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DR PEPPER SNAPPLE GROUP ANNUAL REPORT

Table of contents

  • Page 1
    D R P E P P E R SN A P P L E G R O U P A NNUA L RE P O R T

  • Page 2
    ...than 50 brands of juices, teas and carbonated soft drinks with a heritage of more than 200 years NINE OF OUR 12 LEADING Named Company BRANDS ARE NO. 1 IN THEIR FLAVOR CATEGORIES of the Year in 2010 by Beverage World magazine CEO LARRY D. YOUNG NAMED 2010 BEVERAGE EXECUTIVE OF THE YEAR BY BEVERAGE...

  • Page 3
    ...and Diet Dr Pepper nearly quintupled its availability there. ® •฀ Building upon route expansions in 2009, Latin America Beverages grew volume share in every major category except ï¬,avored water. •฀ We published our first-ever corporate social responsibility (CSR) report, "Sustainability...

  • Page 4
    ... in large part on increased Dr Pepper availability. All told, Dr Pepper bottler case sales volume increased 3 percent last year. It was also a great year for Snapple, with volume up 10 percent. Diet Snapple Trop A Rocka, created as a limited-time offering with the help of "The Celebrity Apprentice...

  • Page 5
    BUILDING SHAREHOLDER VALUE OVER TIME INVEST FOR GROWTH BUILD THE FOUNDATION 2007-2010 Build Our Brands Grow Per Caps Rapid Continuous Improvement OPTIMIZE RETURN ON CAPITAL Managers฀throughout฀the฀company฀have฀used฀ these฀and฀other฀tools฀to฀become฀better฀coaches฀to฀ ...

  • Page 6
    ... recognized by our customers and peers in the industry. In addition to the Mott's Medleys award at InterBev, we won two other new product awards in 2010. CSP magazine named Crush Cherry its Retailer Choice Best New CSD of the Year and Snapple Compassionberry Tea its Best New Ready-to-Drink Tea...

  • Page 7
    ... ï¬,avors to consumers: Snapple Compassionberry Tea and Diet Snapple Trop A Rocka. The latter is now a permanent part of our portfolio. 7UP was reformulated and given "ridiculously bubbly" new brand positioning in 2010, gaining share in 25 of the 34 packaged beverage markets in which we compete and...

  • Page 8
    ... our Victorville plant and improved distribution to grow our warehouse direct brands and gain market share. Hawaiian Punch and our mixers are expected to do especially well, as we added more than one million incremental cases in 2010. Beyond ï¬,avors and fun, we're also keeping consumers informed so...

  • Page 9
    ...we compete. RC: We created our Packaged Beverages segment through the integration of our company-owned DSD (direct store delivery) business and our warehouse direct business, which manufactures and sells Hawaiian Punch, Clamato, Mott's juice and apple sauce, premium CSDs and mixers. Our regional and...

  • Page 10
    ... CHANNEL DISTRIBUTION +15.4 +3.4 +2.3 + 0.8 + 0.8 +1.3 +1.5 ® We're making sure that our brands are always close at hand, increasing all-channel volume distribution to get more of our products into a higher percentage of retailers each year. Source: The Nielsen Company Winning in Single-Serve...

  • Page 11
    ... also recently signed an agreement with Popeyes® that will bring Dr Pepper to an additional 700 locations and Hawaiian Punch to more than 1,300 locations. We're also thinking beyond availability to actually bring consumers out to the stores. Our brands and promotions deliver value that goes beyond...

  • Page 12
    ... at delivering customer value and improving productivity by eliminating all non-value-adding activities, thereby enhancing growth opportunities. RCI begins with consumer insights and extends through every process, including innovation, marketing, sales, manufacturing, distribution and administrative...

  • Page 13
    ... with fountain syrup production by nearly two thirds. The plant is now able to ship its top SKUs directly to customers, which not only lowers costs but also improves delivery times. These wins are adding up, and each new project has a ripple effect as employees across the company see the results...

  • Page 14
    ... our volume comes from diet soft drinks, waters and juices. We're leveraging our distribution model to expand the availability of 8-oz. cans nationwide, offering consumers a greater selection of smaller package sizes. BETTER NUTRITION Mott's Sauces The Mott's portfolio offers a variety of healthy...

