KEURIG DR PEPPER INC.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-33829
|
Delaware
(State or other jurisdiction of incorporation or organization) |
98-0517725
(I.R.S. employer identification number) |
|
|
5301 Legacy Drive, Plano, Texas
(Address of principal executive offices) |
75024
(Zip code) |
(972) 673-7000
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
þ
No
o
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 the definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities
Exchange Act of 1934.
|
Large Accelerated
Filer þ |
Accelerated Filer o | Non-Accelerated Filer o |
Smaller Reporting
Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes
o
No
þ
As of
July 26, 2010, there were 238,861,420 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
DR PEPPER SNAPPLE GROUP, INC.
FORM 10-Q
INDEX
ii
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
For the Three and Six Months Ended June 30, 2010 and 2009
(Unaudited, in millions, except per share data)
(Unaudited, in millions, except per share data)
| Item 1. | Financial Statements (Unaudited). |
| For the | For the | |||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
Net sales
|
$ | 1,519 | $ | 1,481 | $ | 2,767 | $ | 2,741 | ||||||||
|
Cost of sales
|
593 | 596 | 1,089 | 1,127 | ||||||||||||
|
|
||||||||||||||||
|
Gross profit
|
926 | 885 | 1,678 | 1,614 | ||||||||||||
|
Selling, general and administrative expenses
|
587 | 550 | 1,118 | 1,049 | ||||||||||||
|
Depreciation and amortization
|
32 | 28 | 63 | 55 | ||||||||||||
|
Other operating expense (income), net
|
(3 | ) | 10 | — | (52 | ) | ||||||||||
|
|
||||||||||||||||
|
Income from operations
|
310 | 297 | 497 | 562 | ||||||||||||
|
Interest expense
|
29 | 52 | 63 | 107 | ||||||||||||
|
Interest income
|
(1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
|
Other income, net
|
(2 | ) | (2 | ) | (5 | ) | (5 | ) | ||||||||
|
|
||||||||||||||||
|
Income before provision for income taxes and equity in earnings of
unconsolidated subsidiaries
|
284 | 248 | 441 | 462 | ||||||||||||
|
Provision for income taxes
|
102 | 91 | 170 | 173 | ||||||||||||
|
|
||||||||||||||||
|
Income before equity in earnings of unconsolidated subsidiaries
|
182 | 157 | 271 | 289 | ||||||||||||
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
1 | 1 | 1 | 1 | ||||||||||||
|
|
||||||||||||||||
|
Net income
|
$ | 183 | $ | 158 | $ | 272 | $ | 290 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Earnings per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.75 | $ | 0.62 | $ | 1.09 | $ | 1.14 | ||||||||
|
Diluted
|
$ | 0.74 | $ | 0.62 | $ | 1.09 | $ | 1.14 | ||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding:
|
||||||||||||||||
|
Basic
|
244.5 | 254.2 | 248.8 | 254.2 | ||||||||||||
|
Diluted
|
246.7 | 255.1 | 250.8 | 254.6 | ||||||||||||
|
|
||||||||||||||||
|
Cash dividends declared per common share
|
$ | 0.25 | $ | — | $ | 0.40 | $ | — | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2010 and December 31, 2009
(Unaudited, in millions except share and per share data)
As of June 30, 2010 and December 31, 2009
(Unaudited, in millions except share and per share data)
| June 30, | December 31, | |||||||
|
|
2010 |
|
|
2009 |
|
|||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 411 | $ | 280 | ||||
|
Accounts receivable:
|
||||||||
|
Trade, net
|
575 | 540 | ||||||
|
Other
|
31 | 32 | ||||||
|
Inventories
|
269 | 262 | ||||||
|
Deferred tax assets
|
56 | 53 | ||||||
|
Prepaid expenses and other current assets
|
161 | 112 | ||||||
|
|
||||||||
|
Total current assets
|
1,503 | 1,279 | ||||||
|
Property, plant and equipment, net
|
1,110 | 1,109 | ||||||
|
Investments in unconsolidated subsidiaries
|
10 | 9 | ||||||
|
Goodwill
|
2,983 | 2,983 | ||||||
|
Other intangible assets, net
|
2,695 | 2,702 | ||||||
|
Other non-current assets
|
542 | 543 | ||||||
|
Non-current deferred tax assets
|
135 | 151 | ||||||
|
|
||||||||
|
Total assets
|
$ | 8,978 | $ | 8,776 | ||||
|
|
||||||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 884 | $ | 850 | ||||
|
Deferred revenue
|
36 | — | ||||||
|
Income taxes payable
|
40 | 4 | ||||||
|
|
||||||||
|
Total current liabilities
|
960 | 854 | ||||||
|
Long-term obligations
|
2,568 | 2,960 | ||||||
|
Non-current deferred tax liabilities
|
1,042 | 1,038 | ||||||
|
Non-current deferred revenue
|
851 | — | ||||||
|
Other non-current liabilities
|
734 | 737 | ||||||
|
|
||||||||
|
Total liabilities
|
6,155 | 5,589 | ||||||
|
|
||||||||
|
Commitments and contingencies
|
||||||||
|
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock, $.01 par value, 15,000,000 shares authorized, no shares issued
|
— | — | ||||||
|
Common stock, $.01 par value, 800,000,000 shares authorized, 238,836,180 and
254,109,047 shares issued and outstanding for 2010 and 2009, respectively
|
2 | 3 | ||||||
|
Additional paid-in capital
|
2,617 | 3,156 | ||||||
|
Retained earnings
|
260 | 87 | ||||||
|
Accumulated other comprehensive loss
|
(56 | ) | (59 | ) | ||||
|
|
||||||||
|
Total stockholders’ equity
|
2,823 | 3,187 | ||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$ | 8,978 | $ | 8,776 | ||||
|
|
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Table of Contents
DR PEPPER SNAPPLE GROUP, INC
.
For the Six Months Ended June 30, 2010 and 2009
(Unaudited, in millions)
| For the | ||||||||
| Six Months Ended | ||||||||
|
|
June 30, |
|
||||||
|
|
2010 |
|
|
2009 |
|
|||
|
Operating activities:
|
||||||||
|
Net income
|
$ | 272 | $ | 290 | ||||
|
Adjustments to reconcile net income to net cash provided by operations:
|
||||||||
|
Depreciation expense
|
90 | 79 | ||||||
|
Amortization expense
|
19 | 20 | ||||||
|
Amortization of deferred financing costs
|
3 | 9 | ||||||
|
Employee stock-based compensation expense
|
13 | 8 | ||||||
|
Deferred income taxes
|
13 | 38 | ||||||
|
Gain on disposal of intangible assets
|
— | (62 | ) | |||||
|
Other, net
|
7 | 4 | ||||||
|
Changes in assets and liabilities:
|
||||||||
|
Trade and other accounts receivable
|
(38 | ) | (44 | ) | ||||
|
Inventories
|
(7 | ) | (21 | ) | ||||
|
Other current assets
|
(40 | ) | 11 | |||||
|
Other non-current assets
|
(11 | ) | (21 | ) | ||||
|
Accounts payable and accrued expenses
|
17 | 60 | ||||||
|
Income taxes payable
|
39 | 12 | ||||||
|
Deferred revenue
|
36 | — | ||||||
|
Non-current deferred revenue
|
851 | — | ||||||
|
Other non-current liabilities
|
2 | (12 | ) | |||||
|
|
||||||||
|
Net cash provided by operating activities
|
1,266 | 371 | ||||||
|
Investing activities:
|
||||||||
|
Purchases of property, plant and equipment
|
(114 | ) | (138 | ) | ||||
|
Purchases of intangible assets
|
— | (7 | ) | |||||
|
Proceeds from disposals of property, plant and equipment
|
16 | 4 | ||||||
|
Proceeds from disposals of intangible assets
|
— | 68 | ||||||
|
|
||||||||
|
Net cash used in investing activities
|
(98 | ) | (73 | ) | ||||
|
Financing activities:
|
||||||||
|
Repayment of senior unsecured credit facility
|
(405 | ) | (280 | ) | ||||
|
Repurchase of shares of common stock
|
(557 | ) | — | |||||
|
Dividends paid
|
(76 | ) | — | |||||
|
Other, net
|
— | (1 | ) | |||||
|
|
||||||||
|
Net cash used in financing activities
|
(1,038 | ) | (281 | ) | ||||
|
Cash and cash equivalents — net change from:
|
||||||||
|
Operating, investing and financing activities
|
130 | 17 | ||||||
|
Currency translation
|
1 | 4 | ||||||
|
Cash and cash equivalents at beginning of period
|
280 | 214 | ||||||
|
|
||||||||
|
Cash and cash equivalents at end of period
|
$ | 411 | $ | 235 | ||||
|
|
||||||||
|
Supplemental cash flow disclosures of non-cash investing and financing activities:
|
||||||||
|
Capital expenditures included in accounts payable and accrued expenses
|
$ | 33 | $ | 21 | ||||
|
Non-cash transfer of assets
|
— | 4 | ||||||
|
Supplemental cash flow disclosures:
|
||||||||
|
Interest paid
|
$ | 67 | $ | 79 | ||||
|
Income taxes paid
|
84 | 90 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
References in this Quarterly Report on Form 10-Q to “we”, “our”, “us”, “DPS” or “the Company”
refer to Dr Pepper Snapple Group, Inc. and all entities included in our unaudited condensed
consolidated financial statements. Cadbury plc and Cadbury Schweppes plc are hereafter collectively
referred to as “Cadbury” unless otherwise indicated. Kraft Foods Inc. acquired Cadbury on
February 2, 2010. Kraft Foods, Inc. and/or its subsidiaries are hereafter collectively referred to
as “Kraft”.
This Quarterly Report on Form 10-Q refers to some of DPS’ owned or licensed trademarks, trade
names and service marks, which are referred to as the Company’s brands. All of the product names
included in this Quarterly Report on Form 10-Q are either DPS’ registered trademarks or those of
the Company’s licensors.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete consolidated financial statements. In the opinion of management,
all adjustments, consisting principally of normal recurring adjustments, considered necessary for a
fair presentation have been included. The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ from these
estimates. These unaudited condensed consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and the notes thereto in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
The Company has evaluated subsequent events through the date of issuance of the Unaudited
Condensed Consolidated Financial Statements.
Use of Estimates
The process of preparing DPS’ unaudited condensed consolidated 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 the Company believes
to be reasonable under the circumstances. The most significant estimates and judgments are reviewed
on an ongoing basis and revised when necessary. Actual amounts may differ from these estimates and
judgments. The Company has identified the following policies as critical accounting policies:
| • | revenue recognition; |
| • | customer marketing programs and incentives; |
| • | goodwill and other indefinite lived intangibles; |
| • | definite lived intangible assets; |
| • | stock-based compensation; |
| • | pension and postretirement benefits; |
| • | risk management programs; and |
| • | income taxes. |
These accounting estimates and related policies are discussed in greater detail in DPS’ Annual
Report on Form 10-K for the year ended December 31, 2009.
4
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Recently Issued Accounting Updates
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard
Update (“ASU”) No. 2010-06,
Improving Disclosures about Fair Value Measurements
(“ASU No.
2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3
fair value measurements. Portions of ASU No. 2010-06 that relate to the Level 3 activity
disclosures are effective for the annual reporting period beginning after December 15, 2010. The
Company will provide the required disclosures beginning with the Company’s Annual Report on Form
10-K for the year ending December 31, 2011. Based on the initial evaluation, the Company does not
anticipate a material impact to the Company’s financial position, results of operations or cash
flows as a result of this change.
Recently Adopted Provisions of U.S. GAAP
In accordance with U.S. GAAP, the following provisions, which had no material impact on the
Company’s financial position, results of operations or cash flows, were effective as of January 1,
2010.
| • | The application of certain key provisions of U.S. GAAP related to consolidation of variable interest entities, including guidance for determining whether an entity is a variable interest entity, ongoing assessments of control over such entities, and additional disclosures about an enterprise’s involvement in a variable interest entity. | ||
| • | The addition of certain fair value measurement disclosure requirements specific to the different classes of assets and liabilities, valuation techniques and inputs used, as well as transfers between Level 1 and Level 2. See Note 9 for further information. |
2. Inventories
Inventories as of June 30, 2010, and December 31, 2009, consisted of the following (in
millions):
| June 30, | December 31, | |||||||
|
|
2010 |
|
|
2009 |
|
|||
|
Raw materials
|
$ | 94 | $ | 105 | ||||
|
Work in process
|
4 | 4 | ||||||
|
Finished goods
|
210 | 193 | ||||||
|
|
||||||||
|
Inventories at FIFO cost
|
308 | 302 | ||||||
|
Reduction to LIFO cost
|
(39 | ) | (40 | ) | ||||
|
|
||||||||
|
Inventories
|
$ | 269 | $ | 262 | ||||
|
|
||||||||
5
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
3. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2010, and the
year ended December 31, 2009, by reporting unit are as follows (in millions):
| WD | DSD | Latin | ||||||||||||||||||
| Beverage | Reporting | Reporting | America | |||||||||||||||||
|
|
Concentrates |
|
|
Unit (1) |
|
|
Unit (1) |
|
|
Beverages |
|
|
Total |
|
||||||
|
Balance as of December 31, 2008
|
||||||||||||||||||||
|
Goodwill
|
$ | 1,733 | $ | 1,220 | $ | 180 | $ | 30 | $ | 3,163 | ||||||||||
|
Accumulated impairment losses
|
— | — | (180 | ) | — | (180 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
1,733 | 1,220 | — | 30 | 2,983 | |||||||||||||||
|
|
||||||||||||||||||||
|
Foreign currency impact
|
(1 | ) | — | — | 1 | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Balance as of December 31, 2009
|
||||||||||||||||||||
|
Goodwill
|
1,732 | 1,220 | 180 | 31 | 3,163 | |||||||||||||||
|
Accumulated impairment losses
|
— | — | (180 | ) | — | (180 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
1,732 | 1,220 | — | 31 | 2,983 | |||||||||||||||
|
|
||||||||||||||||||||
|
Foreign currency impact
|
(1 | ) | — | — | 1 | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Balance as of June 30, 2010
|
||||||||||||||||||||
|
Goodwill
|
1,731 | 1,220 | 180 | 32 | 3,163 | |||||||||||||||
|
Accumulated impairment losses
|
— | — | (180 | ) | — | (180 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 1,731 | $ | 1,220 | $ | — | $ | 32 | $ | 2,983 | ||||||||||
|
|
||||||||||||||||||||
| (1) | The Packaged Beverages segment is comprised of two reporting units, the Direct Store Delivery (“DSD”) system and the Warehouse Direct (“WD”) system. |
The net carrying amounts of intangible assets other than goodwill as of June 30, 2010, and
December 31, 2009, are as follows (in millions):
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|||||||||||||||||||
| Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|||||||
|
Intangible assets with indefinite
lives:
|
||||||||||||||||||||||||
|
Brands
|
$ | 2,652 | $ | — | $ | 2,652 | $ | 2,652 | $ | — | $ | 2,652 | ||||||||||||
|
Distributor rights
|
8 | — | 8 | 8 | — | 8 | ||||||||||||||||||
|
Intangible assets with finite lives:
|
||||||||||||||||||||||||
|
Brands
|
29 | (23 | ) | 6 | 29 | (22 | ) | 7 | ||||||||||||||||
|
Customer relationships
|
76 | (51 | ) | 25 | 76 | (45 | ) | 31 | ||||||||||||||||
|
Bottler agreements
|
22 | (18 | ) | 4 | 21 | (17 | ) | 4 | ||||||||||||||||
|
Distributor rights
|
2 | (2 | ) | — | 2 | (2 | ) | — | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total
|
$ | 2,789 | $ | (94 | ) | $ | 2,695 | $ | 2,788 | $ | (86 | ) | $ | 2,702 | ||||||||||
|
|
||||||||||||||||||||||||
As of June 30, 2010, the weighted average useful lives of intangible assets with finite lives
were 10 years, 8 years and 9 years for brands, customer relationships and bottler agreements,
respectively. Amortization expense for intangible assets was $4 million and $8 million for each of
the three and six months ended June 30, 2010 and 2009, respectively.
