As filed with the Securities and Exchange Commission on April 22, 2008
File No. 001-33829
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Amendment No. 5
to
 
Form 10
 
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
 
 
 
 
(DR PEPPER SNAPPLE GROUP LOGO)
 
 
 
 
     
Delaware
  75-3258232
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. employer
identification number)
     
5301 Legacy Drive, Plano, Texas
  75024
(Address of principal executive offices)
  (Zip Code)
(972) 673-7000
(Registrant’s telephone number, including area code)
 
 
 
 
Securities to be registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class to be so Registered
 
Name of Each Exchange on which Each Class is to be Registered
 
Common Stock, par value $0.01 per share
  New York Stock Exchange
 
 
 
 
Securities to be registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
     
Large accelerated filer  o
  Accelerated filer  o
Non-accelerated filer  þ
  Smaller reporting company  o
 
(Do not check if a smaller reporting company)
 
 


 

DR PEPPER SNAPPLE GROUP, INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
 
Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
 
Item 1.    Business.
 
The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry,” “Business,” “Our Relationship with Cadbury plc After the Distribution,” “The Distribution,” “Where You Can Find More Information” and “Index to Financial Statements” (and the financial statements referenced therein). Those sections are incorporated herein by reference.
 
Item 1A.    Risk Factors.
 
The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.
 
Item 2.    Financial Information.
 
The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Capitalization,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” (and the financial statements referenced therein). Those sections are incorporated herein by reference.
 
Item 3.    Properties.
 
The information required by this item is contained under the section of the information statement entitled “Business — Real Property.” That section is incorporated herein by reference.
 
Item 4.    Security Ownership of Certain Beneficial Owners and Management.
 
The information required by this item is contained under the section of the information statement entitled “Ownership of Our Common Stock.” That section is incorporated herein by reference.
 
Item 5.    Directors and Executive Officers.
 
The information required by this item is contained under the section of the information statement entitled “Management.” That section is incorporated herein by reference.
 
Item 6.    Executive Compensation.
 
The information required by this item is contained under the section of the information statement entitled “Management.” That section is incorporated herein by reference.
 
Item 7.    Certain Relationships and Related Transactions.
 
The information required by this item is contained under the sections of the information statement entitled “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Relationship with Cadbury plc After the Distribution” and “Management.” Those sections are incorporated herein by reference.


 

Item 8.    Legal Proceedings.
 
The information required by this item is contained under the section of the information statement entitled “Business — Legal Matters.” That section is incorporated herein by reference.
 
Item 9.    Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.
 
The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Dividend Policy,” “Description of Capital Stock” and “The Distribution.” Those sections are incorporated herein by reference.
 
Item 10.    Recent Sales of Unregistered Securities.
 
On October 24, 2007, Dr Pepper Snapple Group, Inc. sold one share of common stock, par value $0.01 per share, to Cadbury Schweppes plc pursuant to Section 4(2) of Securities Act of 1933, as amended.
 
Item 11.    Description of Registrant’s Securities to be Registered.
 
The information required by this item is contained under the section of the information statement entitled “Description of Capital Stock.” That section is incorporated herein by reference.
 
Item 12.    Indemnification of Directors and Officers.
 
The information required by this item is contained under the section of the information statement entitled “Description of Capital Stock — Anti-Takeover Effects of Various Provisions of Delaware Law and Our Certificate of Incorporation and By-laws — Limitations on Liability and Indemnification of Officers and Directors.” That section is incorporated herein by reference.
 
Item 13.    Financial Statements and Supplementary Data.
 
The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” (and the financial statements referenced therein). Those sections are incorporated herein by reference.
 
Item 14.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 15.    Financial Statements and Exhibits.
 
(a)   Financial Statements
 
The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” (and the financial statements referenced therein). That section is incorporated herein by reference.
 
(b)   Exhibits
 
See below.
 
The following documents are filed as exhibits hereto:
 
         
Exhibit
   
Number
 
Exhibit Description
 
  2 .1*   Form of Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc
  3 .1*   Form of Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc.