  • Page 15
    DR PEPPER SNAPPLE GROUP, INC. RECONCILIATION OF GAAP AND NON-GAAP INFORMATION For the Twelve Months Ended December 31, 2010 and 2009 (Unaudited) The company reports its financial results in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). ...

  • Page 16
    (Intentionally Left Blank) 14

  • Page 17
    ... 30, 2010, the last business day of the registrant's most recently completed second fiscal quarter, was $8,930,084,770 (based on the closing sale price of the registrant's Common Stock on that date as reported on the New York Stock Exchange). As of February 17, 2011, there were 223,974,770 shares of...

  • Page 18
    (Intentionally Left Blank)

  • Page 19
    .... Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements...

  • Page 20
    ... cost of employee benefits; increases in cost of materials or supplies used in our business; shortages of materials used in our business; substantial disruption at our manufacturing or distribution facilities; the need for substantial investment and restructuring at our production, distribution and...

  • Page 21
    ..., we acquired Snapple and other brands, significantly increasing our share of the U.S. NCB market segment. In 2003, we created Cadbury Schweppes Americas Beverages by integrating the way we managed our four North American businesses (Mott's,Snapple, Dr Pepper/Seven Up and Mexico). During 2006 and...

  • Page 22
    ... • • #2 orange CSD in the U.S. Flavors include orange, diet and other fruits Brand began as the all-natural orange flavor drink in 1906 • • • #2 ginger ale in the U.S. and Canada Brand includes club soda, tonic and other mixers First carbonated beverage in the world, invented in 1783 2

  • Page 23
    ... teas Brand also includes premium juices and juice drinks Founded in Brooklyn, New York in 1972 #1 apple juice and #1 apple sauce brand in the U.S. Juice products include apple and other fruit juices, Mott's for Tots and Mott's Medleys Apple sauce products include regular, unsweetened, flavored...

  • Page 24
    ... key brands are Dr Pepper, 7UP, Sunkist soda, A&W, Canada Dry and Crush, and we also sell regional and smaller niche brands. In the CSD market we are primarily a manufacturer of beverage concentrates and fountain syrups. Beverage concentrates are highly concentrated proprietary flavors used to make...

  • Page 25
    ... to growing segments of the market with relatively low risk and capital investment. Increase presence in high margin channels and packages. We are focused on improving our product presence in high margin channels, such as convenience stores, vending machines and small independent retail outlets...

  • Page 26
    ... Dr Pepper, Crush, Canada Dry, Sunkist soda, Schweppes, 7UP, A&W, RC Cola, Squirt, Sun Drop, Diet Rite, Welch's, Country Time, Vernors and the concentrate form of Hawaiian Punch. We are the industry leader in flavored CSDs with a 40.4% market share in the U.S. for 2010, as measured by retail sales...

  • Page 27
    ...by third party distributors. The raw materials used to manufacture our products include aluminum cans and ends, glass bottles, PET bottles and caps, paper products, sweeteners, juices, water and other ingredients. We sell our Packaged Beverages' products both through our DSD, supported by a fleet of...

  • Page 28
    ... sales ratably over the estimated 25-year life of the customer relationship. Customers We primarily serve two groups of customers: 1) bottlers and distributors and 2) retailers. Bottlers buy beverage concentrates from us and, in turn, they manufacture, bottle, sell and distribute finished beverages...

  • Page 29
    ... companies for use in connection with food, confectionery and other products. We also license certain brands, such as Dr Pepper and Snapple, to third parties for use in beverages in certain countries where we own the brand but do not otherwise operate our business. Marketing Our marketing strategy...

  • Page 30
    ... own fleet of more than 5,000 delivery trucks, as well as third party logistics providers. Raw Materials The principal raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and caps, paper products, sweeteners, juice, fruit, water and other ingredients. The cost...

  • Page 31
    ... energy drinks, bottled water and NCBs (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...

  • Page 32
    ... the beverage market in the U.S. is from Beverage Digest, and, except as otherwise indicated, is from 2009. All information regarding our brand market positions in the U.S. is from The Nielsen Company and is based on retail dollar sales in 2010. ITEM 1A. RISK FACTORS Risks Related to Our Business In...

  • Page 33
    ... Customer and consumer demand for our products may be impacted by recession or other economic downturn in the U.S., Canada, Mexico or the Caribbean, which could result in a reduction in our sales volume and/or switching to lower price offerings. Similarly, disruptions in financial and credit markets...