6
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Amortization expense of these intangible assets over the remainder of 2010 and the next
four years is expected to be the following (in millions):
| Aggregate | ||||
| Amortization | ||||
| Year | Expense | |||
|
Remaining six months for the year ending December 31, 2010
|
$ | 9 | ||
|
2011
|
8 | |||
|
2012
|
4 | |||
|
2013
|
4 | |||
|
2014
|
4 | |||
The Company conducts 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. The Company uses present value and other valuation techniques
to make this assessment. If the carrying amount of goodwill exceeds its implied fair value or the
carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in
an amount equal to that excess. DPS did not identify any circumstances that indicated that the
carrying amount of any goodwill or any indefinite lived intangible asset may not be recoverable
during the six months ended June 30, 2010.
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of June 30, 2010, and
December 31, 2009 (in millions):
| June 30, | December 31, | |||||||
|
|
2010 |
|
|
2009 |
|
|||
|
Trade accounts payable
|
$ | 313 | $ | 252 | ||||
|
Customer rebates and incentives
|
195 | 209 | ||||||
|
Accrued compensation
|
83 | 126 | ||||||
|
Insurance reserves
|
76 | 68 | ||||||
|
Interest accrual and interest rate swap liability
|
20 | 24 | ||||||
|
Dividends payable
|
60 | 38 | ||||||
|
Other current liabilities
|
137 | 133 | ||||||
|
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 884 | $ | 850 | ||||
|
|
||||||||
5. Long-term obligations
The following table summarizes the Company’s long-term obligations as of June 30, 2010, and
December 31, 2009 (in millions):
| June 30, | December 31, | |||||||
|
|
2010 |
|
|
2009 |
|
|||
|
Senior unsecured notes
(1)
|
$ | 2,556 | $ | 2,542 | ||||
|
Revolving credit facility
|
— | 405 | ||||||
|
Less – current portion
|
— | — | ||||||
|
|
||||||||
|
Subtotal
|
2,556 | 2,947 | ||||||
|
Long-term capital lease obligations
|
12 | 13 | ||||||
|
|
||||||||
|
Long-term obligations
|
$ | 2,568 | $ | 2,960 | ||||
|
|
||||||||
| (1) |
The carrying amount includes an adjustment related to
the change in the fair value of interest rate swaps designated as fair value hedges on
the 1.70% senior notes due in 2011 (the “2011 Notes”) and 2.35% senior notes due in
2012 (the “2012 Notes”).
The impact of the adjustment increased the carrying amount $7 million
as of June 30, 2010 and decreased the carrying amount by $8
million as of December 31, 2009. Refer
to Note 6 for further information regarding derivatives.
|
7
Table of Contents
2010 Borrowings and Repayments
On November 20, 2009, the Company’s Board of Directors (the “Board”) authorized the Company to
issue up to $1,500 million of debt securities through the Securities and Exchange Commission shelf
registration process. The Company issued $850 million in 2009, as
described in the section
“The 2011 and 2012 Notes”
below. As a result, $650 million remained authorized to be issued as
of June 30, 2010.
During the six months ended June 30, 2010, the Company repaid $405 million borrowed from the
revolving credit facility (the “Revolver”).
The following is a description of the Company’s senior unsecured credit facility and the
senior unsecured notes. The summaries of the senior unsecured credit facility and the senior
unsecured notes are qualified in their entirety by the specific terms and provisions of the senior
unsecured credit facility agreement (the “Facility
Agreement”) and the indentures governing the
senior unsecured notes, respectively, copies of which have previously been filed, as referenced in
the exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
Senior Unsecured Credit Facility
The Company’s senior unsecured credit facility originally provided senior unsecured financing
of up to $2,700 million, which consisted of:
| • |
the senior unsecured Term Loan A facility (the “Term Loan A”) in an aggregate
principal amount of $2,200 million with a term of five years, which was fully repaid in
December 2009 prior to its maturity, and under which no further borrowings may be made;
and
|
||
| • |
the Revolver in an aggregate principal amount of $500 million with a maturity in
2013. The balance of principal borrowings under the Revolver was $0 and $405 million as
of June 30, 2010 and December 31, 2009, respectively. Up to $75 million of the Revolver
is available for the issuance of letters of credit, of which $58 million and $41 million
were utilized as of June 30, 2010, and December 31, 2009, respectively. Balances
available for additional borrowings and letters of credit were $442 million and $17
million, respectively, as of June 30, 2010.
|
Borrowings under the senior unsecured credit facility bear interest at a floating rate per
annum based upon the London Interbank Offered Rate (“LIBOR”) or the Alternate Base Rate (“ABR”),
in each case plus an applicable margin which varies based upon the Company’s debt ratings, from
1.00% to 2.50% in the case of LIBOR loans and 0.00% to 1.50% in the case of ABR loans. The ABR
means the greater of (a) JPMorgan Chase Bank’s prime rate and (b) the federal funds effective rate
plus one half of 1%. Interest is payable on the last day of the interest period, but not
less than quarterly, in the case of any LIBOR loan and on the last day of March, June, September
and December of each year in the case of any ABR loan. There were no borrowings during the three
months ended June 30, 2010. The average interest rate was 4.50% for the three months ended June 30,
2009. The average interest rate was 2.25% and 4.80% for the six months ended June 30, 2010 and
2009, respectively. Interest expense was $22 million for the three months ended June 30, 2009, and
$2 million and $48 million for the six months ended June 30, 2010 and 2009, respectively.
Amortization of deferred financing costs of $3 million for the three months ended June 30, 2009,
and $1 million and $7 million for the six months ended June 30, 2010 and 2009, respectively, was
included in interest expense. There was no interest expense or amortization of deferred financing
costs for the three months ended June 30, 2010.
The Company utilized interest rate swaps to effectively convert variable interest rates to
fixed rates. Refer to Note 6 for further information regarding derivatives.
An unused commitment fee is payable quarterly to the lenders on the unused portion of the
commitments in respect of the Revolver equal to 0.15% to 0.50% per annum, depending upon the
Company’s debt ratings. There were minimal unused commitment fees for the three and six months ended
June 30, 2010. The Company incurred $1 million in unused commitment fees for the three and six
months ended June 30, 2009.
Principal
amounts outstanding under the Revolver are due and payable in full at
maturity in 2013.
All obligations under the senior unsecured credit facility are guaranteed by substantially all
of the Company’s existing and future direct and indirect domestic subsidiaries.
The Facility Agreement 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 or sell, transfer, lease or otherwise dispose of all or substantially all assets;
8
Table of Contents
enter into transactions with affiliates;
and enter into agreements restricting its ability to incur liens or the ability of subsidiaries to make
distributions. These covenants are subject to certain exceptions described in the Facility
Agreement. In addition, the Facility Agreement requires the Company to comply with a maximum total
leverage ratio covenant and a minimum interest coverage ratio covenant. The Facility Agreement also
contains certain usual and customary representations and warranties, affirmative covenants and
events of default. As of June 30, 2010 and December 31, 2009, the Company was in compliance with
all financial covenant requirements.
Senior Unsecured Notes
The 2011 and 2012 Notes
In December 2009, the Company completed the issuance of $850 million aggregate principal
amount of senior unsecured notes consisting of the 2011 and 2012 Notes. The weighted average
interest rate of the 2011 and 2012 Notes was 2.04% for the three and six months ended June 30,
2010. The net proceeds from the sale of the debentures were used for repayment of existing
indebtedness under the Term Loan A. Interest on the 2011 and 2012 Notes is payable semi-annually on
June 21 and December 21. Interest expense was $(1) million and $1 million for the three and six
months ended June 30, 2010, respectively. As a result of the economic hedge, the Company recorded realized and
unrealized gains of $4 million and $3 million, which reduced interest expense for the three and
six months ended June 30, 2010, respectively. Interest expense included $1 million of deferred
financing costs associated with the 2011 and 2012 Notes for the three and six months ended June 30,
2010.
The Company utilizes interest rate swaps designated as fair value and economic hedges, to
convert fixed interest rates to variable rates. Refer to Note 6 for further information regarding
derivatives.
The indenture governing the 2011 and 2012 Notes, among other things, limits the Company’s
ability to incur indebtedness secured by principal properties, to enter into certain sale and
leaseback transactions and to enter into certain mergers or transfers of substantially all of DPS’
assets. The 2011 and 2012 Notes are guaranteed by substantially all of the Company’s existing and
future direct and indirect domestic subsidiaries. As of June 30, 2010 and December 31, 2009, the
Company was in compliance with all covenant requirements.
The 2013, 2018 and 2038 Notes
During 2008, the Company completed the issuance of $1,700 million aggregate principal amount
of senior unsecured notes consisting of $250 million aggregate principal amount of 6.12% senior
notes due May 1, 2013 (the “2013 Notes”), $1,200 million aggregate principal amount of 6.82% senior
notes due May 1, 2018 (the “2018 Notes”), and $250 million aggregate principal amount of
7.45% senior notes due May 1, 2038 (the “2038 Notes”). The weighted average interest rate of the
2013, 2018 and 2038 Notes was 6.81% for each of the three and six month periods ended June 30, 2010
and 2009. Interest on the senior unsecured notes is payable
semi-annually on May 1 and November 1 and is subject to adjustment.
Interest expense was $30 million and $29 million for the three months ended June 30, 2010 and 2009,
respectively, and $59 million and $58 million for the six months ended June 30, 2010 and 2009,
respectively. Amortization of deferred financing costs of $1 million for the three and six months
ended June 30, 2010 and 2009 was included in interest expense.
The
indenture governing the 2013, 2018, and 2038 Notes, among other things, limits the Company’s
ability to incur indebtedness secured by principal properties, to enter into certain sale and
lease-back transactions and to enter into certain mergers or transfers of substantially all of DPS’
assets. The senior unsecured notes are guaranteed by substantially all of the Company’s existing
and future direct and indirect domestic subsidiaries. As of June 30, 2010 and December 31, 2009,
the Company was in compliance with all covenant requirements.
Capital Lease Obligations
Long-term capital lease obligations totaled $12 million and $13 million as of June 30, 2010,
and December 31, 2009, respectively. Current obligations related to the Company’s capital leases
were $3 million as of June 30, 2010, and December 31, 2009, and were included as a component of
accounts payable and accrued expenses.
9
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
6. 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 and fuels. |
The Company manages these risks through a variety of strategies, including the use of interest
rate swaps, foreign exchange forward contracts, commodity futures contracts and supplier pricing
agreements. DPS does not hold or issue derivative financial instruments for trading or speculative
purposes.
The Company formally designates and accounts for certain interest rate swaps and foreign
exchange forward contracts that meet established accounting criteria under U.S. GAAP as either fair
value or cash flow hedges. For derivative instruments that are designated and qualify as cash flow
hedges, the effective portion of the gain or loss on the derivative instruments is recorded, net of
applicable taxes, in Accumulated Other Comprehensive Loss (“AOCL”), a component of Stockholders’
Equity in the Unaudited Condensed Consolidated Balance Sheets. When net income is affected by the
variability of the underlying transaction, the applicable offsetting amount of the gain or loss
from the derivative instruments deferred in AOCL is reclassified to net income and is reported as a
component of the Unaudited Condensed Consolidated Statements of Operations. For derivative
instruments that are designated and qualify as fair value hedges, the effective change in the fair
value of these instruments, as well as the offsetting gain or loss on the hedged item attributable
to the hedged risk, are recognized immediately in current-period earnings. For derivatives that are
not designated or are de-designated as hedging instruments, the gain or loss on the instruments is
recognized in earnings in the period of change.
Certain interest rate swap agreements qualify for the “shortcut” method of accounting for
hedges under U.S. GAAP. Under the “shortcut” method, the hedges are assumed to be perfectly
effective and no ineffectiveness is recorded in earnings. For all other designated hedges, DPS
assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly throughout the
designated period. Changes in the fair value of the derivative instruments that do not effectively
offset changes in the fair value of the underlying hedged item or the variability in the cash flows
of the forecasted transaction throughout the designated hedge period are recorded in earnings each
period.
If fair value or cash flow hedges were to cease to qualify for hedge accounting or were
terminated, they would continue to be carried on the balance sheet at fair value until settled, but
hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases
to exist, any associated amounts reported in AOCL are reclassified to earnings at that time.
Interest Rates
Cash Flow Hedges
During 2009, DPS utilized interest rate swaps to manage its exposure to volatility in floating
interest rates on borrowings under its Term Loan A. The intent of entering into these interest rate
swaps was to provide predictability in the Company’s overall cost structure by effectively
converting variable interest rates to fixed rates. In February 2009, the Company entered into an
interest rate swap effective December 31, 2009, with a duration of twelve months and a $750 million
notional amount that amortizes at the rate of $100 million every quarter and designated it as a
cash flow hedge. An interest rate swap with a notional amount of $500 million matured in March
2009. As of June 30, 2009, DPS maintained other interest rate swaps with a notional amount of $1.2
billion with a maturity date of December 31, 2009. Upon repayment of the Term Loan A in December
2009, the Company de-designated the cash flow hedge. See the Economic Hedge section within this
note for further information.
There were no interest rate swaps in place for the six months ended June 30, 2010, that
qualified for hedge accounting as cash flow hedges under U.S. GAAP.
Fair Value Hedges
The Company is also exposed to the risk of changes in the fair value of certain fixed-rate
debt attributable to changes in interest rates and manages these risks through the use of
receive-fixed, pay-variable interest rate swaps.
There were no interest rate swaps in place for the six months ended June 30, 2009, that
qualified for hedge accounting as fair value hedges under U.S. GAAP.
10
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
In December 2009, the Company entered into interest rate swaps having an aggregate notional
amount of $850 million and durations ranging from two to three years in order to convert
fixed-rate, long-term debt to floating rate debt. These swaps were
entered into upon the issuance of
the 2011 and 2012 Notes, were originally accounted for as fair value hedges under U.S. GAAP and
qualified for the “shortcut method” of accounting for hedges. Effective March 10, 2010, $225
million notional of the interest rate swap linked to the 2012 Notes was restructured to reflect a
change in the variable interest rate to be paid by the Company. This change triggered the
de-designation of the $225 million notional fair value hedge and the corresponding fair value
hedging relationship was discontinued. With the fair value hedge discontinued, the Company ceased
adjusting the carrying value of the 2012 Notes corresponding to the $225 million restructured
notional amounts. The $1 million adjustment of the carrying value of the 2012 Notes that resulted
from de-designation will continue to be carried on the balance sheet and amortized completely over
the remaining term of the 2012 Notes. As a result, the Company had fair value hedges having an
aggregate notional amount of $625 million as of June 30, 2010.
As of June 30, 2010, the carrying value of the 2011 and 2012 Notes increased by $7 million,
which includes the $1 million adjustment, net of amortization, that resulted from the
de-designation discussed above, to reflect the change in fair value of the Company’s interest rate
swap agreements. Refer to Note 5 for further information.
Economic Hedges
In addition to derivatives instruments that qualify for and are designated as hedging
instruments under U.S. GAAP, the Company utilizes interest rate swap instruments that are not
designated as cash flow or fair value hedges to manage interest rate risk.
