Snapple 2010 Annual Report Download - page 42

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion in conjunction with our audited financial statements and the related notes thereto
included elsewhere in this Annual Report on Form 10-K. 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 “Special Note Regarding Forward-Looking Statements”, “Risk Factors,” and
elsewhere in this Annual Report on Form 10-K.
References in this Annual Report on Form 10-K to “we”, “our”, “us”, “DPS” or “the Company” refer to Dr Pepper
Snapple Group, Inc. and all entities included in our Audited Consolidated Financial Statements. Cadbury plc and Cadbury
Schweppes plc are hereafter collectively referred to as “Cadbury” unless otherwise indicated. Kraft Foods Inc., which
acquired Cadbury on February 2, 2010, is hereafter referred to as “Kraft”.
The periods presented in this section are the years ended December 31, 2010, 2009 and 2008, which we refer to as “2010,”
“2009” and “2008”, respectively.
Business Overview
We are a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the United States
("U.S."), Canada and Mexico with a diverse portfolio of flavored carbonated soft drinks (“CSDs”) and non-carbonated
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, Clamato, Rose’s and Mr & Mrs T mixers. Our largest brand, Dr Pepper,
is a leading flavored CSD in the United States according to The Nielsen Company. 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 U.S., Mexico and Canada and we also distribute our products in the Caribbean. In 2010, 89%
of our net sales were generated in the United States, 4% in Canada and 7% in Mexico and the Caribbean.
Our Business Model
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, sell and distribute primarily finished NCBs. Most of our sales of beverage concentrates are to bottlers who
manufacture, bottle, sell and distribute our branded products into retail channels. 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 finished NCBs through company-owned and third party distributors.
Our beverage concentrates and 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 packaged beverages brand ownership businesses have characteristics of both of our brand ownership businesses
as well as our manufacturing and distribution businesses discussed below.
Our Manufacturing and Distribution Businesses. We manufacture, sell and distribute finished CSDs from concentrates
and finished NCBs and products mostly from ingredients other than concentrates. We sell and distribute packaged 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 manufacturing 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 brand ownership businesses. Our capital costs
include investing in, and maintaining, our company-owned fleet and manufacturing and warehouse equipment and facilities.
Our raw material costs include purchasing beverage concentrates, ingredients and packaging materials from a variety of
suppliers. Our selling and distribution costs include significant costs related to operating our large fleet of delivery trucks 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
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