 

         
Exhibit
   
Number
 
Exhibit Description
 
  3 .2*   Form of Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc.
  10 .1*   Form of Transition Services Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc.
  10 .2*   Form of Tax-Sharing and Indemnification Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for the certain provision set forth therein, Cadbury plc
  10 .3*   Form of Employee Matters Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc
  10 .4*   Agreement, dated June 15, 2004, between Cadbury Schweppes Bottling Group, Inc. (formerly Dr Pepper/Seven Up Bottling Group, Inc.) and CROWN Cork & Seal USA, Inc.
  10 .5*†   First Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated August 25, 2005
  10 .6*†   Second Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated June 21, 2006
  10 .7*†   Third Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated April 4, 2007
  10 .8*†   Fourth Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated September 27, 2007
  10 .9*   Form of Dr Pepper License Agreement for Bottles, Cans and Pre-mix
  10 .10*   Form of Dr Pepper Fountain Concentrate Agreement
  10 .11*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and Larry D. Young (1)
  10 .12*   Executive Employment Agreement, dated as of October 13, 2007, between CBI Holdings Inc. and John O. Stewart (1)
  10 .13*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and Randall E. Gier (1)
  10 .14*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and James J. Johnston, Jr. (1)
  10 .15*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and Pedro Herrán Gacha (1)
  10 .16*   Executive Employment Agreement, dated as of October 1, 2007, between CBI Holdings Inc. and Gilbert M. Cassagne (1)
  10 .17*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and John L. Belsito (1)
  10 .18*   Separation Letter, dated October 3, 2007, to Gilbert M. Cassagne
  10 .19*   Form of Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008
  10 .20*   Form of Dr Pepper Snapple Group, Inc. Annual Cash Incentive Plan
  10 .21*   Form of Dr Pepper Snapple Group, Inc. Employee Stock Purchase Plan
  10 .22*   Amended and Restated Credit Agreement among Dr Pepper Snapple Group, Inc., various lenders and JPMorgan Chase Bank, N.A., as administrative agent, dated April 11, 2008
  10 .23*   Amended and Restated Bridge Credit Agreement among Dr Pepper Snapple Group, Inc., various lenders and JPMorgan Chase Bank, N.A., as administrative agent, dated April 11, 2008


 

         
Exhibit
   
Number
 
Exhibit Description
 
  21 .1+   List of Subsidiaries of Dr Pepper Snapple Group, Inc.
  99 .1+   Preliminary Information Statement of Dr Pepper Snapple Group, Inc. dated April 22, 2008
  99 .2*   Form of Letter to Cadbury Schweppes plc Shareholders
  99 .3*   Form of Letter to Dr Pepper Snapple Group, Inc. Stockholders
         
  *     Previously filed.
      Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.
  +     Filed herewith.
  (1)     CBI Holdings Inc. will be a wholly-owned subsidiary of Dr Pepper Snapple Group, Inc. upon separation.


 

SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 4 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dr Pepper Snapple Group, Inc.
 
  By: 
/s/   Larry D. Young
Name:     Larry D. Young
  Title:  President and Chief Executive Officer
 
Date: April 22, 2008


 

INDEX TO EXHIBITS
 
         
Exhibit
   
Number
 
Exhibit Description
 
  2 .1*   Form of Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc
  3 .1*   Form of Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc.
  3 .2*   Form of Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc.
  10 .1*   Form of Transition Services Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc.
  10 .2*   Form of Tax-Sharing and Indemnification Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc., and solely for the certain provision set forth therein, Cadbury plc
  10 .3*   Form of Employee Matters Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc
  10 .4*†   Agreement, dated June 15, 2004, between Cadbury Schweppes Bottling Group, Inc. (formerly Dr Pepper/Seven Up Bottling Group, Inc.) and CROWN Cork & Seal USA, Inc.
  10 .5*†   First Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated August 25, 2005
  10 .6*†   Second Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated June 21, 2006
  10 .7*†   Third Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated April 4, 2007
  10 .8*†   Fourth Amendment to the Agreement between Cadbury Schweppes Bottling Group, Inc. and CROWN Cork & Seal USA, Inc., dated September 27, 2007
  10 .9*   Form of Dr Pepper License Agreement for Bottles, Cans and Pre-mix
  10 .10*   Form of Dr Pepper Fountain Concentrate Agreement
  10 .11*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and Larry D. Young(1)
  10 .12*   Executive Employment Agreement, dated as of October 13, 2007, between CBI Holdings Inc. and John O. Stewart(1)
  10 .13*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and Randall E. Gier(1)
  10 .14*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and James J. Johnston, Jr.(1)
  10 .15*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and Pedro Herrán Gacha(1)
  10 .16*   Executive Employment Agreement, dated as of October 1, 2007, between CBI Holdings Inc. and Gilbert M. Cassagne(1)
  10 .17*   Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. and John L. Belsito(1)
  10 .18*   Separation Letter, dated October 3, 2007, to Gilbert M. Cassagne
  10 .19*   Form of Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008
  10 .20*   Form of Dr Pepper Snapple Group, Inc. Annual Cash Incentive Plan
  10 .21*   Form of Dr Pepper Snapple Group, Inc. Employee Stock Purchase Plan
  10 .22*   Amended and Restated Credit Agreement among Dr Pepper Snapple Group, Inc., various lenders and JPMorgan Chase Bank, N.A., as administrative agent, dated April 11, 2008
  10 .23*   Amended and Restated Bridge Credit Agreement among Dr Pepper Snapple Group, Inc., various lenders and JPMorgan Chase Bank, N.A., as administrative agent, dated April 11, 2008
  21 .1+   List of Subsidiaries of Dr Pepper Snapple Group, Inc.