As discussed above under Cash Flow Hedges, the interest rate swap entered into by the Company
and designated as a cash flow hedge under U.S. GAAP in February 2009, was subsequently de-designated
with the full repayment of the Term Loan A in December 2009. The Company also terminated $345
million of the original notional amount of the $750 million interest rate swap in December 2009, leaving the
remaining $405 million notional amount of the interest rate swap that had not been terminated as
an economic hedge during the first quarter of 2010. This remaining $405 million notional amount
of the interest rate swap was used to economically hedge the volatility in the floating interest
rate associated with borrowings under the Revolver during the first quarter. The Company terminated
this interest rate swap instrument once the outstanding balance under the Revolver was fully repaid
during the first quarter of 2010. The gain or loss on the instrument was recognized in earnings during the period the
instrument was outstanding in 2010.
As discussed above under Fair Value Hedges, effective March 10, 2010, $225 million notional of
the interest rate swap linked to the 2012 Notes was restructured to reflect a change in the
variable interest rate to be paid by the Company. This resulted in the de-designation of the $225
million notional fair value hedge and the discontinuance of the corresponding fair value hedging
relationship. The $225 million notional restructured interest rate swap was subsequently accounted
for as an economic hedge and the gain or loss on the instrument is recognized in earnings.
Foreign Exchange
Cash Flow Hedges
The Company’s Canadian business purchases its inventory through transactions denominated and
settled in U.S. Dollars, a currency different from the functional currency of the Canadian
business. These inventory purchases are subject to exposure from movements in exchange rates.
During the six months ended June 30, 2010 and 2009, the Company utilized foreign exchange forward
contracts designated as cash flow hedges to manage the exposures resulting from changes
in these foreign currency exchange rates. The intent of these foreign exchange contracts is to
provide predictability in the Company’s overall cost structure. These foreign exchange contracts,
carried at fair value, have maturities between one and 18 months. As of June 30, 2010 and 2009, the
Company had outstanding foreign exchange forward contracts with notional amounts of $62 million and
$42 million, respectively.
Economic Hedges
The Company’s Canadian business has various transactions denominated and settled in U.S.
Dollars, a currency different from the functional currency of the Canadian business. These
transactions are subject to exposure from movements in exchange rates. During the second quarter of
2010, the Company entered into foreign exchange forward contracts not designated as cash flow
hedges to manage foreign currency exposure and economically hedge the exposure from movements in
exchange rates. These foreign exchange contracts, carried at fair value, have maturities between 7
and 18 months. As of June 30, 2010, the Company had outstanding foreign exchange forward contracts
with notional amounts of $12 million. There were no derivative instruments in place in 2009 to
economically hedge the exposure from movements in exchange rates.
11
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Commodities
DPS centrally manages the exposure to volatility in the prices of certain commodities used in
its production and distribution processes through futures contracts and supplier pricing
agreements. The intent of these contracts and agreements is to provide predictability in the
Company’s overall cost structure. During the six months ended June 30, 2010 and 2009, the Company
entered into futures contracts that economically hedge certain of its risks. In these cases, a
natural hedging relationship exists whereby changes in the fair value of the instruments act as an
economic offset to changes in the fair value of the underlying items. Changes in the fair value of
these instruments are recorded in net income throughout the term of the derivative instrument and
are reported in the same line item of the unaudited Condensed Consolidated Statements of Operations
as the hedged transaction. Gains and losses are recognized as a component of unallocated corporate
costs until the Company’s operating segments are affected by the settlement of the underlying
transaction, at which time the gain or loss is reflected as a component of the respective segment’s
operating profit (“SOP”).
The following table summarizes the location of the fair value of the Company’s derivative
instruments within the unaudited Condensed Consolidated Balance Sheets as of June 30, 2010, and
December 31, 2009 (in millions):
| June 30, | December 31, | |||||||||
|
|
|
2010 |
|
|
2009 |
|
||||
|
Assets:
|
||||||||||
|
Derivative instruments designated as
hedging instruments under U.S. GAAP:
|
||||||||||
|
Interest rate swap contracts
|
Prepaid expenses and other current assets | $ | 5 | $ | 6 | |||||
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets | 1 | — | |||||||
|
Interest rate swap contracts
|
Other non-current assets | 1 | — | |||||||
|
Foreign exchange forward contracts
|
Other non-current assets | 1 | — | |||||||
|
Derivative instruments not
designated as hedging
instruments under U.S. GAAP:
|
||||||||||
|
Commodity futures
|
Prepaid expenses and other current assets | 3 | 1 | |||||||
|
Interest rate swap contracts
|
Prepaid expenses and other current assets | 3 | — | |||||||
|
Foreign exchange forward contracts
|
Prepaid expenses and other current assets | — | — | |||||||
|
Commodity futures
|
Other non-current assets | 2 | 9 | |||||||
|
Interest rate swap contracts
|
Other non-current assets | 1 | — | |||||||
|
Foreign exchange forward contracts
|
Other non-current assets | — | — | |||||||
|
|
||||||||||
|
Total assets
|
$ | 17 | $ | 16 | ||||||
|
|
||||||||||
|
|
||||||||||
|
Liabilities:
|
||||||||||
|
Derivative instruments
designated as hedging
instruments under U.S. GAAP:
|
||||||||||
|
Foreign exchange forward contracts
|
Accounts payable and accrued expenses | $ | — | $ | 2 | |||||
|
Interest rate swap contracts
|
Other non-current liabilities | — | 14 | |||||||
|
Derivative instruments not
designated as hedging
instruments under U.S. GAAP:
|
||||||||||
|
Interest rate swap contracts
|
Accounts payable and accrued expenses | — | 3 | |||||||
|
Commodity futures
|
Accounts payable and accrued expenses | 1 | — | |||||||
|
|
||||||||||
|
Total liabilities
|
$ | 1 | $ | 19 | ||||||
|
|
||||||||||
12
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
The following table presents the impact of derivative instruments designated as cash flow
hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statement of Operations
and Other Comprehensive Income (“OCI”) for the three and six months ended June 30, 2010 and 2009
(in millions):
| Amount of Gain | Amount of Gain (Loss) | Location of Gain (Loss) | ||||||||
| (Loss) Recognized in | Reclassified from AOCL into | Reclassified from AOCL into | ||||||||
|
|
OCI |
|
|
Net Income |
|
Net Income | ||||
|
For the three months ended
June 30, 2010: |
||||||||||
|
Foreign exchange forward contract
|
$ | 3 | $ | (1 | ) | Cost of sales | ||||
|
|
||||||||||
|
Total
|
$ | 3 | $ | (1 | ) | |||||
|
|
||||||||||
|
|
||||||||||
|
For the six months ended
June 30, 2010: |
||||||||||
|
Foreign exchange forward contract
|
$ | 1 | $ | (3 | ) | Cost of sales | ||||
|
|
||||||||||
|
Total
|
$ | 1 | $ | (3 | ) | |||||
|
|
||||||||||
|
|
||||||||||
|
For the three months ended
June 30, 2009: |
||||||||||
|
Interest rate swap contracts
|
$ | (2 | ) | $ | (9 | ) | Interest expense | |||
|
Foreign exchange forward contract
|
(3 | ) | — | Cost of sales | ||||||
|
|
||||||||||
|
Total
|
$ | (5 | ) | $ | (9 | ) | ||||
|
|
||||||||||
|
|
||||||||||
|
For the six months ended
June 30, 2009: |
||||||||||
|
Interest rate swap contracts
|
$ | (8 | ) | $ | (20 | ) | Interest expense | |||
|
Foreign exchange forward contract
|
(2 | ) | — | Cost of sales | ||||||
|
|
||||||||||
|
Total
|
$ | (10 | ) | $ | (20 | ) | ||||
|
|
||||||||||
There was no hedge ineffectiveness recognized in net income for the three and six months ended
June 30, 2010 and 2009 with respect to derivative instruments designated as cash flow hedges.
During the next 12 months, the Company expects to reclassify net gain of $1 million from AOCL into
net income.
The interest rate swap agreements designated as fair value hedges qualify for the “shortcut”
method and no ineffectiveness is recorded in earnings for the three and six months ended June 30,
2010. The following table presents the impact of derivative instruments designated as fair value
hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statement of Operations
for the three and six months ended June 30, 2010 (in millions):
| Amount of Gain (Loss) | Location of Gain (Loss) | |||||
| Recognized in Net Income on | recognized in Net Income on | |||||
|
|
Derivative |
|
Derivative | |||
|
For the three months ended
June 30, 2010: |
||||||
|
Interest rate swap contracts
|
$ | 1 | Interest Expense | |||
|
|
||||||
|
Total
|
$ | 1 | ||||
|
|
||||||
|
|
||||||
|
For the six months ended
June 30, 2010: |
||||||
|
Interest rate swap contracts
|
$ | 4 | Interest Expense | |||
|
|
||||||
|
Total
|
$ | 4 | ||||
|
|
||||||
There were no derivative instruments designated as fair value hedges during the first six months of 2009.
13
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
The following table presents the impact of derivative instruments not designated as hedging
instruments under U.S. GAAP to the unaudited Condensed Consolidated Statement of Operations for the
three and six months ended June 30, 2010 and 2009 (in millions):
| Amount of Gain (Loss) | Location of Gain (Loss) | |||||||
|
|
Recognized in Income |
|
|
Recognized in Income |
|
|||
|
For the three months ended
June 30, 2010: |
||||||||
|
Interest rate swap contracts
|
$ | 4 | Interest expense | |||||
|
Foreign exchange forward contracts
|
1 | Cost of sales | ||||||
|
Commodity futures
|
(5 | ) | Cost of sales | |||||
|
Commodity futures
|
(1 | ) | Selling, general and administrative expenses | |||||
|
|
||||||||
|
Total
(1)
|
$ | (1 | ) | |||||
|
|
||||||||
|
|
||||||||
|
For the six months ended
June 30, 2010: |
||||||||
|
Interest rate swap contracts
|
$ | 3 | Interest expense | |||||
|
Foreign exchange forward contracts
|
1 | Cost of sales | ||||||
|
Commodity futures
|
(7 | ) | Cost of sales | |||||
|
Commodity futures
|
— | Selling, general and administrative expenses | ||||||
|
|
||||||||
|
Total
(1)
|
$ | (3 | ) | |||||
|
|
||||||||
|
|
||||||||
|
For the three months ended
June 30, 2009: |
||||||||
|
Commodity futures
|
$ | 1 | Cost of sales | |||||
|
Commodity futures
|
3 | Selling, general and administrative expenses | ||||||
|
|
||||||||
|
Total
(2)
|
$ | 4 | ||||||
|
|
||||||||
|
|
||||||||
|
For the six months ended
June 30, 2009: |
||||||||
|
Commodity futures
|
$ | (2 | ) | Cost of sales | ||||
|
Commodity futures
|
1 | Selling, general and administrative expenses | ||||||
|
|
||||||||
|
Total
(2)
|
$ | (1 | ) | |||||
|
|
||||||||
| (1) | The total gain (loss) recognized under commodity futures contracts for the three months ended June 30, 2010, includes a realized $1 million loss which represents contracts that settled during the three months ended June 30, 2010 and an unrealized $5 million loss which represents the change in fair value of outstanding commodity futures contracts during the period. The total gain (loss) recognized for the six months ended June 30, 2010, includes a realized $1 million loss which represents contracts that settled during the six months ended June 30, 2010, and an unrealized $6 million loss which represents the change in fair value of outstanding contracts. | |
| The total gain (loss) recognized under foreign exchange forward contracts for the three months and six months ended June 30, 2010 includes a $1 million unrealized gain. | ||
| The total gain (loss) recognized under interest rate swap contracts for the three months ended June 30, 2010, includes a realized $1 million gain and an unrealized $3 million gain. The total gain (loss) recognized under interest rate swap contracts for the six months ended June 30, 2010, includes an unrealized $3 million gain. | ||
| (2) | The total gain recognized for the three months ended June 30, 2009, includes a realized $4 million loss which represents contracts that settled during the three months ended June 30, 2009, and an unrealized $8 million gain which represents the change in fair value of outstanding contracts. The total loss recognized for the six months ended June 30, 2009, includes a realized $10 million loss which represents contracts that settled during the six months ended June 30, 2009, and an unrealized $9 million gain which represents the change in fair value of outstanding contracts. |
Refer to Note 9 for more information on the valuation of derivative instruments. The Company
has exposure to credit losses from derivative instruments in an asset position in the event of
nonperformance by the counterparties to the agreements. Historically, DPS has not experienced
credit losses as a result of counterparty nonperformance. The Company selects and periodically
reviews counterparties based on credit ratings, limits its exposure to a single counterparty under
defined guidelines, and monitors the market position of the programs at least on a quarterly basis.
14
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
7. Other Non-Current Assets and Other Non-Current Liabilities
The table below details the components of other non-current assets and other non-current
liabilities as of June 30, 2010, and December 31, 2009 (in millions):
| June 30, | December 31, | |||||||
|
|
2010 |
|
|
2009 |
|
|||
|
Other non-current assets:
|
||||||||
|
Long-term receivables from Kraft
(1)
|
$ | 408 | $ | 402 | ||||
|
Deferred financing costs, net
|
20 | 23 | ||||||
|
Customer incentive programs
|
81 | 84 | ||||||
|
Other
|
33 | 34 | ||||||
|
|
||||||||
|
Other non-current assets
|
$ | 542 | $ | 543 | ||||
|
|
||||||||
|
Other non-current liabilities:
|
||||||||
|
Long-term payables due to Kraft
(1)
|
$ | 114 | $ | 115 | ||||
|
Liabilities for unrecognized tax benefits and other tax related items
|
544 | 534 | ||||||
|
Long-term pension and postretirement liability
|
55 | 49 | ||||||
|
Other
|
21 | 39 | ||||||
|
|
||||||||
|
Other non-current liabilities
|
$ | 734 | $ | 737 | ||||
|
|
||||||||
| (1) | Amounts represent receivables from or payables to Kraft under the Tax Indemnity Agreement entered into in connection with the Company’s separation. See Note 8 for further discussion. |
8. Income Taxes
The
effective tax rates for the three months ended June 30, 2010 and 2009 were 35.9% and
36.7%, respectively. The decrease in the effective tax rate for the three months ended June 30,
2010, was primarily driven by a change in the enacted rate of U.S. domestic manufacturing
deduction and resolution of certain foreign tax liabilities.
The
effective tax rates for the six months ended June 30, 2010 and 2009 were 38.5% and 37.4%,
respectively. The increase in the effective tax rate for the six months ended June 30, 2010, was
primarily driven by a previous change in the provincial income tax rate for Ontario, Canada, which
caused a write-down of a deferred tax asset, partially offset by foreign tax planning benefits. The
impact of the change in tax rate increased the provision for income taxes and effective tax rate by
$13 million and 2.9%, respectively.
The
Company’s Canadian deferred tax assets as of June 30, 2010 included a separation related
balance of $129 million that was offset by a liability due to Kraft of $118 million driven by the
Tax Indemnity Agreement. Anticipated legislation in Canada could result in a future partial
write-down of these tax assets which would be offset to some extent by a partial write-down of the
liability due to Kraft.
Under the Tax Indemnity Agreement, Kraft will indemnify DPS for net unrecognized tax benefits
and other tax related items of $408 million. This balance
increased by $6 million during the six months ended June 30, 2010, and was offset by indemnity income recorded as a component of other
income in the unaudited Condensed Consolidated Statement of Operations. In addition, pursuant to
the terms of the Tax Indemnity Agreement, if DPS breaches certain covenants or other obligations or
DPS is involved in certain change-in-control transactions, Kraft may not be required to indemnify
the Company.
15
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
9. Fair Value
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. U.S. GAAP provides a framework for measuring fair value and establishes a
three-level hierarchy for fair value measurements based upon the transparency of inputs to the
valuation of an asset or liability. The three-level hierarchy for disclosure of fair value
measurements is as follows:
Level 1
- Quoted market prices in active markets for identical assets or liabilities.
