2008
|
|
|
1
|
|
|
|
|
|
2009
|
|
|
1
|
|
|
|
|
|
2010
|
|
|
1
|
|
|
|
|
|
2011
|
|
|
1
|
|
|
|
|
|
2012
|
|
|
1
|
|
|
|
|
|
2013 - 2017
|
|
|
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
|
|
2007
|
|
9%
|
2008 - 2015
|
|
0.5% reduction each year
to an ultimate rate of 5%
in 2015
|
The effect of a 1% increase or decrease in health care trend
rates on the foreign postretirement benefit plans would change
the benefit obligation at the end of the year and the service
cost plus interest cost by less than $0.5 million.
Multi-employer
Plans
The following table summarizes the components of net periodic
benefit cost related to the U.S. multi-employer plans
recognized in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
17
|
|
|
|
15
|
|
|
|
14
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Recognition of actuarial gain
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
22
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each individual component and total periodic benefit cost for
the foreign multi-employer plans were less than
$0.5 million for all periods presented in the Combined
Statement of Operations.
The contributions paid into the U.S. and foreign multi-employer
plans on the Companys behalf by Cadbury Schweppes were
$30 million, $30 million and $34 million for
2007, 2006 and 2005, respectively.
Savings
Incentive Plan
The Company sponsors a 401(k) Retirement Plan that covers
substantially all employees who meet certain eligibility
requirements. This plan permits both pretax and after-tax
contributions, which are subject to limitations
F-36
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
imposed by Internal Revenue Service regulations. The Company
matches employees contributions up to specified levels.
The Companys contributions to this plan were approximately
$12 million in 2007 and $6 million in 2006 and 2005.
The Companys contributions for 2008 are estimated to be
approximately $14 million.
|
|
14.
|
Stock-Based
Compensation Plan
|
Certain of the Companys employees participate in
stock-based compensation plans sponsored by Cadbury Schweppes.
These plans provide employees with stock or options to purchase
stock in Cadbury Schweppes. Given that the Companys
employees directly benefit from participation in these plans,
the expense incurred by Cadbury Schweppes for options granted to
its employees has been reflected in the Companys Combined
Statements of Operations in selling, general, and
administrative expenses. Stock-based compensation expense
was $21 million ($13 million net of tax),
$17 million ($10 million net of tax) and
$22 million ($13 million net of tax) in 2007, 2006 and
2005, respectively.
Prior to January 2, 2005, the Company applied APB 25
and related interpretations when accounting for its stock-based
compensation plan. Under APB 25, compensation expense was
determined as the difference between the market price and
exercise price of the share-based award. For fixed plans,
compensation expense was determined on the date of grant. For
variable plans, compensation expense was measured at each
balance sheet date until the award became vested. Stock-based
compensation expense for 2007, 2006 and 2005 has been determined
based on SFAS 123(R), which the Company adopted effective,
January 3, 2005. SFAS 123(R) requires the recognition
of compensation expense in the Combined Statements of Operations
related to the fair value of employee share-based awards.
SFAS 123(R) revised SFAS 123 and supersedes
APB 25. The Company selected the modified prospective
method of transition; accordingly, prior periods have not been
restated. Upon adoption of SFAS 123(R), for awards which
were classified as liabilities, the Company was required to
reclassify the APB 25 historical compensation cost from
equity to liability and to recognize the difference between this
and the fair value liability through the current year statement
of operations. The cumulative effect of the change in accounting
policy for 2005 is recognized as a decrease in net income of
$10 million net of tax ($16 million gross) in the
Companys Combined Statements of Operations, as a separate
line item cumulative effect of change in accounting
policy.