  • Page 34
    ... raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and caps, paperboard packaging, sweeteners, juice, fruit, water and other ingredients. Additionally, conversion of raw materials into our products for sale also uses electricity and natural gas. The cost...

  • Page 35
    ... 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 U.S., Canada or Mexico. For example, the Dr Pepper...

  • Page 36
    ...production, distribution, packaging, cost of raw materials, fuel, ingredients, and water could all negatively impact our business and financial results. Changes in accounting standards could affect our reported financial results. The number of new accounting standards or pronouncements is increasing...

  • Page 37
    ... EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES In the United States, our common stock is listed and traded on the New York Stock Exchange under the symbol "DPS". Information as to the high and low sales prices of our stock for the two years ended December 31, 2010...

  • Page 38
    ... share repurchases or dividends, and the establishment of record and payment dates for dividends, if any, are subject to final determination by our Board of Directors (the "Board") after its review of the then current strategy and financial performance and position, among other things. Common Stock...

  • Page 39
    ... day we became a publicly traded company on the New York Stock Exchange, with dividends reinvested. Comparison of Total Returns Assumes Initial Investment of $100 December 2010 The Peer Group Index consists of the following companies: The Coca-Cola Company, PepsiCo, Inc., Hansen Natural Corporation...

  • Page 40
    ... for per share information. For periods prior to May 7, 2008, our financial data has been prepared on a "carve-out" basis from Cadbury's consolidated financial statements using the historical results of operations, assets and liabilities attributable to Cadbury's Americas Beverages business and...

  • Page 41
    ...Subsequent to May 7, 2008, the number of basic shares includes approximately 500,000 shares related to former Cadbury Schweppes benefit plans converted to DPS shares on a daily volume weighted average. (3) The 2010 other non-current liabilities reflects non-current deferred revenue of $1,515 million...

  • Page 42
    ... beverages ("NCBs"), including ready-to-drink teas, juices, juice drinks and mixers. Our brand portfolio includes popular CSD brands such as Dr Pepper, Sunkist soda, 7UP, A&W, Canada Dry, Crush, Squirt, Peñafiel, Schweppes and Venom Energy, and NCB brands such as Snapple, Mott's, Hawaiian Punch...

  • Page 43
    ...brands such as FIJI mineral water and AriZona tea. In addition, a small portion of our Packaged Beverages sales come from bottling beverages and other products for private label owners or others for a fee. Integrated Business Model. We believe our integrated business model: • Strengthens our route...

  • Page 44
    ... CSD brands. In 2010, our Beverage Concentrates segment had net sales of approximately $1.2 billion. Key brands include Dr Pepper, Crush, Canada Dry, Sunkist soda, Schweppes, 7UP, A&W, RC Cola, Squirt, Sun Drop, Diet Rite, Welch's, Country Time, Vernors and the concentrate form of Hawaiian Punch. We...

  • Page 45
    ...Mexican beverage market and Acqua Minerale San Benedetto provides expertise in water production and new packaging technologies. We sell our finished beverages through all major Mexican retail channels, including the "mom and pop" stores, supermarkets, hypermarkets, and on premise channels. Volume In...

  • Page 46
    ...and is being recognized as net sales ratably over the estimated 25-year life of the customer relationship. We also agreed to license certain brands to Coca-Cola associated with Coca-Cola's acquisition of CCE's North American Bottling Business in October 2010. As part of the transaction, DPS received...

  • Page 47
    ... sales to third party distributors. Squirt volume increased 5%. In NCBs, 10% growth in Snapple was due to the successful restage of the brand, the growth of value offerings and increased marketing. A 3% increase in Mott's was the result of new distribution and strong brand support. Additionally...

  • Page 48
    ... year ended December 31, 2010 compared with the year ended December 31, 2009. Significant drivers of the increase were primarily due to higher marketing spend related to targeted marketing, changes in foreign currency, unfavorable comparison of the changes in fair value of commodity derivatives used...

  • Page 49
    ... We report our business in three segments: Beverage Concentrates, Packaged Beverages and Latin America Beverages. The key financial measures management uses to assess the performance of our segments are net sales and SOP. The following tables set forth net sales and SOP for our segments for 2010 and...