 

         
Exhibit
   
Number
 
Exhibit Description
 
  99 .1+   Preliminary Information Statement of Dr Pepper Snapple Group, Inc. dated April 22, 2008
  99 .2*   Form of Letter to Cadbury Schweppes plc Shareholders
  99 .3*   Form of Letter to Dr Pepper Snapple Group, Inc. Stockholders
         
  *     Previously filed.
      Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.
  +     Filed herewith.
  (1)     CBI Holdings Inc. will be a wholly-owned subsidiary of Dr Pepper Snapple Group, Inc. upon separation.

 

Exhibit 21.1
Subsidiaries of Dr Pepper Snapple Group, Inc.
         
Name of Subsidiary   Jurisdiction of Formation
 
       
1.
  Cadbury Aguas Minerales, S.A. de C.V.   Mexico 
2.
  Cadbury Bebidas, S.A. de C.V.   Mexico 
3.
  Cadbury Servicios, S.A. de C.V.   Mexico 
4.
  Cadbury Servicios Comerciales, S.A. de C.V.   Mexico 
5.
  Comercializadora de Bebidas, S.A. de C.V.   Mexico 
6.
  Compañía Exportadora de Aguas Minerales, S.A. de C.V.   Mexico 
7.
  Distribuidora Anahuac, S.A. de C.V.   Mexico 
8.
  Distribuidora de Aguas Minerales, S.A. de C.V.   Mexico 
9.
  Embotelladora Balseca, S.A. de C.V.   Mexico 
10.
  Embotelladora Mexicana de Agua, S.A. de C.V.   Mexico 
11.
  Embotelladora Orange Crush, S.A.   Mexico 
12.
  Industria Embotelladora de Bebidas Mexicanas, S.A. de C.V.   Mexico 
13.
  Manantiales Peñafiel, S.A. de C.V.   Mexico 
14.
  Snapple Beverage de Mexico, S.A. de C.V.   Mexico 
15.
  Snapple Europe Limited   England 
16.
  A&W Concentrate Company   Delaware 
17.
  Am Trans, Inc.   Illinois 
18.
  Beverage Management, Inc.   Michigan 
19.
  Cadbury Adams Finance Corp.   Delaware 
20.
  Cadbury Beverages Delaware, Inc.   Delaware 
21.
  Cadbury Beverages Inc.   Delaware 
22.
  Cadbury Schweppes Americas Beverages, Inc.   Delaware 
23.
  Cadbury Schweppes Bottling Group, Inc.   Delaware 
24.
  Cadbury Schweppes SBS, Inc.   Delaware 
25.
  Dr Pepper Bottling Company of Texas   Delaware 
26.
  Dr Pepper Bottling of Spokane, Inc.   Washington 
27.
  Dr Pepper Company   Delaware 
28.
  Dr Pepper/Seven Up Beverage Sales Company   Texas 

1


 

         
Name of Subsidiary   Jurisdiction of Formation
 
       
29.
  Dr Pepper/Seven Up Manufacturing Company   Delaware 
30.
  Dr Pepper/Seven Up, Inc.   Delaware 
31.
  Juice Guys Care, Inc.   Massachusetts 
32.
  Mott’s General Partnership   Nevada 
33.
  Mott’s LLP   Delaware 
34.
  Nantucket Allserve, Inc.   Massachusetts 
35.
  Pacific Snapple Distributors, Inc.   California 
36.
  Royal Crown Company, Inc.   Delaware 
37.
  Seven-Up / RC Bottling Company, Inc.   Delaware 
38.
  Seven-Up Bottling Company of San Francisco   California 
39.
  Snapple Beverage Corp.   Delaware 
40.
  Snapple Distributors, Inc.   Delaware 
41.
  Southeast-Atlantic Beverage Corporation   Florida 
42.
  The American Bottling Company   Delaware 
43.
  Aguas Minerales International Investments B.V.   Netherlands 
44.
  Bebidas Americas Investments B.V.   Netherlands 
45.
  Americas Beverages Management GP   Nevada 
46.
  Beverage Investments LLC   Delaware 
47.
  Cadbury Schweppes Americas Employee Relief Fund   Texas 
48.
  Cadbury Schweppes Americas Inc.   Delaware 
49.
  Cadbury Schweppes Americas Investments Inc.   Delaware 
50.
  Cadbury Schweppes Finance, Inc.   Delaware 
51.
  Cadbury Schweppes Holdings (U.S.)   Nevada 
52.
  CBI Holdings Inc.   Delaware 
53.
  International Beverage Investments GP   Delaware 
54.
  International Investments Management LLC   Delaware 
55.
  MSSI LLC   Delaware 
56.
  Berkeley Square US, Inc.   Delaware
57.
  Nuthatch Trading US, Inc.   Delaware
58.
  High Ridge Investments US, Inc.   Delaware