Level 2
- Observable inputs such as quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in markets that are not
active; and model-derived valuations in which all significant inputs and significant value
drivers are observable in active markets.
Level 3
- Valuations with one or more unobservable significant inputs that reflect the
reporting entity’s own assumptions.
The following table presents the fair value hierarchy for those assets and liabilities
measured at fair value on a recurring basis as of June 30, 2010 (in millions):
|
|
Fair Value Measurements at Reporting Date Using |
|
||||||||||
| Quoted Prices in | Significant Other | Significant | ||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Commodity futures
|
$ | — | $ | 5 | $ | — | ||||||
|
Interest rate swaps
|
— | 10 | — | |||||||||
|
Foreign exchange forward contracts
|
— | 2 | — | |||||||||
|
|
||||||||||||
|
Total assets
|
$ | — | $ | 17 | $ | — | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Commodity futures
|
$ | — | $ | 1 | $ | — | ||||||
|
|
||||||||||||
|
Total liabilities
|
$ | — | $ | 1 | $ | — | ||||||
|
|
||||||||||||
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, 2009 (in millions):
|
|
Fair Value Measurements at Reporting Date Using |
|
||||||||||
| Quoted Prices in | Significant Other | Significant | ||||||||||
| Active Markets for | Observable | Unobservable | ||||||||||
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Commodity futures
|
$ | — | $ | 10 | $ | — | ||||||
|
Interest rate swaps
|
— | 6 | — | |||||||||
|
|
||||||||||||
|
Total assets
|
$ | — | $ | 16 | $ | — | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Interest rate swaps
|
$ | — | $ | 17 | $ | — | ||||||
|
Foreign exchange forward contracts
|
— | 2 | — | |||||||||
|
|
||||||||||||
|
Total liabilities
|
$ | — | $ | 19 | $ | — | ||||||
|
|
||||||||||||
16
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
The fair values of commodity futures contracts, interest rate swap contracts and foreign
currency forward contracts are determined based on inputs that are readily available in public
markets or can be derived from information available in publicly quoted markets. The fair value
of commodity futures contracts are valued using the market approach based on observable market
transactions at the reporting date. Interest rate swap contracts are valued using models based on
readily observable market parameters for all substantial terms of our contracts. The fair value of
foreign currency forward contracts are valued using quoted forward foreign exchange prices at the
reporting date. Therefore, the Company has categorized these contracts as Level 2.
As
of June 30, 2010, and December 31, 2009, the Company did not have any assets or liabilities without
observable market values that would require a high level of judgment
to determine fair value (Level 3).
There were no transfers of financial instruments between the three levels of fair value
hierarchy during the three and six months ended June 30, 2010.
The estimated fair values of other financial liabilities not measured at fair value on a
recurring basis as of June 30, 2010, and December 31, 2009, are as follows (in millions):
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|||||||||||
|
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
|||||
|
|
||||||||||||||||
|
Long term debt – 2011 Notes
|
$ | 403 | $ | 401 | $ | 396 | $ | 400 | ||||||||
|
|
||||||||||||||||
|
Long term debt – 2012 Notes
|
454 | 455 | 446 | 451 | ||||||||||||
|
|
||||||||||||||||
|
Long term debt – 2013 Notes
|
250 | 278 | 250 | 273 | ||||||||||||
|
|
||||||||||||||||
|
Long term debt – 2018 Notes
|
1,199 | 1,435 | 1,200 | 1,349 | ||||||||||||
|
|
||||||||||||||||
|
Long term debt – 2038 Notes
|
250 | 321 | 250 | 291 | ||||||||||||
|
|
||||||||||||||||
|
Long term debt – Revolving credit facility
|
— | — | 405 | 405 | ||||||||||||
Capital leases have been excluded from the calculation of fair value for both 2010 and 2009.
The fair value amounts for cash and cash equivalents, accounts receivable, net and accounts
payable and accrued expenses approximate carrying amounts due to the short maturities of these
instruments. The fair value amounts of long term debt as of June 30, 2010, and December 31, 2009,
were based on quoted market prices for 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.
10. Employee Benefit Plans
The following table sets forth the components of pension benefit costs for the three and six
months ended June 30, 2010 and 2009 (in millions):
| For the Three Months | For the Six Months | |||||||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
Service cost
|
$ | 1 | $ | — | $ | 1 | $ | — | ||||||||
|
Interest cost
|
3 | 4 | 7 | 8 | ||||||||||||
|
Expected return on assets
|
(4 | ) | (3 | ) | (8 | ) | (6 | ) | ||||||||
|
Recognition of actuarial loss
|
1 | 1 | 2 | 2 | ||||||||||||
|
Settlement loss
|
3 | — | 3 | — | ||||||||||||
|
Curtailment loss
|
1 | — | 1 | — | ||||||||||||
|
|
||||||||||||||||
|
Net periodic benefit costs
|
$ | 5 | $ | 2 | $ | 6 | $ | 4 | ||||||||
|
|
||||||||||||||||
The estimated prior service cost and transition asset that will be
amortized from AOCL into periodic benefit cost for defined pension benefit plans in 2010 are not significant.
17
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Total net periodic benefit costs for the U.S. postretirement benefit plans were $1
million for each of three and the six month periods ended June 30, 2010 and 2009. The estimated
prior service cost, transition obligation and estimated net loss that will be amortized from AOCL
into periodic benefit cost for postretirement plans in 2010 are not significant.
During the second quarter of 2010, the total amount of lump sum payments made to participants
of certain U.S. defined pension plans exceeded the estimated annual interest cost for 2010. As a
result, non-cash settlement charges of $3 million were recognized for the three and six months
ended June 30, 2010. Additionally, the Company recognized a one time non-cash
curtailment charge of $1 million for the three and six months ended June 30, 2010.
The Company contributed $3 million and $6 million to its pension plans during the three and
six months ended June 30, 2010, respectively, and expects to contribute an additional $6 million to
these plans during the remainder of 2010.
The Company also contributes to various multi-employer pension plans based on obligations
arising from certain of its collective bargaining agreements. The Company recognizes expense in
connection with these plans as contributions are funded. Contributions paid into multi-employer
defined benefit pension plans for employees under collective bargaining agreements were
approximately $1 million for each of the three month periods ended June 30, 2010 and 2009, and
approximately $2 million for each of the six month periods ended June 30, 2010 and 2009.
11. Stock-Based Compensation
The Company’s Omnibus Stock Incentive Plans of 2008 and 2009 (collectively, the “DPS Stock
Plans”) provide for various long-term incentive awards, including stock options and restricted
stock units (“RSUs”).
The components of stock-based compensation expense for the three and six months ended June 30,
2010 and 2009 are presented below (in millions). Stock-based compensation expense is recorded in
selling, general and administrative expenses in the unaudited Condensed Consolidated Statement of
Operations.
| For the Three Months | For the Six Months | |||||||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
Total stock-based compensation expense
|
$ | 7 | $ | 5 | $ | 13 | $ | 8 | ||||||||
|
Income tax benefit recognized in the income statement
|
(3 | ) | (2 | ) | (5 | ) | (3 | ) | ||||||||
|
|
||||||||||||||||
|
Net stock-based compensation expense
|
$ | 4 | $ | 3 | $ | 8 | $ | 5 | ||||||||
|
|
||||||||||||||||
The
table below summarizes stock option activity for the six months ended June 30, 2010:
| Weighted | Weighted Average | Aggregate | ||||||||||||||
| Average | Remaining Contractual | Intrinsic Value | ||||||||||||||
|
|
Stock Options |
|
|
Exercise Price |
|
|
Term (Years) |
|
|
(in millions) |
|
|||||
|
Outstanding as of December 31, 2009
|
2,178,211 | $ | 18.97 | 8.79 | $ | 20 | ||||||||||
|
Granted
|
855,403 | 32.36 | ||||||||||||||
|
Exercised
|
(92,022 | ) | 17.95 | |||||||||||||
|
Forfeited or expired
|
(74,645 | ) | 17.19 | |||||||||||||
|
|
||||||||||||||||
|
Outstanding as of June 30, 2010
|
2,866,947 | 23.05 | 8.68 | 41 | ||||||||||||
|
|
||||||||||||||||
|
Exercisable as of June 30, 2010
|
999,453 | 21.32 | 8.14 | 16 | ||||||||||||
|
|
||||||||||||||||
As of June 30, 2010, there was $10 million of unrecognized compensation cost related to the
nonvested stock options granted under the DPS Stock Plans that is expected to be recognized over a
weighted average period of 2.33 years.
18
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
The
table below summarizes RSU activity for the six months ended June 30, 2010:
| Weighted | Weighted Average | Aggregate | ||||||||||||||
| Average Grant | Remaining Contractual | Intrinsic Value | ||||||||||||||
|
|
RSUs |
|
|
Date Fair Value |
|
|
Term (Years) |
|
|
(in millions) |
|
|||||
|
Outstanding as of December 31, 2009
|
2,688,551 | $ | 17.43 | 1.91 | $ | 76 | ||||||||||
|
Granted
|
980,836 | 31.93 | ||||||||||||||
|
Vested
|
(34,037 | ) | 21.52 | |||||||||||||
|
Forfeited
|
(86,005 | ) | 18.55 | |||||||||||||
|
|
||||||||||||||||
|
Outstanding as of June 30, 2010
|
3,549,345 | 21.38 | 1.80 | 134 | ||||||||||||
|
|
||||||||||||||||
Under the terms of the Company’s RSU agreements, individual RSU holders are entitled to dividend equivalent units in the event of
a dividend declaration. Under the agreements, unvested RSU awards, as well as the associated dividend equivalents, are
forfeitable. As of June 30, 2010, there were 29,094 dividend equivalent units outstanding, which will vest at the time that the
underlying RSU vests.
As of June 30, 2010, there was $49 million of unrecognized compensation cost related to the
nonvested RSUs granted under the DPS Stock Plans that is expected to be recognized over a weighted
average period of 2.25 years.
12. Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of
all dilutive securities. The following table sets forth the computation of basic EPS utilizing the
net income for the respective period and the Company’s basic shares outstanding and presents the
computation of diluted EPS (in millions, except per share data):
| For the Three Months | For the Six Months | |||||||||||||||
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
Basic EPS:
|
||||||||||||||||
|
Net income
|
$ | 183 | $ | 158 | $ | 272 | $ | 290 | ||||||||
|
Weighted average common shares outstanding
|
244.5 | 254.2 | 248.8 | 254.2 | ||||||||||||
|
Earnings per common share — basic
|
$ | 0.75 | $ | 0.62 | $ | 1.09 | $ | 1.14 | ||||||||
|
|
||||||||||||||||
|
Diluted EPS:
|
||||||||||||||||
|
Net income
|
$ | 183 | $ | 158 | $ | 272 | $ | 290 | ||||||||
|
Weighted average common shares outstanding
|
244.5 | 254.2 | 248.8 | 254.2 | ||||||||||||
|
Effect of dilutive securities:
|
||||||||||||||||
|
Stock options, RSUs, and dividend
equivalent units
|
2.2 | 0.9 | 2.0 | 0.4 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares
outstanding and common stock equivalents
|
246.7 | 255.1 | 250.8 | 254.6 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Earnings per common share — diluted
|
$ | 0.74 | $ | 0.62 | $ | 1.09 | $ | 1.14 | ||||||||
Stock options, RSUs and dividend equivalent units totaling 0.8 million shares were excluded
from the diluted weighted average shares outstanding for the three months ended June 30, 2010, and
0.6 million shares were excluded from the diluted weighted average shares outstanding for the six
months ended June 30, 2010, as they were not dilutive. Weighted average options and RSUs totaling
1.1 million shares were excluded from the diluted weighted average shares outstanding for the three
months ended June 30, 2009, and 1.2 million shares were excluded from the diluted weighted average
shares outstanding for the six months ended June 30, 2009, as they were not dilutive. Under the
terms of our RSU agreements, unvested RSU awards contain forfeitable rights to dividends and
dividend equivalent units. Because the dividend equivalent units are forfeitable, they are defined
as non-participating securities.
On
February 24, 2010, the Board authorized an increase in the total aggregate share repurchase
authorization from $200 million up to $1 billion. Subsequent to this approval, the Company repurchased and retired
9.8 million shares of common stock valued at approximately $355 million and 15.6 million shares of
common stock valued at approximately $557 million in the three and six months ended June 30, 2010,
respectively. These amounts were recorded as a reduction of equity, primarily additional paid-in
capital. Refer to Note 19 for discussion related to the Board
authorization of additional share repurchases.
19
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
13. Commitments and Contingencies
Legal Matters
The Company is occasionally subject to litigation or other legal proceedings as set forth
below. The Company does not believe that the outcome of these, or any other, pending legal matters,
individually or collectively, will have a material adverse effect on the business or financial
condition of the Company, although such matters may have a material adverse effect on the Company’s
results of operations or cash flows in a particular period.
Snapple Litigation – Labeling Claims
Snapple Beverage Corp. has been sued in various jurisdictions generally alleging that
Snapple’s labeling of certain of its drinks is misleading and/or deceptive. These cases have been
filed as class actions and, generally, seek unspecified damages on behalf of the class, including
enjoining Snapple from various labeling practices, disgorging profits, reimbursing of monies paid
for product and treble damages. The cases and their status are as follows:
| · | In 2007, Snapple Beverage Corp. was sued by Stacy Holk in New Jersey Superior Court, Monmouth County. Subsequent to filing, the Holk case was removed to the United States District Court, District of New Jersey. Snapple filed a motion to dismiss the Holk case on a variety of grounds. In June 2008, the district court granted Snapple’s motion to dismiss. The plaintiff appealed and in August 2009, the appellate court reversed the judgment and remanded to the district court for further proceedings. | ||
| · | In 2007, the attorneys in the Holk case also filed a new action in the United States District Court, Southern District of New York on behalf of plaintiffs, Evan Weiner and Timothy McCausland. This case was stayed during the pendency of the Holk motion to dismiss and appeal. This stay is now lifted, the Company filed its answer and the case is proceeding. | ||
| · | In April 2009, Snapple Beverage Corp. was sued by Frances Von Koenig in the United States District Court, Eastern District of California. A suit filed by Guy Caldwell in August 2009 against Dr Pepper Snapple Group, Inc. in the United States District Court, Southern District of California, was consolidated with the Van Koenig case. On May 7, 2010, Snapple’s motion to dismiss was denied in part and granted in part with leave to amend. On May 28, 2010, the plaintiffs filed an amended complaint. |
The Company believes it has meritorious defenses to the claims asserted in each of these cases
and will defend itself vigorously. However, there is no assurance that the outcome of these cases
will be favorable to the Company.
Robert Jones v. Seven Up/RC Bottling Company of Southern California, Inc.
California Wage Audit
California Wage Audit
In 2007, one of the Company’s subsidiaries, Seven Up/RC Bottling Company Inc., was sued by
Robert Jones in the Superior Court in the State of California (Orange County), alleging that its
subsidiary failed to provide meal and rest periods and itemized wage statements in accordance with
applicable California wage and hour law. The case was filed as a class action. The class, which has
not yet been certified, consists of employees who have held delivery driver positions in California
in the past three years. The potential class size could be substantially higher due to the number
of individuals who have held these positions over the three year period. On behalf of the class,
the plaintiffs claim lost wages, waiting time penalties and other penalties for each violation of
the statute. The Company believes it has meritorious defenses to the claims asserted and will
defend itself vigorously. However, there is no assurance that the outcome of this matter will be in
our favor.
The Company has been requested to conduct an audit of its meal and rest periods for all
non-exempt employees in California at the direction of the California Department of Labor. At this
time, the Company has declined to conduct such an audit until there is judicial clarification of
the intent of the statute. The Company cannot predict the outcome of such an audit.