Since January 2, 2005, the Company has recognized the cost
of all unvested employee stock-based compensation plans on a
straight-line attribution basis over their respective vesting
periods, net of estimated forfeitures. Certain of the
Companys employee share plans contain inflation indexed
earnings growth performance conditions. SFAS 123(R)
requires plans with such performance criteria to be accounted
for under the liability method. The liability method, as set out
in SFAS 123(R), requires a liability be recorded on the
balance sheet whereas no liability is required for employee
share awards accounted for under the equity method. In addition,
in calculating the income statement charge for share awards
under the liability method, the fair value of each award must be
re-measured at each reporting date until vesting whereas the
equity method requires the charge be calculated with reference
to the grant date fair value. This charge is calculated by
estimating the number of awards expected to vest for each plan
which is adjusted over the vesting period. This charge includes
an allocation of stock-based compensation costs incurred by
Cadbury Schweppes but which related to employees of the Company.
The outstanding value of options recognized by the equity method
has been reflected in Cadbury Schweppes net
investment in total invested equity, while the
options utilizing the liability method are reflected in
accounts payable and accrued expenses for the
current portion and other non-current liabilities
for the non-current portion. The Company did not receive cash in
any year, as a result of option exercises under share-based
payment arrangements. Actual tax benefits realized for the tax
deductions from option exercises were $10 million,
$5 million and $7 million for 2007, 2006 and 2005,
respectively. As of December 31, 2007, there was
$6 million of total unrecognized before-tax compensation
cost related to nonvested stock-based compensation arrangements.
That cost is expected to be recognized over a weighted-average
period of 1.7 years. The total intrinsic value of options
exercised during the year was $24 million, $13 million
and $17 million for 2007, 2006 and 2005, respectively. An
F-37
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
expense is recognized for the fair value at the date of grant of
the estimated number of shares that will be awarded to settle
the awards over the vesting period of each scheme.
The Company presents the tax benefits of deductions from the
exercise of stock options as financing cash inflows in the
Combined Statements of Cash Flows.
Awards under the plans are settled by Cadbury Schweppes, through
either repurchases of publicly available shares, or awards under
the Bonus Share Retention Plan (BSRP) and the Long
Term Incentive Plan (LTIP) will normally be
satisfied by the transfer of shares to participants by the
trustees of the Cadbury Schweppes Employee Trust (the
Employee Trust). The Employee Trust is a general
discretionary trust whose beneficiaries include employees and
former employees of Cadbury Schweppes and their dependents.
The Company has a number of share option plans that are
available to certain senior executives, including the LTIP and
BSRP, and the Discretionary Share Option Plans
(DSOP), full details of which are included below.
Long
Term Incentive Plan
Approximately 15 senior executives of the Company have been
granted a conditional award of shares under the LTIP. This award
recognizes the significant contribution they make to shareowner
value and is designed to incentivize them to strive for
sustainable long-term performance. In 2007, awards for the
2007-2009 performance cycles were made to senior executives.
Participants accumulate dividend equivalent payments both on the
conditional share awards (which will only be paid to the extent
that the performance targets are achieved) and during the
deferral period. This part of the award is calculated as
follows: number of shares vested multiplied by aggregate of
dividends paid in the performance period divided by the share
price on the vesting date. The current LTIP has been in place
since 1997. In 2004, the Compensation Committee of Cadbury
Schweppes (the Committee) made a number of changes
to the LTIP, and the table below sets forth its key features. As
explained below, from 2006, performance ranges for the growth in
Underlying Earnings per Share (UEPS) are expressed
in absolute rather than post-inflation terms.
|
|
|
|
|
|
|
Awards Made Prior
|
|
Awards Made for
|
|
|
to 2004
|
|
2004 Forward
|
|
Face value of conditional share award made
|
|
50%-80% of base salary
|
|
50%-120% of base salary (2004 and 2005). 80%-160% of base salary
(2006 forward).
|
Performance conditions
|
|
Award is based on Total Stockholder Return (TSR)
relative to the Comparator Group with a UEPS hurdle.
|
|
Half of the award is based on growth in UEPS over the three year
performance period. The other half of the award is based on TSR
relative to the Comparator Group.
|
UEPS vesting
requirement
1
|
|
For the award to vest at all, UEPS must have grown by at least
the rate of inflation as measured by the Retail Price Index plus
2% per annum (over three years).