  • Page 50
    ...digit increase in Canada Dry due to targeted marketing programs. Dr Pepper volumes declined 1%. Total NCB volume increased 6% as a result of a 12% increase in Snapple due to the successful restage of the brand, growth of value offerings and increased marketing. Hawaiian Punch and Mott's increased 11...

  • Page 51
    ... segment, a 10% increase in Squirt due to higher sales to third party bottlers, a 31% increase in Crush with the continued growth from the introduction of new flavors in a 2.3 liter value offering, as well as additional distribution routes added throughout 2009 and 2010. These volume increases...

  • Page 52
    ... consolidated financial statements using historical results of operations, assets and liabilities attributable to Cadbury's Americas Beverages business and including allocations of expenses from Cadbury. The historical Cadbury's Americas Beverages information is our predecessor financial information...

  • Page 53
    ... on premium beverage products. In 2009, we extended and repositioned our Snapple offerings to support the long term health of the brand. In North America volume increased 3% and in Mexico and the Caribbean volume increased 2%. Net Sales Net sales decreased $179 million, or 3%, for the year ended...

  • Page 54
    ... Income and Other Income Interest expense decreased $14 million compared with the year ago period. Interest expense for the year ended December 31, 2009, reflects our capital structure as a stand-alone company and principally relates to our Term Loan Afacility and senior unsecured notes. As the Term...

  • Page 55
    ... of Operations by Segment We report our business in three segments: Beverage Concentrates, Packaged Beverages and Latin America Beverages. The key financial measures management uses to assess the performance of our segments are net sales and SOP. The following tables set forth net sales and SOP for...

  • Page 56
    ... an incremental 44 million cases in 2009. Dr Pepper increased 2% led by the launch of the Cherry line extensions and strength in Diet Dr Pepper. The volume of our Core 4 brands declined 1%. Packaged Beverages The following table details our Packaged Beverages segment's net sales and SOP for 2009...

  • Page 57
    ... the year ended December 31, 2008. The increase in volumes was driven by additional distribution routes, gains in Crush with the introduction of new flavors in a 2.3 liter value offering which added an incremental 4 million cases in 2009, and gains in Peñafiel, which benefited from a new marketing...

  • Page 58
    ... Customer and consumer demand for the Company's products may be impacted by recession or other economic downturn in the United States, Canada, Mexico or the Caribbean, which could result in a reduction in our sales volume. Similarly, disruptions in financial and credit markets may impact the Company...

  • Page 59
    ... years ended December 31, 2010 and 2009. The net proceeds from the sale of the debentures were used to settle with Cadbury related party debt and other balances, eliminate Cadbury's net investment in us, purchase certain assets from Cadbury related to our business and pay fees and expenses related...

  • Page 60
    ...ability of subsidiaries to make distributions. These covenants are ...corporate purposes. Outstanding Commercial Paper reduces the amount of borrowing capacity available under the Revolver. We did not issue any Commercial Paper during the year ended December 31, 2010. Shelf Registration Statement...

  • Page 61
    ...higher accruals for customer promotion and employee compensation, increased inventory purchases and improved cash management. Other non-current liabilities decreased primarily due to payments associated with the Company's pension and postretirement employee benefit plans. Net Cash (Used In) Provided...

  • Page 62
    ... and replacement of existing cold drink equipment. The increase in 2009 compared with 2008 was primarily related to costs of a new manufacturing and distribution center in Victorville, California. Beginning in 2011, we expect to incur discretionary annual capital expenditures, net of proceeds...

  • Page 63
    ...operations may not be immediately available for these purposes. Foreign cash balances constitute approximately 20% of our total cash position as of December 31, 2010. Dividends 2011 On February 10, 2011, our Board declared a dividend of $0.25 per share on outstanding common stock, which will be paid...

  • Page 64
    ... Notes to our Audited Consolidated Financial Statements for additional information regarding the items described in this table. The following table summarizes our contractual obligations and contingencies at December 31, 2010 (in millions): Payments Due in Year After Total 2011 2012 2013 2014 2015...

  • Page 65
    ... North American Bottling Business and executed separate agreements pursuant to which Coca-Cola will offer Dr Pepper and Diet Dr Pepper in local fountain accounts and the Freestyle fountain program. Under the new licensing agreements, Coca-Cola began distributing Dr Pepper in the U.S. and Canada Dry...