20
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Environmental, Health and Safety Matters
The Company operates many manufacturing, bottling and distribution facilities. In these and
other aspects of the Company’s business, it is subject to a variety of federal, state and local
environment, health and safety laws and regulations. The Company maintains environmental, health
and safety policies and a quality, environmental, health and safety program designed to ensure
compliance with applicable laws and regulations. However, the nature of the Company’s business
exposes it to the risk of claims with respect to environmental, health and safety matters, and
there can be no assurance that material costs or liabilities will not be incurred in connection
with such claims.
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), also known as the Superfund law, as well as similar state laws, generally impose joint
and several liability for cleanup and enforcement costs on current and former owners and operators
of a site without regard to fault of the legality of the original conduct. In October 2008, DPS was
notified by the Environmental Protection Agency that it is a potentially responsible party for
study and cleanup costs at a Superfund site in New Jersey. Investigation and remediation costs are
yet to be determined, but the Company has reasonably estimated that DPS’ allocation of costs
related to the study for this site will not exceed $250,000.
14. Comprehensive Income
The
following table provides a summary of the total comprehensive income,
including the Company’s proportionate share of equity method investees’ other comprehensive income, for the three and six
months ended June 30, 2010 and 2009 (in millions):
| For the | For the | |||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
|
||||||||||||||||
|
Consolidated net income
|
$ | 183 | $ | 158 | $ | 272 | $ | 290 | ||||||||
|
Other comprehensive income:
|
||||||||||||||||
|
Net foreign currency translation
|
(15 | ) | 21 | 2 | 12 | |||||||||||
|
Net change in pension liability
|
(4 | ) | 2 | (3 | ) | 2 | ||||||||||
|
Cash flow hedge gain
|
4 | 3 | 4 | 6 | ||||||||||||
|
|
||||||||||||||||
|
Total comprehensive income
|
$ | 168 | $ | 184 | $ | 275 | $ | 310 | ||||||||
|
|
||||||||||||||||
A rollforward of the amounts included in AOCL, net of taxes, is shown below for the six months
ended June 30, 2010 and the year ended December 31, 2009 (in millions):
| Accumulated | ||||||||||||||||
| Foreign | Other | |||||||||||||||
| Currency | Change in | Cash Flow | Comprehensive | |||||||||||||
|
|
Translation |
|
|
Pension Liability |
|
|
Hedges |
|
|
Loss |
|
|||||
|
|
||||||||||||||||
|
Balance at December 31, 2008
|
$ | (34 | ) | $ | (52 | ) | $ | (20 | ) | $ | (106 | ) | ||||
|
Changes in fair value
|
22 | 7 | (20 | ) | 9 | |||||||||||
|
Reclassification to earnings
|
— | — | 38 | 38 | ||||||||||||
|
|
||||||||||||||||
|
Balance at December 31, 2009
|
$ | (12 | ) | $ | (45 | ) | $ | (2 | ) | $ | (59 | ) | ||||
|
Changes in fair value
|
2 | (3 | ) | 1 | — | |||||||||||
|
Reclassification to earnings
|
— | — | 3 | 3 | ||||||||||||
|
|
||||||||||||||||
|
Balance at June 30, 2010
|
$ | (10 | ) | $ | (48 | ) | $ | 2 | $ | (56 | ) | |||||
|
|
||||||||||||||||
21
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
15. Segments
As of June 30, 2010, the Company’s operating structure consisted of the following three
operating segments:
| • |
The Beverage Concentrates segment reflects sales of the Company’s branded concentrates
and syrup to third party bottlers primarily in the United States and Canada. Most of the
brands in this segment are carbonated soft drink (“CSD”) brands.
|
||
| • |
The Packaged Beverages segment reflects sales in the United States and Canada from the
manufacture and distribution of finished beverages and other products, including sales of
the Company’s own brands and third party brands, through both DSD and WD.
|
||
| • |
The Latin America Beverages segment reflects sales in the Mexico and Caribbean markets
from the manufacture and distribution of concentrates, syrup and finished beverages.
|
Segment results are based on management reports. Net sales and SOP are the significant
financial measures used to assess the operating performance of the Company’s operating segments.
Information about the Company’s operations by operating segment for the three and six months
ended June 30, 2010 and 2009 is as follows (in millions):
| For the | For the | |||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
Segment Results – Net Sales
|
||||||||||||||||
|
Beverage Concentrates
|
$ | 319 | $ | 281 | $ | 559 | $ | 524 | ||||||||
|
Packaged Beverages
|
1,091 | 1,105 | 2,020 | 2,049 | ||||||||||||
|
Latin America Beverages
|
109 | 95 | 188 | 168 | ||||||||||||
|
|
||||||||||||||||
|
Net sales
|
$ | 1,519 | $ | 1,481 | $ | 2,767 | $ | 2,741 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
| For the | For the | |||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
|
|
June 30, |
|
|
June 30, |
|
|||||||||||
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|||||
|
Segment Results – SOP
|
||||||||||||||||
|
Beverage Concentrates
|
$ | 207 | $ | 184 | $ | 353 | $ | 334 | ||||||||
|
Packaged Beverages
|
163 | 170 | 277 | 277 | ||||||||||||
|
Latin America Beverages
|
18 | 14 | 25 | 23 | ||||||||||||
|
|
||||||||||||||||
|
Total SOP
|
388 | 368 | 655 | 634 | ||||||||||||
|
Unallocated corporate costs
|
81 | 61 | 158 | 124 | ||||||||||||
|
Other operating expense (income), net
|
(3 | ) | 10 | — | (52 | ) | ||||||||||
|
|
||||||||||||||||
|
Income from operations
|
310 | 297 | 497 | 562 | ||||||||||||
|
Interest expense, net
|
28 | 51 | 61 | 105 | ||||||||||||
|
Other income, net
|
(2 | ) | (2 | ) | (5 | ) | (5 | ) | ||||||||
|
|
||||||||||||||||
|
Income before provision for income taxes
and equity in earnings of unconsolidated
subsidiaries
|
$ | 284 | $ | 248 | $ | 441 | $ | 462 | ||||||||
|
|
||||||||||||||||
22
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
16. Agreement with PepsiCo, Inc.
On February 26, 2010, the Company completed the licensing of certain brands to PepsiCo, Inc.
(“PepsiCo”) following PepsiCo’s acquisitions of The Pepsi Bottling Group, Inc. (“PBG”) and
PepsiAmericas, Inc. (“PAS”).
Under the new licensing agreements, PepsiCo began distributing Dr Pepper, Crush and Schweppes
in the U.S. territories where these brands were previously being distributed by PBG and PAS. The
same applies to Dr Pepper, Crush, Schweppes, Vernors and Sussex in Canada; and Squirt and Canada
Dry in Mexico.
Additionally, in U.S. territories where it has a distribution footprint, DPS has begun selling
certain owned and licensed brands, including Sunkist soda, Squirt, Vernors and Hawaiian Punch, that
were previously distributed by PBG and PAS.
Under the new agreements, DPS received a one-time nonrefundable cash payment of $900 million.
The new agreements have an initial period of twenty years with automatic twenty year renewal
periods, and require PepsiCo to meet certain performance conditions. The payment was recorded as
deferred revenue, which will be recognized as net sales ratably over the estimated 25-year life of
the customer relationship.
17. Agreement with
The Coca-Cola Company
On June 7, 2010, DPS agreed to license certain brands to The Coca-Cola Company or its affiliates (“Coke”) on
completion of Coke’s proposed acquisition of Coca-Cola Enterprises’ (“CCE”) North American Bottling
Business.
Under the new licensing agreements, Coke will distribute Dr Pepper in the U.S. and Canada Dry in the Northeast U.S.
territories where these brands are currently distributed by CCE. The same will apply to Canada Dry
and C Plus in Canada. The new agreements will have an initial period of twenty years with automatic
twenty year renewal periods, and will require Coke to meet certain performance conditions.
Coke has also agreed to offer Dr Pepper in its local fountain accounts
and include Dr Pepper brands in its Freestyle fountain program. The Freestyle agreement will have a period
of twenty years.
Additionally, in certain U.S. territories where it has a manufacturing and distribution
footprint, DPS will begin selling certain owned and licensed brands, including Canada Dry,
Schweppes, Squirt and Cactus Cooler, that were previously distributed by CCE.
Under
this arrangement, DPS will receive a one-time nonrefundable cash payment of $715 million. As no
competent or verifiable evidence of fair value could be determined for the significant elements in
this arrangement, the arrangement will be recorded net. The total cash consideration of $715
million will be recorded as deferred revenue and recognized as net sales ratably over the estimated
25-year life of the customer relationship.
18. Guarantor and Non-Guarantor Financial Information
The Company’s 2011, 2012, 2013, 2018 and 2038 Notes (collectively, the “Notes”) are fully and
unconditionally guaranteed by substantially all of the Company’s existing and future direct and
indirect domestic subsidiaries (except two immaterial subsidiaries associated with the Company’s
charitable foundations) (the “Guarantors”), as defined in the indenture governing the Notes. The
Guarantors are wholly-owned either directly or indirectly by the Company and jointly and severally
guarantee the Company’s obligations under the Notes. None of the Company’s subsidiaries organized
outside of the United States (collectively, the “Non-Guarantors”) guarantee the Notes.
The following schedules present the financial information for the three and six months ended
June 30, 2010 and 2009, and as of June 30, 2010, and December 31, 2009, for Dr Pepper Snapple
Group, Inc. (the “Parent”), Guarantors and Non-Guarantors. The consolidating schedules are provided
in accordance with the reporting requirements for guarantor subsidiaries.
23
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
| Condensed Consolidating Statements of Operations | ||||||||||||||||||||
|
|
For the Three Months Ended June 30, 2010 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 1,383 | $ | 153 | $ | (17 | ) | $ | 1,519 | |||||||||
|
Cost of sales
|
— | 536 | 74 | (17 | ) | 593 | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
— | 847 | 79 | — | 926 | |||||||||||||||
|
Selling, general and administrative
expenses
|
— | 532 | 55 | — | 587 | |||||||||||||||
|
Depreciation and amortization
|
— | 31 | 1 | — | 32 | |||||||||||||||
|
Other operating expense (income), net
|
— | (3 | ) | — | — | (3 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income from operations
|
— | 287 | 23 | — | 310 | |||||||||||||||
|
Interest expense
|
29 | 19 | — | (19 | ) | 29 | ||||||||||||||
|
Interest income
|
(19 | ) | — | (1 | ) | 19 | (1 | ) | ||||||||||||
|
Other income, net
|
(2 | ) | 3 | (3 | ) | — | (2 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income before provision for
income taxes and equity in
earnings of subsidiaries
|
(8 | ) | 265 | 27 | — | 284 | ||||||||||||||
|
Provision for income taxes
|
(4 | ) | 100 | 6 | — | 102 | ||||||||||||||
|
|
||||||||||||||||||||
|
Income before equity in earnings
of subsidiaries
|
(4 | ) | 165 | 21 | — | 182 | ||||||||||||||
|
Equity in earnings of consolidated
subsidiaries
|
187 | 22 | — | (209 | ) | — | ||||||||||||||
|
Equity in earnings of unconsolidated
subsidiaries, net of tax
|
— | — | 1 | — | 1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 183 | $ | 187 | $ | 22 | $ | (209 | ) | $ | 183 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Statements of Operations | ||||||||||||||||||||
|
|
For the Three Months Ended June 30, 2009 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 1,348 | $ | 133 | $ | — | $ | 1,481 | ||||||||||
|
Cost of sales
|
— | 540 | 56 | — | 596 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
— | 808 | 77 | — | 885 | |||||||||||||||
|
Selling, general and administrative
expenses
|
— | 499 | 51 | — | 550 | |||||||||||||||
|
Depreciation and amortization
|
— | 28 | — | — | 28 | |||||||||||||||
|
Other operating expense (income), net
|
— | 11 | (1 | ) | — | 10 | ||||||||||||||
|
|
||||||||||||||||||||
|
Income from operations
|
— | 270 | 27 | — | 297 | |||||||||||||||
|
Interest expense
|
52 | 31 | — | (31 | ) | 52 | ||||||||||||||
|
Interest income
|
(31 | ) | — | (1 | ) | 31 | (1 | ) | ||||||||||||
|
Other income, net
|
(3 | ) | — | 1 | — | (2 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before provision for
income taxes and equity in
earnings of subsidiaries
|
(18 | ) | 239 | 27 | — | 248 | ||||||||||||||
|
Provision for income taxes
|
(7 | ) | 96 | 2 | — | 91 | ||||||||||||||
|
|
||||||||||||||||||||
|
Income before equity in earnings
of subsidiaries
|
(11 | ) | 143 | 25 | — | 157 | ||||||||||||||
|
Equity in earnings of consolidated
subsidiaries
|
169 | 26 | — | (195 | ) | — | ||||||||||||||
|
Equity in earnings of unconsolidated
subsidiaries, net of tax
|
— | — | 1 | — | 1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 158 | $ | 169 | $ | 26 | $ | (195 | ) | $ | 158 | |||||||||
|
|
||||||||||||||||||||
24
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
| Condensed Consolidating Statements of Operations | ||||||||||||||||||||
|
|
For the Six Months Ended June 30, 2010 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 2,522 | $ | 262 | $ | (17 | ) | $ | 2,767 | |||||||||
|
Cost of sales
|
— | 983 | 123 | (17 | ) | 1,089 | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
— | 1,539 | 139 | — | 1,678 | |||||||||||||||
|
Selling, general and administrative
expenses
|
— | 1,018 | 100 | — | 1,118 | |||||||||||||||
|
Depreciation and amortization
|
— | 61 | 2 | — | 63 | |||||||||||||||
|
Other operating expense (income), net
|
— | — | — | — | — | |||||||||||||||
|
|
||||||||||||||||||||
|
Income from operations
|
— | 460 | 37 | — | 497 | |||||||||||||||
|
Interest expense
|
63 | 39 | — | (39 | ) | 63 | ||||||||||||||
|
Interest income
|
(38 | ) | (1 | ) | (2 | ) | 39 | (2 | ) | |||||||||||
|
Other income, net
|
(5 | ) | (1 | ) | 1 | — | (5 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income before provision for
income taxes and equity in
earnings of subsidiaries
|
(20 | ) | 423 | 38 | — | 441 | ||||||||||||||
|
Provision for income taxes
|
(10 | ) | 163 | 17 | — | 170 | ||||||||||||||
|
|
||||||||||||||||||||
|
Income before equity in earnings
of subsidiaries
|
(10 | ) | 260 | 21 | — | 271 | ||||||||||||||
|
Equity in earnings of consolidated
subsidiaries
|
282 | 22 | — | (304 | ) | — | ||||||||||||||
|
Equity in earnings of unconsolidated
subsidiaries, net of tax
|
— | — | 1 | — | 1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 272 | $ | 282 | $ | 22 | $ | (304 | ) | $ | 272 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Statements of Operations | ||||||||||||||||||||
|
|
For the Six Months Ended June 30, 2009 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Net sales
|
$ | — | $ | 2,513 | $ | 228 | $ | — | $ | 2,741 | ||||||||||
|
Cost of sales
|
— | 1,029 | 98 | — | 1,127 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
— | 1,484 | 130 | — | 1,614 | |||||||||||||||
|
Selling, general and administrative
expenses
|
— | 963 | 86 | — | 1,049 | |||||||||||||||
|
Depreciation and amortization
|
— | 53 | 2 | — | 55 | |||||||||||||||
|
Other operating expense (income), net
|
— | (46 | ) | (6 | ) | — | (52 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income from operations
|
— | 514 | 48 | — | 562 | |||||||||||||||
|
Interest expense
|
107 | 70 | — | (70 | ) | 107 | ||||||||||||||
|
Interest income
|
(70 | ) | — | (2 | ) | 70 | (2 | ) | ||||||||||||
|
Other income, net
|