2

 

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.
 
 
Preliminary and Subject to Completion, dated April 22, 2008
 
INFORMATION STATEMENT
 
(DR. PEPPER SNAPPLE GROUP LOGO)
 
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
 
         
Information Statement Summary
    1  
Risk Factors
    15  
Special Note Regarding Forward-Looking Statements
    25  
Dividend Policy
    27  
Capitalization
    28  
Selected Historical Combined Financial Data
    29  
Unaudited Pro Forma Combined Financial Data
    32  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    39  
Industry
    65  
Business
    71  
Our Relationship with Cadbury plc After the Distribution
    85  
Management
    92  
Ownership of Our Common Stock
    123  
Description of Indebtedness
    124  
Description of Capital Stock
    128  
The Distribution
    131  
Material Tax Considerations
    136  
Where You Can Find More Information
    145  
Index to Financial Statements
    F-1  
 
 
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
 
     
(DR. PEPPER SNAPPLE GROUP LOGO)  
•   #1 flavored CSD company in the United States
•   More than 75% of our volume from brands that are either #1 or #2 in their category
•   #3 North American liquid refreshment beverage business
•   $5.7 billion of net sales in 2007 from the United States (89%), Canada (4%) and Mexico and the Caribbean (7%)
•   $1.0 billion of income from operations in 2007
 
Our Key Brands
 
     
(DR. PEPPER)  
•   #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
 
     
(SNAPPLE)  
•   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
 
     
(7 UP)  
•   #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


 

     
(MOTTS)  
•   #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
 
     
(SUNKIST)  
•   #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
 
     
(HAWAIIAN PUNCH)  
•   #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
 
     
(A AND W)  
•   #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
 
     
(CANADA DRY)  
•   #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
 
     
(SCHWEPPES)  
•   #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
 
     
(SQUIRT)  
•   #1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
 
•   Flavors include regular, diet and ruby red
 
•   Founded in 1938
 
     
(CLAMATO)  
•   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
 
     
(PENAFIEL)  
•   #1 carbonated mineral water brand in Mexico
 
•   Brand includes Flavors, Twist and Naturel
 
•   Mexico’s oldest mineral water, founded in 1928
 
     
(MR AND MRS T)  
•   #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
 
 
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.”


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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, Mott’s 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


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Target, some of the largest foodservice customers, including McDonald’s, 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.


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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:
 
  •  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.
 
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.


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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.


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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.”


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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


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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


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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
 


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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.


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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,” “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 Dr Pepper/Seven Up Bottling Group, Inc. (“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 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.


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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          
 


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    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  
                         

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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,


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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.


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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 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


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 “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:
 
  •  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,” “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.


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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).


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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:
 
  •  general economic trends and other external factors;
 
  •  changes in our earnings or operating results;
 
  •  success or failure of our business strategies;
 
  •  failure of our financial performance to meet securities analysts’ expectations;
 
  •  our ability to obtain financing as needed;
 
  •  introduction of new products by us or our competitors;
 
  •  changes in conditions or trends in our industry, markets or customers;
 
  •  changes in governmental regulation;
 
  •  depth and liquidity of the market for our common stock; and
 
  •  our operating performance and that of our competitors. 
 
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.


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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.


