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.

 

 

 

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.”

 

INFORMATION STATEMENT SUMMARY

		•   #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

		•   #1 in its flavor category and #2 overall flavored CSD in the United States •   Distinguished by its unique blend of 23 flavors and loyal consumer following •   Flavors include regular, diet and “Soda Fountain Classics” line extensions •   Oldest major soft drink in the United States, introduced in 1885

		•   A leading ready-to-drink tea in the United States •   Teas include premium Snapple teas and super premium white, green, red and black teas •   Brand also includes premium juices, juice drinks and recently launched enhanced waters •   Founded in Brooklyn, New York in 1972

 

		•   #2 lemon-lime CSD in the United States •   Re-launched in 2006 as the only major lemon-lime CSD with all-natural flavors and no artificial  preservatives •   Flavors include regular, diet and cherry •   The original “Un-Cola,” created in 1929

		•   #1 apple juice and #1 apple sauce brand in the United States
		•   Juice products include apple and other fruit juices, Mott’s Plus and Mott’s for Tots
		•   Apple sauce products include regular, unsweetened, flavored and organic
		•   Brand began as a line of apple cider and vinegar offerings in 1842

 

		•   #1 orange CSD in the United States
		•   Flavors include orange, diet and other fruits
		•   Licensed to us as a soft drink by the Sunkist Growers Association since 1986

 

		•   #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 “Leo’s Hawaiian Punch” in 1934

 

		•   #1 root beer in the United States
		•   Flavors include regular and diet root beer and cream soda
		•   A classic all-American soda first sold at a veteran’s parade in 1919

 

		•   #1 ginger ale in the United States and Canada
		•   Brand includes club soda, tonic and other mixers
		•   Created in Toronto, Canada in 1904 and introduced in the United States in 1919

 

		•   #2 ginger ale in the United States and Canada
		•   Brand includes club soda, tonic and other mixers
		•   First carbonated beverage in the world, invented in 1783

		•   #1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
		•   Flavors include regular, diet and ruby red
		•   Founded in 1938

		•   A leading spicy tomato juice brand in the United States, Canada and Mexico
		•   Key ingredient in Canada’s popular cocktail, the Bloody Caesar
		•   Created in 1969

		•   #1 carbonated mineral water brand in Mexico
		•   Brand includes Flavors, Twist and Naturel
		•   Mexico’s oldest mineral water, founded in 1928

 

		•   #1 portfolio of mixer brands in the United States
		•   #1 mixer brand (Mr & Mrs T) in the United States
		•   Leading mixers (Margaritaville and Rose’s) in their flavor categories

	•	allowing the management of each company to focus its efforts on its own business and strategic priorities;
	•	enabling each company to allocate its capital more efficiently;
	•	providing DPS with direct access to the debt and equity capital markets;
	•	improving DPS’s ability to pursue strategic transactions through the use of shares of common stock as consideration;
	•	enhancing DPS’s market recognition with investors; and
	•	increasing DPS’s ability to attract and retain employees by providing equity compensation tied directly to its business.

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.”

		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

		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

	•	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.

		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

		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 company’s 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

 

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,

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.

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,

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 California’s “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

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 “Management’s 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:

 

 

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:

 

 

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

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,” “Management’s 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.

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).

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:

 

 

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.

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.

 

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:

 

 

 

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.

 

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.

 

The following table presents our capitalization and cash and cash equivalents as of December 31, 2007:

 

 

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,” “Management’s 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.

 

 

 

 

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,” “Management’s 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. DPSUBG’s 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.

 

 

 

 

 

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:

 

 

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.

 

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,” “Management’s 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.

 

 

See Notes to Unaudited Pro Forma Combined Financial Data