|
|
The extent to which some, all or none of the award vest depends
upon annual compound growth in aggregate UEPS over the
performance period:
|
|
|
|
|
30% of this half of the award will vest if the
absolute compound annual growth rate achieved is 6% or more.
|
|
|
|
|
100% of this half of the award will vest if the
absolute compound
|
F-38
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
Awards Made Prior
|
|
Awards Made for
|
|
|
to 2004
|
|
2004 Forward
|
|
|
|
|
|
annual growth rate achieved is 10% or more.
|
|
|
|
|
Between 6% and 10%, the award will vest
proportionately.
|
TSR vesting
requirement
1
|
|
The extent to which some, all or none of the award vests depends
on our TSR relative to the Comparator Group:
|
|
The extent to which some, all or none of the award vests depends
upon our TSR relative to the Comparator Group:
|
|
|
The minimum award of 50% of the shares
conditionally granted will vest at the 50th percentile
ranking.
|
|
30% of this half of the award will vest at the
50th percentile ranking from 2006.
|
|
|
100% of the award will vest at the
80th percentile ranking or above.
|
|
100% of this half of the award will vest at the
80th percentile ranking or above.
|
|
|
Between the 50th and 80th percentiles, the
award will vest proportionately.
|
|
Between the 50th and 80th percentiles, the
award will vest proportionately.
|
Re-tests
|
|
If the TSR performance criteria is not satisfied in the initial
three year performance period, the award will be deferred on an
annual basis for up to three years until the performance is
achieved over the extended period (i.e., either four, five or
six years). If the award does not vest after six years, then it
will lapse.
|
|
There are no re-tests and the award will lapse if the minimum
requirements are not met in the initial three year performance
period.
|
Comparator Group
|
|
A weighting of 75% is applied to the UKT companies in the
Comparator Group, and 25% to the non-UK based companies.
|
|
The Comparator Group has been simplified and amended to include
companies more relevant to the Company, and there will be no
weighting as between UK and non-UK companies.
|
|
|
|
1
|
|
For cycles beginning in 2004 and 2005, threshold vesting was 40%
of the award, and performance ranges for the growth in UEPS was
expressed in post-inflation terms.
|
The TSR measure is a widely accepted and understood benchmark of
a companys performance. It is measured according to the
return index calculated by Thomson Financial on the basis that a
companys dividends are invested in the shares of that
company. The return is the percentage increase in each
companys index over the performance period. UEPS is a key
indicator of corporate performance. It is measured on an
absolute basis (real prior to 2006 after allowing for
inflation). Sustained performance is therefore required over the
performance cycle as each year counts in the calculation.
F-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
|
Tate & Lyle
|
|
Danone
|
|
France
|
Unilever
|
|
General Mills
|
|
US
|
|
|
Heinz
|
|
US
|
|
|
Hershey
|
|
US
|
|
|
Kellogg
|
|
US
|
|
|
Kraft Foods
|
|
US
|
|
|
Lindt & Sprungli
|
|
Switzerland
|
|
|
Nestlé
|
|
Switzerland
|
|
|
Pepsi Bottling Group
|
|
US
|
|
|
PepsiCo
|
|
US
|
|
|
Pernod Ricard
|
|
France
|
|
|
Procter & Gamble
|
|
US
|
|
|
Sara Lee
|
|
US
|
|
|
Wrigley
|
|
US
|
|
|
|
#
|
|
indicates a company dropped from the Comparator Group in 2005
due to it no longer being a publicly quoted company
|
Awards under the LTIP (both before and after 2004) will
vest in full following a change in control in Cadbury Schweppes,
but only to the extent that performance targets have been met at
the time of the change in control unless Cadbury Schweppes
decides that the awards would have vested to a greater or lesser
extent had the performance targets been measured over the normal
period.
The maximum number of shares issued under this plan, to all
Cadbury Schweppes employees, was 3 million in each of 2007,
2006 and 2005. Awards made under this plan are classified as
either equity, for those with TSR vesting conditions, or
liabilities, for those with UEPS vesting conditions. The expense
recognized by the Company in respect of these awards was
$1 million, $1 million and $2 million in 2007,
2006 and 2005, respectively.