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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:
 
  •  the highly competitive markets in which we operate and our ability to compete with companies that have significant financial resources;
 
  •  changes in consumer preferences, trends and health concerns;
 
  •  increases in cost of materials or supplies used in our business;
 
  •  shortages of materials used in our business;
 
  •  substantial disruption at our beverage concentrates manufacturing facility or our other manufacturing facilities;
 
  •  our products meeting health and safety standards or contamination of our products;
 
  •  need for substantial investment and restructuring at our production, distribution and other facilities;
 
  •  weather and climate changes;
 
  •  maintaining our relationships with our large retail customers;
 
  •  dependence on third-party bottling and distribution companies;
 
  •  infringement of our intellectual property rights by third parties, intellectual property claims against us or adverse events regarding licensed intellectual property;
 
  •  litigation claims or legal proceedings against us;
 
  •  our ability to comply with, or changes in, governmental regulations in the countries in which we operate;
 
  •  strikes or work stoppages;
 
  •  our ability to retain or recruit qualified personnel;
 
  •  increases in the cost of employee benefits;
 
  •  disruptions to our information systems and third-party service providers;
 
  •  failure of our acquisition and integration strategies;
 
  •  future impairment of our goodwill and other intangible assets;
 
  •  need to service a significant amount of debt;
 
  •  completing our current organizational restructuring;
 
  •  risks relating to our separation from and relationship with Cadbury Schweppes;


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  •  risks relating to our agreement to indemnify, and be indemnified by, Cadbury Schweppes for certain taxes; and
 
  •  other factors discussed under “Risk Factors” and elsewhere in this information statement.
 
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.


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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.


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CAPITALIZATION
 
The following table presents our capitalization and cash and cash equivalents as of December 31, 2007:
 
  •  on a historical basis
 
  •  on a pro forma basis after giving effect to the adjustments described in “Unaudited Pro Forma Combined Financial Data.”
 
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.
 
                 
    December 31, 2007  
    Historical     Pro Forma  
    (In millions)  
 
Cash and cash equivalents
  $ 67     $ 100  
                 
Debt:
               
Short-term debt:
               
Debt payable to Cadbury Schweppes (a)
  $ 126     $  
Other payables to Cadbury Schweppes (a)
    175        
Debt payable to third parties (b)
    2       2  
New credit facilities (c)
          1,920  
Long-term debt (excluding current maturities):
               
Debt payable to Cadbury Schweppes (a)
    2,893        
Debt payable to third parties (b)
    19       19  
New credit facilities (c)
          1,980  
                 
Total debt
    3,215       3,921  
                 
Total invested equity (d)
    5,021       2,922  
                 
Total capitalization
  $ 8,236     $ 6,843  
                 
 
 
(a)  Represents the settlement with Cadbury Schweppes of related party debt and other balances.
(b)  Represents capital lease obligations. The short-term portion of these obligations is included within “accounts payable and accrued expenses” in our combined balance sheet.
(c)  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.
(d)  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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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,” “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.
 


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    2007     2006     2005     2004  
    (In millions)  
 
Statements of Operations Data:
                               
Net sales
  $ 5,748     $ 4,735     $ 3,205     $ 3,065  
Cost of sales
    2,617       1,994       1,120       1,051  
                                 
Gross profit
    3,131       2,741       2,085       2,014  
                                 
Selling, general and administrative expenses
    2,018       1,659       1,179       1,135  
Depreciation and amortization
    98       69       26       10  
Impairment of intangible assets
    6                    
Restructuring costs
    76       27       10       36  
Gain on disposal of property and intangible assets
    (71 )     (32 )     (36 )     (1 )
                                 
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 company’s liquidity. Accordingly, we believe that EBITDA may be useful for investors in assessing our ability

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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  
                                 


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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.


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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.


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


 

 
MANAGEMENT’S 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 management’s 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, Mott’s, Hawaiian Punch, Clamato, Mr & Mrs T, Margaritaville and Rose’s. 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.
 
  •  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.
 
  •  Allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.


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:
 
  •  Increased health consciousness.   We believe the main beneficiaries of this trend include diet drinks, ready-to-drink teas, enhanced waters and bottled waters.
 
  •  Changes in lifestyle.   We believe changes in lifestyle will continue to drive increased sales of single-serve beverages, which typically have higher margins.
 
  •  Growing demographic segments in the United States.   We believe marketing and product innovations that target fast growing population segments, such as the Hispanic community in the United States, will drive further market growth.
 
  •  Product and packaging innovation.   We believe brand owners and bottling companies will continue to create new products and packages such as beverages with new ingredients and new premium flavors, as well as innovative convenient packaging that address changes in consumer tastes and preferences.
 
  •  Changing retailer landscape.   As retailers continue to consolidate, we believe retailers will support consumer product companies that can provide an attractive portfolio of products, a strong value proposition and efficient delivery.
 
  •  Recent increases in raw material costs.   The costs of a substantial proportion of the raw materials used in the beverage industry are dependent on commodity prices for aluminum, natural gas, resins, corn, pulp and other commodities. Recently, these costs on the whole have increased significantly and this has exerted pressure on industry margins.
 