(6 | ) | — | 1 | — | (5 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before provision for
income taxes and equity in
earnings of subsidiaries
|
(31 | ) | 444 | 49 | — | 462 | ||||||||||||||
|
Provision for income taxes
|
(14 | ) | 179 | 8 | — | 173 | ||||||||||||||
|
|
||||||||||||||||||||
|
Income before equity in earnings
of subsidiaries
|
(17 | ) | 265 | 41 | — | 289 | ||||||||||||||
|
Equity in earnings of consolidated
subsidiaries
|
307 | 42 | — | (349 | ) | — | ||||||||||||||
|
Equity in earnings of unconsolidated
subsidiaries, net of tax
|
— | — | 1 | — | 1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 290 | $ | 307 | $ | 42 | $ | (349 | ) | $ | 290 | |||||||||
|
|
||||||||||||||||||||
25
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
| Condensed Consolidating Balance Sheets | ||||||||||||||||||||
|
|
As of June 30, 2010 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 347 | $ | 64 | $ | — | $ | 411 | ||||||||||
|
Accounts receivable:
|
||||||||||||||||||||
|
Trade, net
|
— | 513 | 62 | — | 575 | |||||||||||||||
|
Other
|
— | 23 | 8 | — | 31 | |||||||||||||||
|
Related party receivable
|
11 | 8 | 1 | (20 | ) | — | ||||||||||||||
|
Inventories
|
— | 245 | 24 | — | 269 | |||||||||||||||
|
Deferred tax assets
|
— | 52 | 4 | — | 56 | |||||||||||||||
|
Prepaid expenses and other current assets
|
91 | 37 | 33 | — | 161 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
102 | 1,225 | 196 | (20 | ) | 1,503 | ||||||||||||||
|
Property, plant and equipment, net
|
— | 1,044 | 66 | — | 1,110 | |||||||||||||||
|
Investments in consolidated subsidiaries
|
3,386 | 464 | — | (3,850 | ) | — | ||||||||||||||
|
Investments in unconsolidated
subsidiaries
|
— | — | 10 | — | 10 | |||||||||||||||
|
Goodwill
|
— | 2,961 | 22 | — | 2,983 | |||||||||||||||
|
Other intangible assets, net
|
— | 2,616 | 79 | — | 2,695 | |||||||||||||||
|
Long-term receivable, related parties
|
2,805 | 1,144 | 89 | (4,038 | ) | — | ||||||||||||||
|
Other non-current assets
|
431 | 103 | 8 | — | 542 | |||||||||||||||
|
Non-current deferred tax assets
|
— | — | 135 | — | 135 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 6,724 | $ | 9,557 | $ | 605 | $ | (7,908 | ) | $ | 8,978 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable and accrued expenses
|
$ | 87 | $ | 734 | $ | 63 | $ | — | $ | 884 | ||||||||||
|
Related party payable
|
— | 12 | 8 | (20 | ) | — | ||||||||||||||
|
Deferred revenue
|
— | 34 | 2 | — | 36 | |||||||||||||||
|
Income taxes payable
|
— | 39 | 1 | — | 40 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
87 | 819 | 74 | (20 | ) | 960 | ||||||||||||||
|
Long-term obligations to third parties
|
2,556 | 12 | — | — | 2,568 | |||||||||||||||
|
Long-term obligations to related parties
|
1,144 | 2,894 | — | (4,038 | ) | — | ||||||||||||||
|
Non-current deferred tax liabilities
|
— | 1,026 | 16 | — | 1,042 | |||||||||||||||
|
Non-current deferred revenue
|
— | 813 | 38 | — | 851 | |||||||||||||||
|
Other non-current liabilities
|
114 | 605 | 15 | — | 734 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities
|
3,901 | 6,169 | 143 | (4,058 | ) | 6,155 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total equity
|
2,823 | 3,386 | 464 | (3,850 | ) | 2,823 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and
stockholders’ equity
|
$ | 6,724 | $ | 9,555 | $ | 607 | $ | (7,908 | ) | $ | 8,978 | |||||||||
|
|
||||||||||||||||||||
26
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
| Condensed Consolidating Balance Sheets | ||||||||||||||||||||
|
|
As of December 31, 2009 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 191 | $ | 89 | $ | — | $ | 280 | ||||||||||
|
Accounts receivable:
|
||||||||||||||||||||
|
Trade, net
|
— | 485 | 55 | — | 540 | |||||||||||||||
|
Other
|
— | 24 | 8 | — | 32 | |||||||||||||||
|
Related party receivable
|
13 | 4 | — | (17 | ) | — | ||||||||||||||
|
Inventories
|
— | 234 | 28 | — | 262 | |||||||||||||||
|
Deferred tax assets
|
— | 49 | 4 | — | 53 | |||||||||||||||
|
Prepaid and other current assets
|
79 | 10 | 23 | — | 112 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
92 | 997 | 207 | (17 | ) | 1,279 | ||||||||||||||
|
Property, plant and equipment, net
|
— | 1,044 | 65 | — | 1,109 | |||||||||||||||
|
|
||||||||||||||||||||
|
Investments in consolidated subsidiaries
|
3,085 | 471 | — | (3,556 | ) | — | ||||||||||||||
|
Investments in unconsolidated
subsidiaries
|
— | — | 9 | — | 9 | |||||||||||||||
|
Goodwill
|
— | 2,961 | 22 | — | 2,983 | |||||||||||||||
|
Other intangible assets, net
|
— | 2,624 | 78 | — | 2,702 | |||||||||||||||
|
Long-term receivable, related parties
|
3,172 | 434 | 38 | (3,644 | ) | — | ||||||||||||||
|
Other non-current assets
|
425 | 110 | 8 | — | 543 | |||||||||||||||
|
Non-current deferred tax assets
|
— | — | 151 | — | 151 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 6,774 | $ | 8,641 | $ | 578 | $ | (7,217 | ) | $ | 8,776 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable and accrued expenses
|
$ | 78 | $ | 710 | $ | 62 | $ | — | $ | 850 | ||||||||||
|
Related party payable
|
— | 13 | 4 | (17 | ) | — | ||||||||||||||
|
Income taxes payable
|
— | — | 4 | — | 4 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
78 | 723 | 70 | (17 | ) | 854 | ||||||||||||||
|
Long-term obligations to third parties
|
2,946 | 14 | — | — | 2,960 | |||||||||||||||
|
Long-term obligations to related parties
|
434 | 3,209 | 1 | (3,644 | ) | — | ||||||||||||||
|
Non-current deferred tax liabilities
|
— | 1,015 | 23 | — | 1,038 | |||||||||||||||
|
Other non-current liabilities
|
129 | 595 | 13 | — | 737 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities
|
3,587 | 5,556 | 107 | (3,661 | ) | 5,589 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total stockholders’ equity
|
3,187 | 3,085 | 471 | (3,556 | ) | 3,187 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and
stockholders’ equity
|
$ | 6,774 | $ | 8,641 | $ | 578 | $ | (7,217 | ) | $ | 8,776 | |||||||||
|
|
||||||||||||||||||||
27
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
| Condensed Consolidating Statements of Cash Flows | ||||||||||||||||||||
|
|
For the Six Months Ended June 30, 2010 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||
|
Net cash provided by operating
activities
|
$ | (77 | ) | $ | 1,312 | $ | 31 | $ | — | $ | 1,266 | |||||||||
|
Investing activities:
|
||||||||||||||||||||
|
Purchases of property, plant and equipment
|
— | (106 | ) | (8 | ) | — | (114 | ) | ||||||||||||
|
Proceeds from disposals of property,
plant and equipment
|
— | 16 | — | — | 16 | |||||||||||||||
|
Return of capital
|
— | 35 | (35 | ) | — | — | ||||||||||||||
|
Issuance of related party notes receivable
|
— | (710 | ) | (15 | ) | 725 | — | |||||||||||||
|
Proceeds from repayment of related party
notes receivable
|
405 | — | — | (405 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net cash used in investing activities
|
405 | (765 | ) | (58 | ) | 320 | (98 | ) | ||||||||||||
|
Financing activities:
|
||||||||||||||||||||
|
Proceeds from related party long-term debt
|
710 | 15 | — | (725 | ) | — | ||||||||||||||
|
Repayment of related party long-term debt
|
— | (405 | ) | — | 405 | — | ||||||||||||||
|
Repayment of senior unsecured credit
facility
|
(405 | ) | — | — | — | (405 | ) | |||||||||||||
|
Repurchase of shares of common stock
|
(557 | ) | — | — | — | (557 | ) | |||||||||||||
|
Dividends paid
|
(76 | ) | — | — | — | (76 | ) | |||||||||||||
|
Other, net
|
— | — | — | — | — | |||||||||||||||
|
|
||||||||||||||||||||
|
Net cash used in financing activities
|
(328 | ) | (390 | ) | — | (320 | ) | (1,038 | ) | |||||||||||
|
Cash and cash equivalents —
net change from:
|
||||||||||||||||||||
|
Operating, investing and financing
activities
|
— | 157 | (27 | ) | — | 130 | ||||||||||||||
|
Currency translation
|
— | (1 | ) | 2 | — | 1 | ||||||||||||||
|
Cash and cash equivalents at beginning of
period
|
— | 191 | 89 | — | 280 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | — | $ | 347 | $ | 64 | $ | — | $ | 411 | ||||||||||
|
|
||||||||||||||||||||
28
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
| Condensed Consolidating Statements of Cash Flows | ||||||||||||||||||||
|
|
For the Six Months Ended June 30, 2009 |
|
||||||||||||||||||
|
|
Parent |
|
|
Guarantors |
|
|
Non-Guarantors |
|
|
Eliminations |
|
|
Total |
|
||||||
| (in millions) | ||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||
|
Net cash (used in) provided by
operating activities
|
$ | (104 | ) | $ | 450 | $ | 25 | $ | — | $ | 371 | |||||||||
|
Investing activities:
|
||||||||||||||||||||
|
Purchases of property, plant and equipment
|
— | (133 | ) | (5 | ) | — | (138 | ) | ||||||||||||
|
Purchases of intangible assets
|
— | (7 | ) | — | — | (7 | ) | |||||||||||||
|
Proceeds from disposals of property,
plant and equipment
|
— | 4 | — | — | 4 | |||||||||||||||
|
Proceeds from disposals of intangible
assets
|
— | 63 | 5 | — | 68 | |||||||||||||||
|
Issuance of related party notes receivable
|
— | (259 | ) | — | 259 | — | ||||||||||||||
|
Proceeds from repayment of related party
notes receivable
|
125 | — | — | (125 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net cash (used in) provided by
investing activities
|
125 | (332 | ) | — | 134 | (73 | ) | |||||||||||||
|
Financing activities:
|
||||||||||||||||||||
|
Proceeds from related party long-term debt
|
259 | — | — | (259 | ) | — | ||||||||||||||
|
Repayment of related party long-term debt
|
— | (125 | ) | — | 125 | — | ||||||||||||||
|
Repayment of senior unsecured credit
facility
|
(280 | ) | — | — | — | (280 | ) | |||||||||||||
|
Other, net
|
— | (1 | ) | — | — | (1 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
financing activities
|
(21 | ) | (126 | ) | — | (134 | ) | (281 | ) | |||||||||||
|
Cash and cash equivalents —
net change from:
|
||||||||||||||||||||
|
Operating, investing and financing
activities
|
— | (8 | ) | 25 | — | 17 | ||||||||||||||
|
Currency translation
|
— | — | 4 | — | 4 | |||||||||||||||
|
Cash and cash equivalents at beginning of
period
|
— | 145 | 69 | — | 214 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | — | $ | 137 | $ | 98 | $ | — | $ | 235 | ||||||||||
|
|
||||||||||||||||||||
19. Subsequent Event
On July 12, 2010, the Board authorized the repurchase of an additional $1 billion of the
Company’s outstanding common stock over the next three years, for a total of $2 billion authorized
of which $1.45 billion remains outstanding.
29
Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion in conjunction with our audited consolidated
financial statements and notes thereto in our Annual Report on Form 10-K for the year ended
December 31, 2009.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), including, in particular, statements about future
events, future financial performance, plans, strategies, expectations, prospects, competitive
environment, regulation, labor matters 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
Quarterly Report on Form 10-Q. 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. All of the forward-looking statements are qualified in their entirety
by reference to the factors discussed under “Risk Factors” in Part I, Item 1A of our Annual Report
on Form 10-K for the year ended December 31, 2009. 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 Quarterly Report on Form 10-Q, except to the extent required by applicable
securities laws.
This Quarterly Report on Form 10-Q contains the names of some of our owned or licensed
trademarks, trade names and service marks, which we refer to as our brands. All of the product
names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those
of our licensors.
Cadbury plc and Cadbury Schweppes plc are hereafter collectively referred to as “Cadbury”
unless otherwise indicated. Kraft Foods Inc. acquired Cadbury on February 2, 2010. Kraft Foods,
Inc. and/or its subsidiaries are hereafter collectively referred to as “Kraft”.
Overview
We are a leading integrated brand owner, manufacturer and distributor of non-alcoholic
beverages in the United States, 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, 7UP,
Sunkist soda, 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 as an integrated brand owner, manufacturer and distributor through our three
segments. We believe our integrated business model strengthens our route-to-market, provides
opportunities for net sales and profit growth through the alignment of the economic interests of
our brand ownership and our manufacturing and distribution businesses through both our Direct Store
Delivery (“DSD”) system and our Warehouse Direct (“WD”) delivery system, which enables us to be
more flexible and responsive to the changing needs of our large retail customers and allows us to
more fully leverage our scale and reduce costs by creating greater geographic manufacturing and
distribution coverage.
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.
Beverage Concentrates
Our Beverage Concentrates segment is principally a brand ownership and ingredient
manufacturing and distribution business. In this segment we manufacture and sell beverage
concentrates and syrups in the United States and Canada. Most of the brands in this segment are CSD
brands. Key brands include Dr Pepper, 7UP, Sunkist soda, A&W, Canada Dry, Crush, Schweppes, Squirt,
RC Cola, Sundrop, Diet Rite, Welch’s, Vernors and Country Time and the concentrate form of Hawaiian
Punch.
Substantially all of our beverage concentrates are manufactured at our plant in St. Louis,
Missouri.
30
Table of Contents
The 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 them 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.
Packaged Beverages
Our Packaged Beverages segment is principally a brand ownership, manufacturing and
distribution business. In this segment, we primarily manufacture and distribute packaged beverages
and other products, including our brands, third party owned brands and certain private label
beverages, in the United States and Canada. Key NCB brands in this segment include Snapple, Mott’s,
Hawaiian Punch, Clamato, Yoo-Hoo, Mistic, Country Time, Venom Energy, Nantucket Nectars, ReaLemon, Mr and Mrs T, Rose’s
and Margaritaville. Key CSD brands in this segment include Dr Pepper, 7UP, Sunkist soda, A&W,
Canada Dry, Squirt, RC Cola, Welch’s, Vernors and IBC. Additionally, we
distribute third party brands such as FIJI mineral water and AriZona tea and a portion
of our sales come from bottling beverages and other products for private label owners or others for
a fee. Although the majority of our Packaged Beverages’ net sales relate to our brands, we also
provide a route-to-market for third party brand owners seeking effective distribution for their new
and emerging brands. These brands give us exposure in certain markets to fast growing segments of
the beverage industry with minimal capital investment.
Our Packaged Beverages’ products are manufactured in multiple facilities across the United
States and are sold or distributed to retailers and their warehouses by our own distribution
network or 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, beverage concentrates and other ingredients.
We sell our Packaged Beverages’ products both through our DSD system, supported by a fleet of
more than 5,000 trucks and approximately 12,000 employees, including sales representatives,
merchandisers, drivers and warehouse workers, as well as through our WD system, both of which
include sales to all major retail channels, including supermarkets, mass merchandisers, club
stores, convenience stores, gas stations, small groceries, drug chains and dollar stores.