  • Page 66
    ... list price structure across locations. The impact of the change increased gross sales and related discounts by equal amounts on customer invoices. Net sales were not affected. The amounts of trade spend are larger in our Packaged Beverages segment than those related to other parts of our business...

  • Page 67
    ... Statements of Operations. A summary of the impairment charges for 2008 is provided below (in millions): For the Year Ended December 31, 2008 Impairment Charge Income Tax Benefit Impact on Net Income Snapple brand(1) Distribution rights Goodwill Total _____ (1) Included within the WD reporting...

  • Page 68
    ... unit's goodwill, Snapple brand and the DSD reporting unit's distribution rights recorded in the fourth quarter. Indicative of the economic and market conditions, our average stock price declined 19% in the fourth quarter as compared to the average stock price from May 7, 2008, the date of our...

  • Page 69
    ... consumer goods companies of similar market capitalization and large food and beverage industry companies which have experienced an initial public offering since June 2001. In accordance with U.S. GAAP, we recognize the cost of all unvested employee stock options on a straight-line attribution...

  • Page 70
    ... 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for a discussion of recent accounting standards and pronouncements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks arising from changes in market rates and prices...

  • Page 71
    ... ranging from two to three years in order to convert fixed-rate, long-term debt to floating rate debt. These swaps were entered into at the inception of the 2011 and 2012 Notes and were originally accounted for as fair value hedges under U.S. GAAP. Effective March 10, 2010, $225 million notional of...

  • Page 72
    ... Audited Financial Statements: Reports of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 Consolidated Balance Sheets as of December 31, 2010 and 2009 Consolidated Statements of Cash Flows for the years ended...

  • Page 73
    ... PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Dr Pepper Snapple Group, Inc. We have audited the accompanying consolidated balance sheets of Dr Pepper Snapple Group, Inc. and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements...

  • Page 74
    ...the year ended December 31, 2010 of the Company and our report dated February 22, 2011 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the allocation of certain general corporate overhead costs through May 7, 2008, from Cadbury Schweppes...

  • Page 75
    DR PEPPER SNAPPLE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2010, 2009 and 2008 For the Year Ended December 31, 2010 2009 (In millions, except per share data) 2008 Net sales Cost of sales Gross profit Selling, general and administrative expenses Depreciation...

  • Page 76
    DR PEPPER SNAPPLE GROUP, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2010 and 2009 December 31, 2010 December 31, 2009 (In millions except share and per share data) ASSETS Current assets: Cash and cash equivalents Accounts receivable: Trade, net Other Inventories Deferred tax assets ...

  • Page 77
    DR PEPPER SNAPPLE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2010, 2009 and 2008 For the Year Ended December 31, 2009 2008 (In millions) 2010 Operating activities: 555 $ $ 528 $ Net income (loss) Adjustments to reconcile net income (loss) to net cash ...

  • Page 78
    DR PEPPER SNAPPLE GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31, 2010, 2009 and 2008 Accumulated Additional Common Stock Issued Shares Amount Capital (Deficit) Investment Income (Loss) Paid-In Earnings ...

  • Page 79
    ... ready-to-drink teas, juices, juice drinks and mixers. The Company's brand portfolio includes popular CSD brands such as Dr Pepper, Sunkist soda, 7UP, A&W, Canada Dry, Crush, Squirt, Peñafiel, Schweppes, and Venom Energy, and NCB brands such as Snapple, Mott's, Hawaiian Punch, Clamato, Rose...

  • Page 80
    ... Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company determines the required allowance for doubtful collections using information such as its customer credit history and financial condition, industry and market segment information, economic...

  • Page 81
    ... further information. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful asset lives as follows: Type of Asset Useful Life Buildings Building improvements Machinery and equipment Vehicles Cold drink equipment Computer software 40 years...

  • Page 82
    ... 7 for additional information. Other Assets The Company provides support to certain customers to cover various programs and initiatives to increase net sales, including contributions to customers or vendors for cold drink equipment used to market and sell the Company's products. These programs and...

  • Page 83
    ... due to their short-term nature. The fair value of long term debt as of December 31, 2010 and 2009, is based on quoted market prices for publicly traded securities. The Company estimates fair values of financial instruments measured at fair value in the financial statements on a recurring basis to...