Seasonality
 
The beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and religious festivals as well as weather fluctuations.
 
Recent Developments
 
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.
 
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


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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.
 
  •  Our Beverage Concentrates segment reflects sales from the manufacture of concentrates and syrups in the United States and Canada. Most of the brands in this segment are CSD brands.
 
  •  Our Finished Goods segment reflects sales from the manufacture and distribution of finished beverages and other products in the United States and Canada. Most of the brands in this segment are non-CSD brands.
 
  •  Our Bottling Group segment reflects sales from the manufacture, bottling and/or distribution of finished beverages, including sales of our own brands and third-party owned brands.


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  •  Our Mexico and the Caribbean segment reflects sales from the manufacture, bottling and/or distribution of both concentrates and finished beverages in those geographies.
 
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 arm’s 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:
 
  •  the sale and distribution of beverage concentrates and syrups;
 
  •  the sale and distribution of finished beverages; and
 
  •  the distribution of products of third parties.
 
We offer a variety of incentives and discounts to bottlers, customers and consumers through various programs to support in the distribution and promotion of our products. These incentives and discounts include cash discounts, price allowances, volume based rebates, product placement fees and other financial support for items such as trade promotions, displays, new products, consumer incentives and advertising assistance. These incentives and discounts, collectively referred to as trade spend, are reflected as a reduction of gross sales to arrive at net sales.
 
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, Mott’s, Clamato and Penafiel brands. This was partially offset by a net sales decline of 4% as a result of the loss of


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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:
 
  •  Beverage concentrates cost of sales.   The major components in our beverage concentrates cost of sales are flavors and sweeteners for diet beverage concentrates.
 
  •  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.
 
  •  Distributor cost of sales.   The major component in our distributor cost of sales is purchased finished beverages.
 
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:
 
  •  selling and marketing expenses;
 
  •  transportation and warehousing expenses related to customer shipments, including fuel;
 
  •  general and administrative expenses such as management payroll, benefits, travel and entertainment, accounting and legal expenses and rent on leased office facilities; and
 
  •  corporate function expenses allocated from Cadbury Schweppes (as described under “—Our Separation from Cadbury Schweppes”).
 
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


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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.


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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.
 
                                 
                Dollar Amount
    Percentage
 
    2007     2006     Change     Change  
    (In millions, except% data)  
 
Net sales
  $ 5,748     $ 4,735     $ 1,013       21.4 %
Cost of sales
    2,617       1,994       623       31.2 %
                                 
Gross profit
    3,131       2,741       390       14.2 %
Selling, general and administrative expenses
    2,018       1,659       359       21.6 %
Depreciation and amortization
    98       69       29       42.0 %
Impairment of intangible assets
    6             6       NM  
Restructuring costs
    76       27       49       NM  
Gain on disposal of property and intangible assets
    (71 )     (32 )     (39 )     NM  
                                 
Income from operations
    1,004       1,018       (14 )     (1.4 )%
Interest expense
    253       257       (4 )     (1.6 )%
Interest income
    (64 )     (46 )     (18 )     39.1 %
Other expense (income)
    (2 )     2       (4 )     NM  
                                 
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
    817       805       12       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, Mott’s and Sunkist. The disposal of the Grandma’s 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


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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, Mott’s 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 Grandma’s 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.


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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 Grandma’s 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.


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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 Mott’s. 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 Mott’s. Snapple volumes increased primarily due to the launch of Antioxidant Waters and the continued growth from super premium teas. Mott’s volumes increased due primarily to the new product launches of Mott’s for Tots juice and Mott’s 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 Mott’s 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


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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 Mott’s 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.


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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


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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 (Mott’s, 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 Grandma’s 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, DPSUBG’s 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.


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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 Grandma’s 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.


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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 Group’s 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.


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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 customer’s 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.


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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 unit’s 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 option’s 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),


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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.


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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 enterprise’s 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:
 
  •  We will incur significant third party debt in connection with the separation;
 
  •  We will continue to make capital expenditures to build new manufacturing capacity, upgrade our existing plants and distribution fleet of trucks, replace and expand our cold drink equipment, make IT investments for IT systems, and from time-to-time invest in restructuring programs in order to improve operating efficiencies and lower costs;
 
  •  We will assume significant pension obligations; and
 
  •  We may make further acquisitions.
 
New Financing Arrangements
 
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


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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:
 
  •  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.
 
  •  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 restructuring costs of $27 million in 2006 are primarily related to the following:
 
  •  Integration of the Bottling Group initiated in 2006; and
 
  •  Outsourcing initiatives of our back office operations service center and a reorganization of our IT operations initiated in 2006.
 