Latin America Beverages
Our Latin America Beverages segment is a brand ownership, manufacturing and distribution
business. This segment participates mainly in the carbonated mineral water, flavored CSD, bottled
water and vegetable juice categories, with particular strength in carbonated mineral water and
grapefruit flavored CSDs. Key brands include Peñafiel, Squirt, Clamato and Aguafiel.
In Mexico, we manufacture and distribute our products through our bottling operations and
third party bottlers and distributors. In the Caribbean, we distribute our products through third
party distributors. In Mexico, we also participate in a joint venture to manufacture Aguafiel brand
water with Acqua Minerale San Benedetto. We provide expertise in the 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 “mom
and pop” stores, supermarkets, hypermarkets, and on premise channels.
Volume
In evaluating our performance, we consider different volume measures depending on whether we
sell beverage concentrates or finished beverages.
Beverage Concentrates Sales Volume
In our Beverage Concentrates segment, we measure our sales volume in two ways:
(1) “concentrate case sales” and (2) “bottler case sales.” The unit of measurement for both
concentrate case sales and bottler case sales equals 288 fluid ounces of finished beverage, the
equivalent of 24 twelve ounce servings.
31
Table of Contents
Concentrate case sales represent units of measurement for concentrates sold by us to our
bottlers and distributors. A concentrate case is the amount of concentrate 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 concentrate. Our net sales in our concentrate businesses are based on our sales
of concentrate cases.
Although net sales in our concentrate businesses are based on concentrate case sales, we
believe that bottler case sales are also a significant measure of our performance because they
measure sales of packaged beverages into retail channels.
Packaged Beverages Sales Volume
In our Packaged Beverages segment, we measure volume as case sales to customers. A case sale
represents a unit of measurement equal to 288 fluid ounces of packaged beverage sold by us. Case
sales include both our owned brands and certain brands licensed to and/or distributed by us.
Volume in Bottler Case Sales
In addition to sales volume, we measure volume in bottler case sales (“volume (BCS)”) as sales
of packaged beverages, in equivalent 288 fluid ounce cases, sold by us and our bottling partners to
retailers and independent distributors. Our contract manufacturing sales are not included or
reported as part of volume (BCS).
Bottler case sales, concentrate case sales and packaged beverage sales volume are not equal
during any given period due to changes in bottler concentrate inventory levels, which can be
affected by seasonality, bottler inventory and manufacturing practices, and the timing of price
increases and new product introductions.
Company Highlights and Recent Developments
| • |
Net sales totaled $1,519 million for the three months ended June 30, 2010, an
increase of $38 million, or approximately 3%, from the three
months ended June 30, 2009.
|
||
| • |
Net income for the three months ended June 30, 2010, was $183 million, compared to
$158 million for the year ago period, an increase of
$25 million, or approximately 16%.
|
||
| • |
Diluted earnings per share were $0.74 per share for the three months ended June 30,
2010, compared with $0.62 for the year ago period.
|
||
| • |
During the second quarter of 2010, our Board of Directors (the “Board”) declared a
dividend of $0.25 per share, payable on July 9, 2010, to shareholders of record on June
21, 2010. The dividend amount increased approximately 67% compared to previous dividends
declared by the Board.
|
||
| • |
On June 7, 2010, we announced an agreement to license certain brands to The Coca-Cola
Company or its affiliates (“Coke”) on completion of Coke’s proposed acquisition of Coca-Cola Enterprises’
North American Bottling Business. As part of the transaction, we will receive a
one-time nonrefundable cash payment of $715 million, which will be recorded as deferred
revenue and recognized as net sales ratably over the estimated 25-year life of the
customer relationship.
|
||
| • |
During the three and six months ended June 30, 2010, we repurchased 9.8 million and
15.6 million shares, respectively, of our common stock valued at approximately $355
million and $557 million, respectively.
|
||
| • |
On July 12, 2010, the Board authorized the repurchase of an additional $1 billion of
our outstanding common stock over the next three years, for a total authorization of $2
billion of which $1.45 billion remains outstanding.
|
Results of Operations
We eliminate from our financial results all intercompany transactions between entities
included in the combination and the intercompany transactions with our equity method investees.
References in the financial tables to percentage changes that are not meaningful are denoted
by “NM.”
32
Table of Contents
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
Consolidated Operations
The following table sets forth our unaudited consolidated results of operations for the three
months ended June 30, 2010 and 2009 (dollars in millions):
|
|
For the Three Months Ended June 30, | |||||||||||||||||||
|
|
2010 |
|
2009 | Percentage | ||||||||||||||||
|
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|
Change | |||||||||||
|
Net sales
|
$ | 1,519 | 100.0 | % | $ | 1,481 | 100.0 | % | 3 | % | ||||||||||
|
Cost of sales
|
593 | 39.0 | 596 | 40.2 | (1 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
926 | 61.0 | 885 | 59.8 | 5 | |||||||||||||||
|
Selling, general and administrative expenses
|
587 | 38.6 | 550 | 37.1 | 7 | |||||||||||||||
|
Depreciation and amortization
|
32 | 2.1 | 28 | 1.9 | 14 | |||||||||||||||
|
Other operating expense (income), net
|
(3 | ) | (0.2 | ) | 10 | 0.7 | (130 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income from operations
|
310 | 20.4 | 297 | 20.1 | 4 | |||||||||||||||
|
Interest expense
|
29 | 1.9 | 52 | 3.5 | (44 | ) | ||||||||||||||
|
Interest income
|
(1 | ) | (0.1 | ) | (1 | ) | (0.1 | ) | NM | |||||||||||
|
Other income, net
|
(2 | ) | (0.1 | ) | (2 | ) | (0.1 | ) | NM | |||||||||||
|
|
||||||||||||||||||||
|
Income before provision for income taxes and equity in
earnings of unconsolidated subsidiaries
|
284 | 18.7 | 248 | 16.8 | 15 | |||||||||||||||
|
Provision for income taxes
|
102 | 6.7 | 91 | 6.2 | 12 | |||||||||||||||
|
|
||||||||||||||||||||
|
Income before equity in earnings of unconsolidated
subsidiaries
|
182 | 12.0 | 157 | 10.6 | 16 | |||||||||||||||
|
Equity in earnings of unconsolidated subsidiaries, net
of tax
|
1 | 0.1 | 1 | 0.1 | NM | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 183 | 12.1 | % | $ | 158 | 10.7 | % | 16 | % | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Earnings per common share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.75 | NM | $ | 0.62 | NM | 19 | % | ||||||||||||
|
Diluted
|
$ | 0.74 | NM | $ | 0.62 | NM | 19 | % | ||||||||||||
Volume.
Volume (BCS) increased
3% for the three months ended June 30, 2010,
compared with the three months ended June 30, 2009. In the U.S. and Canada, volume increased
2% and in Mexico and the Caribbean, volume increased 10% compared with
the year ago period. Both CSD and NCB volume increased
3%. In CSDs, Crush increased 21% compared with the year ago period due to expanded
distribution and innovation. Dr Pepper volume increased by 3% compared with the year ago period. Our
“Core 4” brands (7UP, Sunkist soda, A&W and Canada
Dry) were down 1% compared to the
year ago period as high single-digit declines in Sunkist soda and low
single-digit declines in A&W and 7UP
were partially offset by a double-digit increase in Canada Dry. Peñafiel volume decreased
1% due to decreased sales to third party distributors. Squirt volume increased
13%. In NCBs, 9% growth in Snapple was due to the successful restage of
the brand, the growth of value offerings and increased marketing. Additionally, a
7% increase in Hawaiian Punch was partially offset by a 10% decline
in Aguafiel and declines in third party NCB brands, such as
AriZona.
Although
volume (BCS) increased 3% for the three months ended June 30, 2010,
compared with the three months ended June 30, 2009, sales volume
only increased 1% for the
same period as it includes the decline related to contract
manufacturing, while volume (BCS) does not.
Net Sales.
Net sales increased $38 million, or approximately 3%, for the three months ended
June 30, 2010, compared with the three months ended June 30, 2009. The increase was primarily
attributable to an increase in our sales volumes, the favorable impact of foreign currency,
and $9 million in revenue recognized under the PepsiCo
license. These increases were partially offset by a decline in contract manufacturing within our
Packaged Beverages segment and an unfavorable product mix.
Gross Profit.
Gross profit increased $41 million for the three months ended June 30, 2010,
compared with the three months ended June 30, 2009. Gross margin of 61% for the three months ended
June 30, 2010, was higher than the 60% gross margin for the three months ended June
30, 2009, primarily due to the favorable product mix as a result of the decline in contract
manufacturing and ongoing supply chain efficiencies.
33
Table of Contents
Income from Operations.
Income from operations increased $13 million to $310 million for the
three months ended June 30, 2010, compared with the year ago period. The increase was primarily
attributable to increased net sales, lower costs driving the improvement in gross margin, partially
offset by selling, general and administrative (“SG&A”) expenses. SG&A expenses increased by $37
million primarily due to an increase in marketing spend related to targeted marketing programs for
Snapple, Dr Pepper, Canada Dry and Sunkist soda, the unfavorable comparison of the changes in the fair value
of commodity derivatives used in the distribution process and an unfavorable impact of foreign
currency.
Interest Expense, Interest Income and Other Income.
Interest expense decreased $23 million
compared with the year ago period, reflecting the repayment of our senior unsecured Term Loan A
facility during December 2009. As a result of indemnity income associated with the Tax Indemnity
Agreement with Kraft, other income was $2 million for the three months ended June 30, 2010.
Provision for Income Taxes.
The effective tax rates for the three months ended June 30, 2010
and 2009 were 35.9% and 36.7%, respectively. The decrease in the effective tax rate for the three
months ended June 30, 2010, was primarily driven by an increase in the enacted rate of U.S.
domestic manufacturing deduction and resolution of certain foreign tax liabilities.
Results 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 segment operating profit (“SOP”). The following tables set forth net
sales and SOP for our segments for the three months ended June 30, 2010 and 2009, as well as the
other amounts necessary to reconcile our total segment results to our consolidated results
presented in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) (in millions):
| For the | ||||||||
| Three Months Ended | ||||||||
|
|
June 30, | |||||||
|
|
2010 |
|
2009 | |||||
|
Segment Results — Net sales
|
||||||||
|
Beverage Concentrates
|
$ | 319 | $ | 281 | ||||
|
Packaged Beverages
|
1,091 | 1,105 | ||||||
|
Latin America Beverages
|
109 | 95 | ||||||
|
|
||||||||
|
Net sales
|
$ | 1,519 | $ | 1,481 | ||||
|
|
||||||||
|
|
||||||||
|
Segment Results — SOP
|
||||||||
|
Beverage Concentrates
|
$ | 207 | $ | 184 | ||||
|
Packaged Beverages
|
163 | 170 | ||||||
|
Latin America Beverages
|
18 | 14 | ||||||
|
|
||||||||
|
Total SOP
|
388 | 368 | ||||||
|
Unallocated corporate costs
|
81 | 61 | ||||||
|
Other operating expense (income), net
|
(3 | ) | 10 | |||||
|
|
||||||||
|
Income from operations
|
310 | 297 | ||||||
|
Interest expense, net
|
28 | 51 | ||||||
|
Other income, net
|
(2 | ) | (2 | ) | ||||
|
|
||||||||
|
Income before provision for income taxes and
equity in earnings of unconsolidated
subsidiaries
|
$ | 284 | $ | 248 | ||||
|
|
||||||||
34
Table of Contents
Beverage Concentrates
The following table details our Beverage Concentrates segment’s net sales and SOP for the
three months ended June 30, 2010 and 2009 (in millions):
| For the | ||||||||||||
| Three Months Ended | ||||||||||||
|
|
June 30, | Amount | ||||||||||
|
|
2010 |
|
2009 |
|
Change | |||||||
|
Net sales
|
$ | 319 | $ | 281 | $ | 38 | ||||||
|
SOP
|
207 | 184 | 23 | |||||||||
Net sales increased $38 million, or approximately 14%, for the three months ended June 30,
2010, compared with the three months ended June 30, 2009. The increase was primarily due to
concentrate price increases, favorability related to trade spend and $9 million in revenue
recognized under the PepsiCo license. Concentrate price increases, which were effective in January
2010, added an incremental $11 million to net sales during the three months ended June 30, 2010.
SOP increased $23 million, or approximately 13%, for the three months ended June 30, 2010, as
compared with the year ago period, primarily driven by the increase in net sales. The increase in
SOP was partially offset by an increase in marketing spend primarily related to targeted marketing
programs for Dr Pepper, Canada Dry, and Sunkist soda.
Volume
(BCS) increased 1% for the three months ended June 30, 2010, as compared
with the year ago period. Dr Pepper increased 4%, led by an increase in both regular
and Diet Dr Pepper, offset by decreases in the Dr Pepper Cherry line compared to the year ago
period when it was initially introduced. Crush volume increased by 20%, led by the
launch of Cherry Crush in the first quarter of 2010. These increases
were partially offset by a double-digit decline in Hawaiian Punch and a 6% decline in our Core 4 brands,
led by a double-digit decline in Sunkist soda partially offset by a double-digit increase in Canada
Dry. The decreases in Sunkist soda and Hawaiian Punch were primarily driven by the repatriation of the brands to
our Packaged Beverages segment as a result of the PepsiCo licensing agreement.
Packaged Beverages
The following table details our Packaged Beverages segment’s net sales and SOP for the three
months ended June 30, 2010 and 2009 (in millions):
| For the | ||||||||||||
| Three Months Ended | ||||||||||||
|
|
June 30, | Amount | ||||||||||
|
|
2010 |
|
2009 |
|
Change | |||||||
|
Net sales
|
$ | 1,091 | $ | 1,105 | $ | (14 | ) | |||||
|
SOP
|
163 | 170 | (7 | ) | ||||||||
Sales volume decreased 1% for the three months ended June 30, 2010, compared
with the three months ended June 30, 2009. The decrease was the result of a decline in contract
manufacturing partially offset by volume growth in our NCB category. The decline in contract
manufacturing negatively impacted total volume by 3%. Total CSD volume remained
relatively flat. Volume for our Core 4 brands decreased 1%, due to a mid single-digit
decline in 7UP, partially offset by a double-digit increase in Canada Dry due to targeted marketing
programs. Total NCB volume increased 6% as a result of a 9% increase
in Snapple due to the successful restage of the brand, growth of value offerings and increased
marketing. Hawaiian Punch and Mott’s increased 10% and 2%, respectively, as a result
of increased promotional activity and distribution gains.
Net sales decreased $14 million for the three months ended June 30, 2010, compared with the
three months ended June 30, 2009. The decline in contract manufacturing reduced net sales for the
three months ended June 30, 2010, by $19 million. Net sales were favorably impacted by volume
increases, primarily in NCBs, and the favorable impact of foreign currency, offset in part by net
pricing decreases.
SOP decreased $7 million for the three months ended June 30, 2010, compared with the three
months ended June 30, 2009, primarily due to the decrease in net sales and costs and depreciation
associated with the startup of our manufacturing facility in Victorville, California, partially
offset by the favorable product mix as a result of the decline in contract manufacturing.
35
Table of Contents
Latin America Beverages
The following table details our Latin America Beverages segment’s net sales and SOP for the
three months ended June 30, 2010 and 2009 (in millions):
| For the | ||||||||||||
| Three Months Ended | ||||||||||||
|
|
June 30, | Amount | ||||||||||
|
|
2010 |
|
2009 |
|
Change | |||||||
|
Net sales
|
$ | 109 | $ | 95 | $ | 14 | ||||||
|
SOP
|
18 | 14 | 4 | |||||||||
Sales volume increased 13% for the three months ended June 30, 2010, as compared
with the three months ended June 30, 2009. The increase in volume was driven by a
24% increase in Squirt volume due to higher sales to third party bottlers, a 52%
increase in Crush volume 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 were partially offset by an 8% decrease in Aguafiel due to
decreased sales to third party distributors.