  • Page 84
    ... represent the deferred tax expense or benefit for the year. The total of taxes currently payable per the tax return and the deferred tax expense or benefit represents the income tax expense or benefit for the year for financial reporting purposes. The Company periodically assesses the likelihood of...

  • Page 85
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Customer Marketing Programs and Incentives The Company offers a variety of incentives and discounts to bottlers, customers and consumers through various programs to support the distribution of its products...

  • Page 86
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Foreign Currency Translation The functional currency of the Company's operations outside the United States is generally the local currency of the country where the operations are located. The balance ...

  • Page 87
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 3. Accounting for the Separation from Cadbury Upon separation, effective May 7, 2008, DPS became an independent company,which established a new consolidated reporting structure. For the periods prior to ...

  • Page 88
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Items Impacting Equity In connection with the Company's separation from Cadbury, the following transactions were recorded as a component of Cadbury's net investment in DPS as of May 7, 2008 (in millions): ...

  • Page 89
    ... fair value as the joint venture is not publicly traded. The Company's proportionate share of the net income resulting from its investment in the joint venture is reported under the line item captioned equity in earnings of unconsolidated subsidiaries, net of tax, in the Consolidated Statements of...

  • Page 90
    ... charges of $180 million for the year ended December 31, 2008, which are reported in the line item impairment of goodwill and intangible assets in the Company's Consolidated Statements of Operations. (2) The Packaged Beverages segment is comprised of two reporting units, DSD and the Warehouse Direct...

  • Page 91
    ... is measured based on what each intangible asset or reporting unit would be worth to a third party market participant. For our annual impairment analysis performed as of December 31, 2010 and 2009, methodologies used to determine the fair values of the assets included an income based approach, as...

  • Page 92
    ... the rights to manufacture, distribute and sell products of the licensor within specified territories. (3) Includes all goodwill recorded in the DSD reporting unit which related to our bottler acquisitions in 2006 and 2007. The following table summarizes the critical assumptions that were used in...

  • Page 93
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following as of December 31, 2010 and 2009 (in millions): December 31, 2010 December 31, 2009 Trade ...

  • Page 94
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The 2011 and 2012 Notes On December 21, 2009, the Company completed the issuance of $850 million aggregate principal amount of senior unsecured notes consisting of $400 million of 1.70% senior notes (the "...

  • Page 95
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The senior unsecured credit facility contains customary negative covenants that, among other things, restrict the Company's ability to incur debt at subsidiaries that are not guarantors; incur liens; merge...

  • Page 96
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Derivatives DPS is exposed to market risks arising from adverse changes in interest rates; foreign exchange rates; and commodity prices, affecting the cost of raw materials. The Company manages ...

  • Page 97
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As of December 31, 2010, the carrying value of the 2011 and 2012 Notes increased by $9 million, which includes the $5 million adjustment, net of amortization, that resulted from the de-designation events ...

  • Page 98
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Commodities DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process through futures contracts. The intent of these contracts is to provide a ...

  • Page 99
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S. GAAP to the Consolidated Statements of Operations and Other Comprehensive Income ("...

  • Page 100
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the Consolidated Statements of Operations for the years ended December 31, 2010 ...

  • Page 101
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 12. Income Taxes Income (loss) before provision for income taxes and equity in earnings of unconsolidated subsidiaries was as follows (in millions): For the Year Ended December 31, 2010 2009 2008 U.S. ...

  • Page 102
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following is a reconciliation of income taxes computed at the U.S. federal statutory tax rate to the income taxes reported in the Consolidated Statements of Operations (in millions): For the Year Ended...

  • Page 103
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company's Canadian deferred tax assets included a separation related balance of $131 million that was offset by a liability due to Cadbury of $119 million driven by the Tax Indemnity Agreement. ...

  • Page 104
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits from January 1, 2008 to December 31, 2010, (in millions): Balance as of December 31, 2007 Tax position ...

  • Page 105
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company did not incur any significant restructuring charges during the years ended December 31, 2010 and 2009. Restructuring charges incurred during the year ended December 31, 2008 were as follows (in...

  • Page 106
    ... costs to date by operating segment (in millions). The Company does not expect to incur additional restructuring charges related to the integration of the bottling group. Costs For the Year Ended December 31, 2008 Cumulative Costs to Date Packaged Beverages Beverage Concentrates Corporate Total...

  • Page 107
    .... The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 (in millions): Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets Level 1 Significant Other...