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


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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.


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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.
 
                                                         
          Payments Due in Year  
    Total     2008     2009     2010     2011     2012     After 2012  
                      (In millions)              
 
Long-term debt obligations(1)
  $ 3,019     $ 126     $ 494     $     $ 425     $ 740     $ 1,234  
Capital leases(2)
    21       2       3       3       3       3       7  
Interest payments(3)
    1,083       192       165       161       140       88       337  
Operating leases(4)
    281       72       53       45       36       29       46  
Purchase obligations(5)
    122       36       24       20       11       10       21  
Other long-term liabilities(6)
    44       4       4       4       4       4       24  
                                                         
Total
  $ 4,570     $ 432     $ 743     $ 233     $ 619     $ 874     $ 1,669  
                                                         
 
 
(1) 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.
 
(2) Amounts represent capitalized lease obligations, net of interest. Interest in respect of capital leases is included under the caption “Interest payments” on this table.
 
(3) Amounts represent our estimated interest payments based on: (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.
 
(4) Amounts represent minimum rental commitment under non-cancellable operating leases.
 
(5) Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including long-term contractual obligations.
 
(6) Amounts represent estimated pension and postretirement benefit payments for U.S. and non-U.S. defined benefit plans. In addition, on January 1, 2007, we adopted the provisions of FIN 48. 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.
 
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 entity’s 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.


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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:
 
  •  Increased health consciousness.   Consumers have become more health conscious in their food and beverage consumption. This trend is a result of increased consumer awareness of health issues, media attention regarding obesity, focus on nutrition in schools and aging trends among consumers. We believe the main beneficiaries of this trend include diet drinks, ready-to-drink teas, enhanced waters and bottled waters.
 
  •  Changes in lifestyle.   Consumers are increasingly looking for convenience due to hurried lifestyles, an increasing number of women in the work force, the rise in single-occupancy households, the increasing urbanization of populations and the decline in formal family meals. We believe changes in lifestyle will continue to drive increased sales of single-serve beverages, which typically have higher margins.
 
  •  Growing demographic segments in the United States.   The growth of various U.S. demographic segments will be increasingly important to the growth of the U.S. liquid refreshment beverage market. For example, according to the U.S. Census Bureau, over the next 20 years, more than 40% of the U.S. population growth is expected to come from the Hispanic population. We believe marketing and product innovations that target fast growing population segments, such as the Hispanic community in the United States, will drive further market growth.
 
  •  Product and packaging innovation.   We believe brand owners and bottling companies will continue to create new products and packages such as beverages with new ingredients and new premium flavors, as well as innovative convenient packaging that address changes in consumer tastes and preferences.
 
  •  Changing retailer landscape.   As retailers continue to consolidate, we believe partnering with key retailers will be instrumental for future success in the beverage industry. We believe retailers will support consumer product companies that can provide an attractive portfolio of products, a strong value proposition and efficient delivery.
 
  •  Recent increases in raw material costs.   The costs of a substantial proportion of the raw materials used in the beverage industry, such as aluminum cans and ends, glass bottles, 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.
 
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:
 
(PERFORMANCE GRAPH)
 
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:
 
  •  Coca-Cola Affiliated System.   The Coca-Cola affiliated system includes Coca-Cola Enterprises and Coca-Cola Bottling Co. Consolidated, both of which are partially-owned by Coca-Cola, as well as smaller independent Coca-Cola affiliated bottlers. The Coca-Cola affiliated system primarily manufactures, markets and distributes Coca-Cola branded products, but also manufactures and distributes other brands. For example, Coca-Cola Enterprises is the second largest bottler of our products and the largest Dr Pepper bottler.
 
  •  PepsiCo Affiliated System.   The PepsiCo affiliated system includes Pepsi Bottling Group, PepsiAmericas and Pepsi Bottling Ventures, which are partially-owned by PepsiCo, as well as smaller independent PepsiCo affiliated bottlers. The PepsiCo affiliated system primarily manufactures, markets and distributes PepsiCo branded products. These bottlers also manufacture and distribute other brands. For example, Pepsi Bottling Group is the third largest bottler of our products and the third largest Dr Pepper bottler.
 
  •  DPS System.   The DPS system consists of our Bottling Group segment, which is the largest bottler of our products and the second largest Dr Pepper bottler. Our Bottling Group is further described in this information statement.
 
  •  Independent Bottler System.   The independent bottler system includes smaller independent bottlers that are not part of the other three systems. The independent system is primarily involved with the bottling of our brands.
 