Bonus
Share Retention Plan
The BSRP enables participants to invest all or part of their
Annual Incentive Plan (AIP) award in Cadbury
Schweppes shares (Deferred Shares) and earn a
Cadbury Schweppes match of additional shares after three years.
During the three year period, the shares are held in trust. If a
participant leaves Cadbury Schweppes during the three-year
period, they forfeit some of the additional shares, and in
certain cases, it is possible that all of the Deferred Shares
and the additional shares may be forfeited.
F-40
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
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 in each of 2007, 2006 and 2005. The
fair value of the shares under the plan is based on the market
price of the Cadbury Schweppes ordinary shares on the date of
the award. Where the awards do not attract dividends during the
vesting period, the market price is reduced by the present value
of the dividends expected to be paid during the expected life of
the awards. Awards under this plan in 2005 are classified as
liabilities. Awards made in 2006 are classified as equity due to
changes in the nature of the plan. The expense recognized by the
Company in respect of these awards was $3 million,
$3 million and $2 million in 2007, 2006 and 2005,
respectively.
Discretionary
Share Option Plans (DSOP)
No option grants were made to Executive Directors in 2007 or
2006 as discretionary share options were removed as part of the
Cadbury Schweppes remuneration program. No rights to
subscribe for shares or debentures of any Cadbury Schweppes
company were granted to or exercised by any member of any of the
Directors
F-41
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
immediate families during 2007. All existing discretionary share
option plans which apply to Executive Directors use the
following criteria:
|
|
|
|
|
|
|
Annual Grants Made
|
|
Annual Grants Made
|
|
|
Prior to May 21, 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
$8 million, $10 million and $17 million in 2007,
2006 and 2005, respectively. The DSOP consisted of the following
three plans:
(i) A Share Option Plan for directors, senior
executives and senior managers was approved by stockholders in
May 1994. Options were granted prior to July 15, 2004 and
are normally exercisable within a period of seven years
commencing three years from the date of grant, subject to the
satisfaction of certain performance criteria.
(ii) A Share Option Plan for eligible executives
(previously called the Cadbury Schweppes Share Option Plan 1994,
as amended at the 2004 Annual General Meeting (AGM)
held on May 21, 2004). Options were granted after
July 15, 2004, and are normally exercisable up to the
10th anniversary of grant, subject to the satisfaction of
certain performance criteria.
(iii) The Cadbury Schweppes (New Issue) Share Option Plan
2004 was established by the Directors, under the authority given
by stockholders in May 2004. Eligible executives are granted
options to subscribe for new shares only. Subject to the
satisfaction of certain performance criteria, options are
normally exercisable up to the 10th anniversary of grant.
There are performance requirements for the exercising of
options. The plans are accounted for as liabilities until
vested, then as equity until exercised or lapsed.
Other
Share Plans
Cadbury Schweppes has an International Share Award Plan
(ISAP) which is used to reward exceptional
performance of employees. Following the decision to cease
granting discretionary options other than in exceptional
circumstances, the ISAP is now used to grant conditional awards
to employees, who previously received discretionary options.
Awards under this plan are classified as liabilities until
vested.