  • Page 108
    ... 31, 2010 and 2009 was estimated based on quoted market prices for publicly traded securities. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all debt at such date. 15. Employee Benefit Plans...

  • Page 109
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company will be providing a subsidy to eligible participants who have reached the age of 65, which replaces certain current retiree medical plans and can be used to help pay for qualified medical ...

  • Page 110
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables set forth amounts recognized in the Company's financial statements and the plans' funded status for the years ended December 31, 2010 and 2009 (in millions): Postretirement Pension ...

  • Page 111
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the components of the net periodic benefit cost and changes in plan assets and benefit obligations recognized in OCI for the stand alone U.S. and foreign plans for the years ...

  • Page 112
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the expected future benefit payments cash activity for the Company's pension and postretirement medical plans in the future (in millions): 2011 2012 2013 2014 2015 2016-2020...

  • Page 113
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the weighted-average assumptions used to determine benefit obligations at the plan measurement dates for foreign plans: Postretirement Medical Plans 2010 2009 Pension Plans ...

  • Page 114
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Plans' asset allocation policy is reviewed at least annually. Factors considered when determining the appropriate asset allocation include changes in plan liabilities, an evaluation of market ...

  • Page 115
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Measurements at December 31, 2009 Quoted Prices in Active Markets for Identical Assets Total (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and...

  • Page 116
    ... Corporate bonds International bonds Total _____ (1) Equity securities are comprised of common stock and actively managed U.S. index funds and Europe, Australia, Far East (EAFE) index funds. Investments in common stocks are valued using quoted market prices multiplied by the number of shares held...

  • Page 117
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During the third quarter of 2009, a trustee-approved mass withdrawal under one multi-employer plan was triggered and the trustee estimated the unfunded vested liability for the Company. As a result of this...

  • Page 118
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Omnibus Stock Incentive Plan of 2008 In connection with the separation from Cadbury, on May 5, 2008, Cadbury Schweppes Limited, the Company's sole stockholder, approved the Company's Omnibus Stock ...

  • Page 119
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of DPS' stock option activity for the year ended December 31, 2010, is as follows: Weighted Average Remaining Contractual Term (Years) Stock Options Weighted Avergage Exercise Price Aggregate ...

  • Page 120
    ... to May 7, 2008, the number of basic shares includes approximately 500,000 shares related to former Cadbury benefit plans converted to DPS shares on a daily volume weighted average. See Note 16 for further information regarding the Company's stock-based compensation plans. Stock options, RSUs and...

  • Page 121
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 18. Accumulated Other Comprehensive Loss The Company's accumulated balances, shown net of tax for each classification of AOCL as of December 31, 2010... date for DPS' defined benefit pension plans from...

  • Page 122
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 19. Supplemental Cash Flow Information The following table details supplemental cash flow disclosures of the net change in operating assets and liabilities, non-cash investing and financing activities ...

  • Page 123
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 20. Commitments and Contingencies Lease Commitments The Company has leases for certain facilities and equipment which expire at various dates through 2020. Operating lease expense was $82 million, $79 ...

  • Page 124
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Robert Jones v. Seven Up/RC Bottling Company of Southern California, Inc. In 2007, one of the Company's subsidiaries, Seven Up/RC Bottling Company Inc., was sued by Robert Jones in the Superior Court in ...

  • Page 125
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Information about the Company's operations by operating segment for the years ended December 31, 2010, 2009 and 2008 is as follows (in millions): For the Year Ended December 31, 2010 2009 2008 Segment ...

  • Page 126
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the Year Ended December 31, 2010 2009 2008 Depreciation Beverage Concentrates Packaged Beverages Latin America Beverages Segment total Corporate and other Depreciation as reported $ 15 151 10 176 9 ...

  • Page 127
    ... reported in our Packaged Beverages and Latin America Beverages segments. Additionally, customers in our Beverage Concentrates segment buy concentrate from us which is used in finished goods sold by our third party bottlers to Wal-Mart. These indirect sales further increase the concentration of risk...

  • Page 128
    ... in accordance with the reporting requirements for guarantor subsidiaries. On May 7, 2008, Cadbury plc transferred its Americas Beverages business to Dr Pepper Snapple Group, Inc., which became an independent publicly-traded company. Prior to the transfer, Dr Pepper Snapple Group, Inc. did not have...

