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6
Execute with excellence. 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 repositioning our investments
in coolers and other cold drink equipment to locations that provide a better return on our investment. We also intend to increase
demand for high margin products like single-serve packages for many of our key brands through increased in-store activity.
We believe our integrated brand ownership, manufacturing 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 manufacturing and
distribution businesses. We intend to continue leveraging 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.
Strengthening our route-to-market will ensure the ongoing health of our brands. We continue to invest in information technology
("IT") to improve route productivity and data integrity and standards. With third party bottlers, we continue to deliver programs
that maintain priority for our brands in their systems.
Rapid Continuous Improvement. We have been able to create multi-product manufacturing facilities which provide a region
with a wide variety of our products at reduced transportation and co-packing costs. In 2011, we launched our Rapid Continuous
Improvement ("RCI") initiative, which uses Lean and Six Sigma methods to deliver customer value and improve productivity.
We believe RCI is a means to achieve net income growth and increase the amount of cash returned to our stockholders.
OUR BUSINESS OPERATIONS
As of December 31, 2014, our operating structure consists of three business segments: Beverage Concentrates, Packaged
Beverages and Latin America Beverages. Segment financial data for 2014, 2013 and 2012, including financial information about
foreign and domestic operations, is included in Note 22 of the Notes to our Audited Consolidated Financial Statements.
Beverage Concentrates
Our Beverage Concentrates segment is principally a brand ownership business. In this segment we manufacture and sell
beverage concentrates in the U.S. and Canada. Most of the brands in this segment are CSD brands. In 2014, our Beverage
Concentrates segment had net sales of approximately $1,228 million. Key brands include Dr Pepper, Canada Dry, Crush,
Schweppes, Sunkist soda, 7UP, A&W, Sun Drop, RC Cola, Squirt, Diet Rite, Vernors and the concentrate form of Hawaiian Punch.
We are the industry leader in flavored CSDs with a 38.8% market share in the U.S. for 2014 as measured by retail sales
according to Nielsen. We are also the third largest CSD brand owner as measured by 2014 retail sales in the U.S. and Canada and
we own a leading brand in most of the CSD categories in which we compete.
Almost all of our beverage concentrates are manufactured at our plant in St. Louis, Missouri.
Beverage concentrates are shipped to third party bottlers, as well as to our own manufacturing systems, who combine them
with carbonation, water, sweeteners and other ingredients, package the combined product in PET containers, glass bottles and
aluminum cans, and sell them as a finished beverage to retailers. Beverage concentrates are also manufactured into syrup, which
is shipped to fountain customers, such as fast food restaurants, who mix the syrup with water and carbonation to create a finished
beverage at the point of sale to consumers. Dr Pepper represents most of our fountain channel volume. Concentrate prices
historically have been reviewed and adjusted at least on an annual basis.
Our Beverage Concentrates brands are sold by our bottlers, including our own Packaged Beverages segment, through all
major retail channels including supermarkets, fountains, mass merchandisers, club stores, vending machines, convenience stores,
gas stations, small groceries, drug chains and dollar stores. Unlike the majority of our other CSD brands, 59% of Dr Pepper volumes
are distributed through the Coca-Cola affiliated and PepsiCo affiliated bottler systems.
PepsiCo and Coca-Cola are the two largest customers of the Beverage Concentrates segment, and constituted approximately
27% and 21%, respectively, of the segment's net sales during 2014.