F-42
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Share
Award Fair Values
The fair value is measured using the valuation technique that is
considered to be the most appropriate to value each class of
award; these include Binomial models, Black-Scholes
calculations, and Monte Carlo simulations. These valuations take
into account factors such as nontransferability, exercise
restrictions and behavioral considerations. Key assumptions are
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
BSRP
|
|
|
LTIP
|
|
|
ISAP
|
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
15%
|
|
|
|
N/A
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
1-3 years
|
|
Risk-free rate
|
|
|
5.5%
|
|
|
|
N/A
|
|
|
|
4.9%-5.8%
|
|
Expected dividend yield
|
|
|
2.5%
|
|
|
|
2.5%
|
|
|
|
2.5%-3.0%
|
|
Fair value per award (% of share price at date of
|
|
|
|
|
|
|
|
|
|
|
|
|
grant)
|
|
|
185.5%
|
|
|
|
92.8%UEPS
|
|
|
|
91.8%-99.3%
|
|
|
|
|
|
|
|
|
45.1%TSR
|
|
|
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
70%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
BSRP
|
|
|
LTIP
|
|
|
ISAP
|
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
18%
|
|
|
|
N/A
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
1-3 years
|
|
Risk-free rate
|
|
|
4.5%
|
|
|
|
N/A
|
|
|
|
4.2%-4.9%
|
|
Expected dividend yield
|
|
|
2.5%
|
|
|
|
2.5%
|
|
|
|
2.3%-2.5%
|
|
Fair value per award (% of share price at date of grant)
|
|
|
185.2%
(1)
|
|
|
|
92.8%UEPS
|
|
|
|
93.0%-99.3%
|
|
|
|
|
|
|
|
|
46%TSR
|
|
|
|
|
|
Possibility of ceasing employment before
|
|
|
|
|
|
|
|
|
|
|
|
|
vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
70%
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
BSRP
|
|
|
LTIP
|
|
|
DSOP
|
|
|
ISAP
|
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
22%
|
|
|
|
22%
|
|
|
|
N/A
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
(2)
|
|
|
|
1-3 years
|
|
Risk-free rate
|
|
|
4.5%
|
|
|
|
N/A
|
|
|
|
4.80%
|
|
|
|
4.3%
|
|
Expected dividend yield
|
|
|
2.5%
|
|
|
|
3.0%
|
|
|
|
3.0%
|
|
|
|
2.3%-2.5%
|
|
Fair value per award (% of share price at date of grant)
|
|
|
185.3%
(1)
|
|
|
|
91.4%UEPS
|
|
|
|
23.0%
|
|
|
|
93.0%-97.8%
|
|
|
|
|
|
|
|
|
49.6%TSR
|
|
|
|
|
|
|
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
|
|
|
|
|
9%
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
50%
|
|
|
|
100%
|
|
|
|
N/A
|
|
|
|
|
(1)
|
|
Fair value of BSRP includes 100% of the matching shares
available.
|
|
(2)
|
|
The fair value calculation of a discretionary share option uses
an expected life to the point of expected exercise. This is
determined through analysis of historical evidenced exercise
patterns of option holders.
|
F-43
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Expected volatility was determined by calculating the historical
volatility of the Companys share price over the previous
three years. The expected life used in the model has been
adjusted, based on managements best estimate, for the
effects of nontransferability, exercise restrictions and
behavioral considerations. The risk-free rates used reflect the
implied yield on zero coupon bonds issued in the UK, with
periods which match the expected term of the awards valued. The
expected dividend yield is estimated using the historical
dividend yield of Cadbury Schweppes.
A summary of the status of the Companys non-vested shares,
in relation to the BSRP, LTIP and ISAP as of December 31,
2007, and changes during the year ended December 31, 2007,
is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
|
(000)
|
|
|
Fair Value
|
|
|
Non-vested as of December 31, 2006
|
|
|
2,388
|
|
|
$
|
6.61
|
|
Granted
|
|
|
743
|
|
|
|
4.62
|
|
Vested
|
|
|
(828
|
)
|
|
|
6.06
|
|
Forfeitures
|
|
|
(417
|
)
|
|
|
5.75
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2007
|
|
|
1,886
|
|
|
|
6.26
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of shares vested during the year
was $5 million in 2007 and $1 million in each of 2006
and 2005. The total vested share units at December 31, 2007
was 237,447 with a weighted average grant date fair value of
$6.31.