  • Page 129
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations For the Year Ended December 31, 2009 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Net sales Cost of sales Gross profit Selling, general...

  • Page 130
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations For the Year Ended December 31, 2008 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Net sales Cost of sales Gross profit Selling, general...

  • Page 131
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet As of December 31, 2010 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Current assets: Cash and cash equivalents Accounts receivable: Trade, net ...

  • Page 132
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet As of December 31, 2009 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Current assets: Cash and cash equivalents Accounts receivable: Trade, net ...

  • Page 133
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2010 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Operating activities: Net cash provided by operating ...

  • Page 134
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2009 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Operating activities: Net cash provided by operating ...

  • Page 135
    DR PEPPER SNAPPLE GROUP, INC. NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2008 Parent Guarantors Non-Guarantors (In millions) Eliminations Total Operating activities: Net cash provided by operating ...

  • Page 136
    ... North American Bottling Business and executed separate agreements pursuant to which Coca-Cola will offer Dr Pepper and Diet Dr Pepper in local fountain accounts and the Freestyle fountain program. Under the new licensing agreements, Coca-Cola began distributing Dr Pepper in the U.S. and Canada Dry...

  • Page 137
    ... financial statements. First For the Year Ended December 31, Quarter Second Quarter Third Quarter Fourth Quarter (In millions, except per share data) 2010 Net sales Gross profit Net income Basic earnings per common share Diluted earnings per common share Dividend declared per share Common stock...

  • Page 138
    ... independent registered public accounting firm, as stated in their attestation report, which is included in Item 8, "Financial Statements and Supplementary Data," of the Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting As of December 31, 2010, management has concluded...

  • Page 139
    ... STATEMENT SCHEDULES Financial Statements The following financial statements are included in Part II, Item 8, "Financial Statements and Supplementary Data," in this Annual Report on Form 10-K Exhibits See Index to Exhibits. Consolidated Statements of Operations for the years ended December 31, 2010...

  • Page 140
    ...by reference). Transition Services Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc., dated as of May 1, 2008 (initially filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on May 5, 2008), refiled as Exhibit 10.1 to the Company's Quarterly Report on Form...

  • Page 141
    ... the Company's Current Report on Form 8-K (filed on October 27, 2009) and incorporated herein by reference). First Amendment to the Letter Agreement, effective as of February 26, 2010, between Dr Pepper Snapple Group, Inc., DPS Holding, Inc. and John O. Stewart. Executive Employment Agreement, dated...

  • Page 142
    ... LLC, as managers of the several underwriters named in Schedule II thereto, and Dr Pepper Snapple Group, Inc. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on December 17, 2009) and incorporated herein by reference). Dr Pepper Snapple Group, Inc. 2008 Legacy Long Term...

  • Page 143
    ... Code. The following financial information from Dr Pepper Snapple Group, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008...

  • Page 144
    ... has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dr Pepper Snapple Group, Inc. By: Date: February 22, 2011 Name: Title: /s/ Martin M. Ellen Martin M. Ellen Executive Vice President and Chief Financial Officer Pursuant to the requirements...

  • Page 145
    ...: Date: February 22, 2011 Name: Title: /s/ Pamela H. Patsley Pamela H. Patsley Director By: Date: February 22, 2011 Name: Title: /s/ Joyce M. Roché Joyce M. Roché Director By: Date: February 22, 2011 Name: Title: /s/ Ronald G. Rogers Ronald G. Rogers Director By: Date: February 22, 2011 Name...

  • Page 146
    (Intentionally Left Blank) 126

  • Page 147
    ...Copies of Dr Pepper Snapple Group, Inc.'s Annual Report to the Securities and Exchange Commission on Form 10-K may be obtained without cost by submitting a request to the attention of the investor relations department at corporate headquarters or via the investor center section of the website at www...

  • Page 148
    7UP A&W AGUAFIEL BIG RED CANADA DRY C L A M AT O COUNTRY TIME CR US H D E J A BL U E DR PEPPER HAWA I I A N P U N C H IB C MISTIC MO T T ' S MR & MRS T N A N T UCKE T N ECTARS P E Ã' A FI E L RC COLA R E ALEMON REALIME RO S E'S SCHWEPPES SN A P P L E SQ U I RT ST E WA RT'S SUN DROP S U NK I S T S O ...