As the CSD industry has matured, brand owners have begun diversifying into higher growth non-CSDs. Today brand owners manufacture a higher percentage of finished beverages than in the past. This has led to an increased focus on alignment of economic interests through the entire manufacturing and distribution chain, which in some cases has resulted in more vertical integration of brand owners, bottlers and distributors.
 
Sales Channels.   The primary retail sales channels for liquid refreshment beverages in the United States include supermarkets, fountains, mass merchandisers, club stores, vending machines, convenience stores, gas stations, small groceries, drug chains, dollar stores and small retail stores. CSD sales are largely concentrated in the supermarkets, fountain and mass merchandisers channels. The consolidation of retailers and the growth of club stores over the last few years has increased the power and influence of these retailers on price, promotional and marketing programs and delivery requirements. The fountain channel, which constituted 23% of the U.S. CSD market segment in 2006 according to Beverage Digest, represents beverages sold at retail that come in disposable cups or glasses, such as CSDs at restaurants, convenience stores or gas stations.
 
Distribution of Finished Beverages.   Finished beverages are distributed to the retail sales channels through four main methods:
 
  •  Direct store delivery.   Finished beverages are delivered directly to the retail stores by bottlers or distributors. In many cases, the bottler or distributor is responsible for stocking and merchandising the product directly on the retail shelf.
 
  •  Warehouse delivery.   Finished beverages are shipped to retailer warehouses, and then delivered by the retailer through its own delivery system to its stores.
 
  •  Fountain foodservice.   Fountain syrup is delivered to fountain customers either through direct store delivery or the customer’s warehouse.
 
  •  Vending operations.   Finished beverages are delivered to vending machines and stocked and filled by vending service operators or bottlers.
 
Canada
 
The Canadian beverage industry is similar to the U.S. industry. However, the Canadian industry consists primarily of two CSD bottling systems (compared to four in the United States): the Coca-Cola affiliated system and


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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 ACNielsen’s 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
 
     
(DR. PEPPER SNAPPLE GROUP LOGO)  
•   #1 flavored CSD company in the United States

•   More than 75% of our volume from brands that are either #1 or #2 in their category

•   #3 North American liquid refreshment beverage business

•   $5.7 billion of net sales in 2007 from the United States (89%), Canada (4%) and Mexico and
   the Caribbean (7%)

•   $1.0 billion of income from operations in 2007
 
Our Key Brands
 
     
(DR. PEPPER LOGO)  
•   #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

 
     
(SNAPPLE)  
•   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

 
     
(7-UP)  
•   #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

 
     
(MOTTS)   •   #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

 
     
(SUNKIST)  
•   #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

 
     
(HAWAIIAN PUNCH)  
•   #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

 


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(A AND W)  
•   #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
 
     
(CANADA DRY)  
•   #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
 
     
(SCHWEPPES)  
•   #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
 
     
(SQUIRT)  
•   #1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
 
•   Flavors include regular, diet and ruby red
 
•   Founded in 1938
 
     
(CLAMATO)  
•   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
 
     
(PENAFIEL)  
•   #1 carbonated mineral water brand in Mexico
 
•   Brand includes Flavors, Twist and Naturel
 
•   Mexico’s oldest mineral water, founded in 1928
 
     
(MR. AND MRS. T)    
 
•   #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
 
 
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, Rose’s 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:
 
  •  1980’s-mid-1990’s — We began building on our then existing Schweppes business by adding brands such as Mott’s, 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.
 
  •  1999 — We acquired a 40% (increased to 45% in 2005) interest in DPSUBG, which was then our largest independent bottler.
 
  •  2000 — We acquired Snapple and other brands, significantly increasing our share of the U.S. non-CSD market segment.
 
  •  2003 — We created Cadbury Schweppes Americas Beverages by integrating the way we manage our four North American businesses (Mott’s, Snapple, Dr Pepper/Seven Up and Mexico).
 
  •  2006/2007 — We acquired the remaining 55% of DPSUBG and several smaller bottlers and integrated them into our Bottling Group operations, thereby expanding our geographic coverage.
 
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, Mott’s, 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 Mott’s 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:
 
  •  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.
 
  •  Provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our bottling and distribution businesses. For example, we can focus on maximizing profitability for our company as a whole rather than focusing on profitability generated from either the sale of concentrates or the bottling and distribution of our products.
 
  •  Enables us to be more flexible and responsive to the changing needs of our large retail customers including by coordinating sales, service, distribution, promotions and product launches.
 
  •  Allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.
 
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, Ener