A summary of option activity during 2007, in relation to the
DSOP, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
(000)
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding at the beginning of the year
|
|
|
22,669
|
|
|
$
|
8.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,006
|
)
|
|
$
|
8.37
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(146
|
)
|
|
$
|
9.76
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
735
|
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
17,252
|
|
|
$
|
9.00
|
|
|
|
5.3
|
|
|
$
|
58,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
13,502
|
|
|
$
|
8.58
|
|
|
|
4.8
|
|
|
$
|
51,588
|
|
The Company presents segment information in accordance with
SFAS No. 131,
Disclosures about Segments of an
Enterprise and Related Information,
which established
reporting and disclosure standards for an enterprises
operating segments. Operating segments are defined as components
of an enterprise that are businesses, for which separate
financial information is available, and for which the financial
information is regularly reviewed by the Company leadership team
and the chief operating decision maker.
Segment results are based on management reports, which are
prepared in accordance with International Financial Reporting
Standards. Net sales and underlying operating profit
(UOP) are the significant financial measures used to
measure the operating performance of the Companys
operating segments. UOP is defined as income from operations
before restructuring costs, non-trading items, interest,
amortization and impairment of intangibles.
F-44
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2007, the Companys operating
structure consisted of the following four operating segments:
|
|
|
|
|
The Beverage Concentrates segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
|
|
|
|
The Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
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 Mexico and Caribbean segment reflects sales from the
manufacture, bottling
and/or
distribution of both concentrates and finished beverages in
those geographies.
|
Prior to December 31, 2007, the Companys operating
structure consisted of five operating segments. The five
segments include Beverage Concentrates, Finished Goods, Bottling
Group, Snapple Distributors, and Mexico and Caribbean. The
previously reported Snapple Distributors segments is now
reported under the Bottling Group segment. Financial information
for all periods presented is reported under the current
operating structure consisting of four reportable segments.
The Companys current segment reporting structure is
largely the result of acquiring and combining various portions
of our business over the past several years. Although the
Company continues to report its segments separately, due to the
integrated nature of its business model, it manages its business
to maximize profitability for the Company as a whole. As a
result, profitability trends in individual segments may not be
consistent with the profitability of the Company or comparable
to its competitors.
The Company has significant intersegment transactions. For
example, the Bottling Group segment purchases concentrates from
the Beverage Concentrates segment. In addition, the Bottling
Group segment purchases finished beverages from the Finished
Goods segment. These sales are eliminated in preparing the
Companys combined results of operations. Intersegment
transactions are included in segments net sales results for all
periods presented.
The Company incurs selling, general and administrative expenses
in each of its segments. In the Companys segment
reporting, the selling, general and administrative expenses of
the Bottling Group, and Mexico and the Caribbean segments relate
primarily to those segments. However, as a result of the
Companys historical segment reporting policies, certain
combined selling activities that support the Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between these two segments. The Company
also incurs certain centralized finance and corporate costs that
support its entire business, which have not been directly
allocated to its respective segments but rather have been
allocated primarily to the Beverage Concentrates segment.
Information about the Companys operations by operating
segment for 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net Sales*
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
Finished Goods
|
|
|
1,562
|
|
|
|
1,516
|
|
|
|
1,516
|
|
Bottling Group
|
|
|
3,143
|
|
|
|
2,001
|
|
|
|
241
|
|
Mexico and the Caribbean
|
|
|
418
|
|
|
|
408
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
6,465
|
|
|
|
5,255
|
|
|
|
3,415
|
|
Adjustments and eliminations
|
|
|
(717
|
)
|
|
|
(520
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales as Reported
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Intersegment revenue eliminations from the Bottling Group and
Finished Goods segments were reclassified from revenues to
adjustments and eliminations. Prior year balances have been
recast to reflect these changes.
|
F-45
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
657
|
|
Finished Goods
|
|
|
167
|
|
|
|
172
|
|
|
|
165
|
|
Bottling Group
|
|
|
130
|
|
|
|
130
|
|
|
|
44
|
|
Mexico and the Caribbean
|
|
|
100
|
|
|
|
102
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
1,128
|
|
|
|
1,114
|
|
|
|
962
|
|
Corporate and other
|
|
|
(42
|
)
|
|
|
(14
|
)
|
|
|
11
|
|
Adjustments and eliminations
|
|
|
(269
|
)
|
|
|
(295
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings
of unconsolidated subsidiaries and cumulative effect of change
in accounting policy as reported
|
|
$
|
817
|
|
|
$
|
805
|
|
|
$
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
12
|
|
Finished Goods
|
|
|
23
|
|
|
|
21
|
|
|
|
22
|
|
Bottling Group
|
|
|
79
|
|
|
|
51
|
|
|
|
5
|
|
Mexico and the Caribbean
|
|
|
9
|
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
123
|
|
|
|
94
|
|
|
|
49
|
|
Corporate and other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Adjustments and eliminations
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation as reported
|
|
$
|
120
|
|
|
$
|
94
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
84
|
|
|
$
|
81
|
|
Finished Goods
|
|
|
135
|
|
|
|
131
|
|
Bottling Group
|
|
|
579
|
|
|
|
476
|
|
Mexico and the Caribbean
|
|
|
61
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
859
|
|
|
|
750
|
|
Corporate and other
|
|
|
19
|
|
|
|
23
|
|
Adjustments and eliminations
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net as reported
|
|
|
868
|
|
|
|
755
|
|
Current assets as reported
|
|
|
2,739
|
|
|
|
1,632
|
|
All other non-current assets as reported
|
|
|
6,921
|
|
|
|
6,959
|
|
|
|
|
|
|
|
|
|
|
Total assets as reported
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
F-46
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 $726 million in 2007 and are eliminated in the
Combined Statement of Operations.
UOP represents a measure of income from operations. To reconcile
the segments total UOP to the Companys total income
from operations on a U.S. GAAP basis, adjustments are
primarily required for: (1) restructuring costs,
(2) non-cash compensation charges on stock option awards,
(3) amortization and impairment of intangibles and
(4) incremental pension costs. In addition, adjustments are
required for total company corporate costs and other items. To
reconcile UOP to the line item income before provision for
income taxes, equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy as
reported on a U.S. GAAP basis, additional adjustments are
required, primarily for interest expense, interest income and
other expense (income).
Geographic
Data
The Company utilizes separate legal entities for transactions
with customers outside of the United States. Information about
the Companys operations by geographic region for 2007,
2006 and 2005 is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,122
|
|
|
$
|
4,151
|
|
|
$
|
2,675
|
|
International
|
|
|
626
|
|
|
|
584
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Property, plant and equipment net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
796
|
|
|
$
|
681
|
|
International
|
|
|
72
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
$
|
868
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
Major
Customers
In 2007, Wal-Mart Stores, Inc. was the Companys only
customer which accounted for 10% or more of total net sales,
with $588 million of net sales for the year. These sales
were reported primarily in the Finished Goods and Bottling Group
segments, contributing 16% and 10% of the segments net
sales, respectively. No customers contributed 10% or more of
total net sales in 2006 or 2005.
|
|
16.
|
Related
Party Transactions
|
Allocated
Expenses
Cadbury Schweppes has allocated certain costs to the Company,
including costs in respect of certain corporate functions
provided for us by Cadbury Schweppes. These allocations have
been based on the most relevant allocation method for the
services provided. To the extent expenses have been paid by
Cadbury Schweppes on behalf of the Company, they have been
allocated based upon the direct costs incurred. Where specific
identification of expenses has not been practicable, the costs
of such services has been allocated based upon the most relevant
allocation method to the services provided, primarily either as
a percentage of net sales or headcount of the Company. The
Company was allocated $161 million, $142 million and
$115 million of costs in 2007, 2006 and 2005, respectively.
F-47
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, $1 million and
$9 million for 2007, 2006 and 2005, respectively.
Notes
Receivable
The Company held a notes receivable balance with wholly owned
subsidiaries of Cadbury Schweppes with outstanding principal
balances of $1,527 million and $579 million as of
December 31, 2007 and 2006, respectively. The Company
recorded $57 million, $25 million and $36 million
of interest income related to these notes for 2007, 2006 and
2005, respectively.
Debt
and Payables
The Company has entered into a variety of debt agreements with
other companies owned by Cadbury Schweppes. These agreements (as
well as outstanding balances under the agreements) are described
in Note 10.
The related party payable balances of $175 million and
$183 million as of December 31, 2007 and 2006,
respectively, represent non-interest bearing payable balances
with companies owned by Cadbury Schweppes, related party accrued
interest payable associated with interest bearing notes, and
related party payables for sales of goods and services all with
companies owned by Cadbury Schweppes. The non-interest bearing
payable balance was $75 million and $158 million as of
December 31, 2007 and 2006, respectively. The accrued
interest payable balance was $11 million and
$25 million at December 31, 2007 and 2006,
respectively. The intercompany current payable was
$89 million as of December 31, 2007.
Transactions
with Dr Pepper/Seven Up Bottling Group
Prior to the Companys acquisition of the remaining shares
of DPSUBG on May 2, 2006, the Company and DPSUBG entered
into various transactions in the ordinary course of business as
outlined below:
Marketing
support, co-packing fees and other arrangements
The Company assisted DPSUBG in a variety of marketing programs,
local media advertising and other similar arrangements to
promote the sale of Company-branded products. DPSUBG charged the
Company co-packing fees related to the manufacture of certain
Company-branded products. The Company paid DPSUBG marketing
support, co-packing fees and other fees totaling
$41 million and $125 million during 2006 and 2005,
respectively.
Sales of
beverage concentrates
DPSUBG bought concentrates from the Company for the manufacture
of Company-branded soft drinks. The Companys concentrates
sales to DPSUBG totaled $100 million and $426 million
during 2006 and 2005, respectively.
F-48
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 and $53 million during 2006 and 2005,
respectively.
The Company had recorded receivables from DPSUBG relating to the
above transactions totaling $64 million at January 1,
2006.
In January 2008, the Company began to separate commingled
pension plans which contained participants of both the Company
and other Cadbury Schweppes global companies. As a result, the
Company re-measured the projected benefit obligation of the
separated pension plans. The Company expects the re-measurement
to result in an increase of approximately $71 million to
other non-current liabilities and a decrease of
approximately $53 million to accumulated other
comprehensive income, a component of invested equity. The
actual pension liability and associated unamortized losses will
be finalized at the separation date.
On March 10, 2008, the Company entered into arrangements
with a group of lenders to provide it with an aggregate of
$4.4 billion of financing. On April 11, 2008, the
arrangements were amended and restated. The amended and restated
arrangements consist of a $2.7 billion senior credit
agreement that provides a $2.2 billion term loan A facility
and a $500 million revolving credit facility (collectively,
the senior credit facility) and a
364-day
bridge credit agreement that provides a $1.7 billion bridge
loan facility.
On April 11, 2008, the Company borrowed an aggregate of
$3.9 billion under the term loan A facility and the bridge
loan facility. The proceeds will be held in escrow pending
completion of the separation.
Borrowings under the senior credit facility and the bridge loan
facility will bear interest at a floating rate per annum based
upon LIBOR or the alternate base rate (ABR), in each
case plus an applicable margin which varies based upon our debt
ratings, from 1.00 % to 2.50% in the case of LIBOR loans
and 0.00 % to 1.50 % in the case of ABR loans. The
alternate base rate means the greater of (a) JPMorgan Chase
Banks prime rate and (b) the federal funds effective
rate plus
1
/
2
of 1%. Based on the Companys expected debt ratings at the
time of the separation, the applicable margin for LIBOR loans
would be 2.00% and for ABR loans would be 1.00%. The
documentation relating to the senior credit facility and bridge
loan facility contains certain provisions that allow the
bookrunners to increase the interest rates or yield of the
loans, add collateral, reallocate up to $200 million
between the term loan A facility and the bridge loan facility
(and vice versa) and modify other terms and aspects of the
facilities, in each case within a limit agreed upon by the
bookrunners and the Company.
* * * * *
F-49