Net sales increased $14 million for the three months ended June 30, 2010, compared with the
year ago period primarily due to an increase in sales volume and an $8 million favorable impact of
changes in foreign currency, partially offset by an unfavorable impact related to product mix.
SOP increased $4 million for the three months ended June 30, 2010, compared with the three
months ended June 30, 2009, primarily due to the increase in sales volume and a $4 million
favorable impact of changes in foreign currency, partially offset by increased costs associated
with route expansion.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
Consolidated Operations
The following table sets forth our unaudited consolidated results of operations for the six
months ended June 30, 2010 and 2009 (dollars in millions):
|
|
For the Six Months Ended June 30, | |||||||||||||||||||
|
|
2010 |
|
2009 | Percentage | ||||||||||||||||
|
|
Dollars |
|
Percent |
|
Dollars |
|
Percent |
|
Change | |||||||||||
|
Net sales
|
$ | 2,767 | 100.0 | % | $ | 2,741 | 100.0 | % | 1 | % | ||||||||||
|
Cost of sales
|
1,089 | 39.4 | 1,127 | 41.1 | (3 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
1,678 | 60.6 | 1,614 | 58.9 | 4 | |||||||||||||||
|
Selling, general and administrative expenses
|
1,118 | 40.4 | 1,049 | 38.3 | 7 | |||||||||||||||
|
Depreciation and amortization
|
63 | 2.3 | 55 | 2.0 | 15 | |||||||||||||||
|
Other operating expense (income), net
|
— | — | (52 | ) | (1.9 | ) | (100 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income from operations
|
497 | 17.9 | 562 | 20.5 | (12 | ) | ||||||||||||||
|
Interest expense
|
63 | 2.3 | 107 | 3.9 | (41 | ) | ||||||||||||||
|
Interest income
|
(2 | ) | (0.1 | ) | (2 | ) | (0.1 | ) | NM | |||||||||||
|
Other income, net
|
(5 | ) | (0.2 | ) | (5 | ) | (0.2 | ) | NM | |||||||||||
|
|
||||||||||||||||||||
|
Income before provision for income taxes and equity in
earnings of unconsolidated subsidiaries
|
441 | 15.9 | 462 | 16.9 | (5 | ) | ||||||||||||||
|
Provision for income taxes
|
170 | 6.1 | 173 | 6.3 | (2 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Income before equity in earnings of unconsolidated
subsidiaries
|
271 | 9.8 | 289 | 10.6 | (6 | ) | ||||||||||||||
|
Equity in earnings of unconsolidated subsidiaries, net
of tax
|
1 | — | 1 | — | NM | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 272 | 9.8 | % | $ | 290 | 10.6 | % | (6 | )% | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Earnings per common share:
|
||||||||||||||||||||
|
Basic
|
$ | 1.09 | NM | $ | 1.14 | NM | (4 | )% | ||||||||||||
|
Diluted
|
$ | 1.09 | NM | $ | 1.14 | NM | (4 | )% | ||||||||||||
36
Table of Contents
Volume.
Volume (BCS) increased 3% for the six months ended June 30, 2010,
compared with the six months ended June 30, 2009. In the U.S. and Canada, volume increased
2% and in Mexico and the Caribbean, volume increased 7% compared with
the year ago period. CSD volume increased 2% and NCB volume increased 4%. In CSDs, Crush increased 21% compared with the year ago period due to expanded
distribution. Dr Pepper volume increased 3% compared with the year ago period. Our
Core 4 brands were down 2% compared to the year ago period as double-digit
declines in Sunkist soda and low single-digit declines in A&W and 7UP were partially offset by a
double-digit increase in Canada Dry. Peñafiel volume decreased 5% due to decreased
sales to third party distributors. Squirt volume increased 11%. In NCBs,
12% growth in Snapple was due to the successful restage of the brand, the growth of
value offerings and increased marketing. An 8% increase in Mott’s was the result of
new distribution and strong brand support. Additionally, a 7% increase in Hawaiian
Punch was partially offset by declines in third party NCB brands, such as AriZona.
Although volume (BCS) increased 3% for the six months ended June 30, 2010,
compared with the six months ended June 30, 2009, sales volume decreased 1% for the
same period. The sales volume decreased as a result of lower concentrate sales as third-party
bottlers purchased higher levels of concentrate during the fourth quarter of 2009, a decline in
contract manufacturing, which is not included in volume (BCS) and unfavorable
comparisons related to the successful Crush launch and related pipeline fill in the first quarter
of 2009.
Net Sales.
Net sales increased $26 million, or approximately 1%, for the six months ended June
30, 2010, compared with the six months ended June 30, 2009. The increase was primarily attributable
to volume increases in NCBs, the favorable impact of foreign currency and $12 million in revenue
recognized under the PepsiCo license. These increases were partially offset by a decline in
contract manufacturing and an unfavorable product mix.
Gross Profit.
Gross profit increased $64 million for the six months ended June 30, 2010,
compared with the six months ended June 30, 2009. Gross margin of approximately 61% for the six
months ended June 30, 2010, was higher than the approximately 59% gross margin for the six months
ended June 30, 2009, primarily due to the favorable product mix as a result of the decline in
contract manufacturing and ongoing supply chain efficiencies.
Income from Operations.
Income from operations decreased $65 million to $497 million for the
six months ended June 30, 2010, compared with the year ago period. The six months ended June 30,
2009 included one-time gains of $62 million primarily related to the termination of certain
distribution agreements. The remaining $3 million decrease in income from operations resulted from
increase in SG&A expenses, partially offset by increased net sales, improvement in gross margin
related to the decline in contract manufacturing and lower costs for packaging materials and other
commodity costs during the six months ended June 30, 2010. Significant drivers of the $69 million
increase in SG&A expenses include the increase in marketing spend primarily related to targeted
marketing programs, unfavorable impact of foreign currency, unfavorable comparison of the changes
in fair value of commodity derivatives used in the distribution process, higher benefit costs, and the one-time transaction costs associated with the
PepsiCo agreement.
Interest Expense, Interest Income and Other Income.
Interest expense decreased $44 million
compared with the year ago period, reflecting the repayment of our senior unsecured Term Loan A
facility during December 2009. As a result of indemnity income associated with the Tax Indemnity
Agreement with Kraft, other income was $5 million for the six months ended June 30, 2010.
Provision for Income Taxes.
The effective tax rates for the six months ended June 30, 2010 and
2009 were 38.5% and 37.4%, respectively. The increase in the effective tax rate for the six months
ended June 30, 2010, was primarily driven by a previous change in the provincial income tax rate
for Ontario, Canada. The impact of the change in tax rate increased the provision for income taxes
and effective tax rate by $13 million and 2.9%, respectively. Refer to Note 8 of the Notes to our
Unaudited Condensed Consolidated Financial Statements for further information.
37
Table of Contents
Results of Operations by Segment
The following tables set forth net sales and SOP for our segments
for the six months ended June 30, 2010 and 2009, as well as the other amounts necessary to
reconcile our total segment results to our consolidated results presented in accordance with
U.S. GAAP (in millions):
| For the | ||||||||
| Six Months Ended | ||||||||
|
|
June 30, | |||||||
|
|
2010 |
|
2009 | |||||
|
Segment Results — Net sales
|
||||||||
|
Beverage Concentrates
|
$ | 559 | $ | 524 | ||||
|
Packaged Beverages
|
2,020 | 2,049 | ||||||
|
Latin America Beverages
|
188 | 168 | ||||||
|
|
||||||||
|
Net sales
|
$ | 2,767 | $ | 2,741 | ||||
|
|
||||||||
|
|
||||||||
|
Segment Results — SOP
|
||||||||
|
Beverage Concentrates
|
$ | 353 | $ | 334 | ||||
|
Packaged Beverages
|
277 | 277 | ||||||
|
Latin America Beverages
|
25 | 23 | ||||||
|
|
||||||||
|
Total SOP
|
655 | 634 | ||||||
|
Unallocated corporate costs
|
158 | 124 | ||||||
|
Other operating expense (income), net
|
— | (52 | ) | |||||
|
|
||||||||
|
Income from operations
|
497 | 562 | ||||||
|
Interest expense, net
|
61 | 105 | ||||||
|
Other income, net
|
(5 | ) | (5 | ) | ||||
|
|
||||||||
|
Income before provision for income taxes and
equity in earnings of unconsolidated
subsidiaries
|
$ | 441 | $ | 462 | ||||
|
|
||||||||
Beverage Concentrates
The following table details our Beverage Concentrates segment’s net sales and SOP for the six
months ended June 30, 2010 and 2009 (in millions):
| For the | ||||||||||||
| Six Months Ended | ||||||||||||
|
|
June 30, | Amount | ||||||||||
|
|
2010 |
|
2009 |
|
Change | |||||||
|
Net sales
|
$ | 559 | $ | 524 | $ | 35 | ||||||
|
SOP
|
353 | 334 | 19 | |||||||||
Net sales increased $35 million, or approximately 7%, for the six months ended June 30, 2010,
compared with the six months ended June 30, 2009. The increase was primarily due to concentrate
price increases, $12 million in revenue recognized under the PepsiCo license, and the favorable
impact of foreign currency. Concentrate price increases, which were effective in January 2010,
added an incremental $20 million to net sales during the six months ended June 30, 2010. The
increase in net sales was partially offset by a 1% decrease in concentrate case
sales.
SOP increased $19 million, or approximately 6% for the six months ended June 30, 2010, as
compared with the year ago period, primarily driven by the increase in net sales. The increase in
SOP was partially offset by an increase in marketing spend primarily related to targeted marketing
programs for Dr Pepper, Canada Dry, and Sunkist soda.
Volume
(BCS) increased 2% for the six months ended June 30, 2010, as compared
with the year ago period, primarily driven by a 3% increase in Dr Pepper, driven by
regular and Diet Dr Pepper. Crush increased 19%, primarily driven by the launch of
Cherry Crush in the first quarter of 2010. These increases were partially offset by a
double-digit decline in Hawaiian Punch and a 2% decrease in our Core 4 brands,
led by a mid-single digit decline in Sunkist soda partially offset by
a high single-digit increase in Canada
Dry. The decreases in Sunkist soda and Hawaiian Punch were primarily driven by the repatriation of the brands to
our Packaged Beverages segment as a result of the PepsiCo licensing agreement.
38
Table of Contents
Packaged Beverages
The following table details our Packaged Beverages segment’s net sales and SOP for the six
months ended June 30, 2010 and 2009 (in millions):
| For the | ||||||||||||
| Six Months Ended | ||||||||||||
|
|
June 30, | Amount | ||||||||||
|
|
2010 |
|
2009 |
|
Change | |||||||
|
Net sales
|
$ | 2,020 | $ | 2,049 | $ | (29 | ) | |||||
|
SOP
|
277 | 277 | — | |||||||||
Sales
volume decreased 2% for the six months ended June 30, 2010, compared with
the six months ended June 30, 2009. The decrease was the result of a decline in contract
manufacturing partially offset by volume growth in our NCB category. The decline in contract
manufacturing negatively impacted total volume by 4%. Total CSD volume decreased
2%. Volume for our Core 4 brands decreased 3%, due to mid single-digit
declines in 7UP and Sunkist soda, partially offset by a double-digit increase in Canada Dry due to
targeted marketing programs. Dr Pepper volumes decreased 3%. Total NCB volume
increased 6% as a result of an 13% 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% and 8%, respectively, as a result of increased promotional
activity and distribution gains.
Net sales decreased $29 million for the six months ended June 30, 2010, compared with the six
months ended June 30, 2009. The decline in contract manufacturing reduced net sales for the six
months ended June 30, 2010, by $39 million. Net sales were favorably impacted by volume increases,
primarily in NCBs, and the favorable impact of foreign currency, offset in part by the decrease in
CSD volume and net pricing decreases, primarily in CSDs.
SOP remained flat for the six months ended June 30, 2010, compared with the six months ended
June 30, 2009, primarily due to the favorable product mix as a result of the decline in contract
manufacturing and lower costs for packaging materials and other commodity costs. These increases
were offset by decreased net sales, costs and depreciation associated with the startup of our
manufacturing facility in Victorville, California, higher benefit costs, and legal reserves for
pending legal matters.
Latin America Beverages
The following table details our Latin America Beverages segment’s net sales and SOP for the
six months ended June 30, 2010 and 2009 (in millions):
| For the | ||||||||||||
| Six Months Ended | ||||||||||||
|
|
June 30, | Amount | ||||||||||
|
|
2010 |
|
2009 |
|
Change | |||||||
|
Net sales
|
$ | 188 | $ | 168 | $ | 20 | ||||||
|
SOP
|
25 | 23 | 2 | |||||||||
Sales volume increased 11% for the six months ended June 30, 2010, as compared
with the six months ended June 30, 2009. The increase in volume was driven by a 21%
increase in Squirt volume due to higher sales to third party bottlers, a 62%
increase in Crush volume 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 were partially offset by a 5% decrease in Peñafiel due to
decreased sales to third party distributors.
Net sales increased $20 million for the six months ended June 30, 2010, compared with the year
ago period primarily due to an increase in sales volume and a $14 million favorable impact of
changes in foreign currency, partially offset by an unfavorable impact related to product mix.
SOP increased $2 million for the six months ended June 30, 2010, compared with the six months
ended June 30, 2009, primarily due to the increase in sales volume and a $5 million favorable
impact of changes in foreign currency, partially offset by increased costs associated with route
expansion.
39
Table of Contents
Critical Accounting Estimates
The process of preparing our unaudited condensed consolidated 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. Critical accounting estimates are both
fundamental to the portrayal of a company’s financial condition and results and require difficult,
subjective or complex estimates and assessments. 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 revised when necessary. Actual amounts may differ from these estimates and
judgments. We have identified the following policies as critical accounting policies:
| • |
revenue recognition;
|
||
| • |
customer marketing programs and incentives;
|
||
| • |
goodwill and other indefinite lived intangible assets;
|
||
| • |
definite lived intangible assets;
|
||
| • |
stock-based compensation;
|
||
| • |
pension and postretirement benefits;
|
||
| • |
risk management programs; and
|
||
| • |
income taxes.
|
These critical accounting policies are discussed in greater detail in our Annual Report on
Form 10-K for the year ended December 31, 2009.
Liquidity and Capital Resources
Trends and Uncertainties Affecting Liquidity
We believe that the following transactions, trends and uncertainties may impact liquidity:
| • |
changes in economic factors could impact consumers’ purchasing power; and
|
||
| • |
we will continue to make capital expenditures to upgrade our existing plants and
distribution fleet of trucks, replace and expand our cold drink equipment and make
investments in IT systems in order to improve operating efficiencies and lower costs.
|
2010 Borrowings and Repayments
On November 20, 2009, the Board authorized us to issue up to $1,500 million of debt securities
through the Securities and Exchange Commission shelf registration
process. We issued $890 million in 2009, as described in the section
“The 2011 and 2012 Notes” below. As a result, $650 million
remained authorized to be issued as of June 30, 2010.
During the six months ended June 30, 2010, we repaid $405 million borrowed from the revolving
credit facility (the “Revolver”).
The following is a description of our senior unsecured credit facility and the senior
unsecured notes. The summaries of the senior unsecured credit facility and the senior unsecured
notes are qualified in their entirety by the specific terms and provisions of the senior unsecured
credit facility agreement (the “Facility Agreement”) and
the indentures governing the senior
unsecured notes, respectively, copies of which have previously been filed, as referenced in the
exhibits to our Annual Report on Form 10-K for the year ended December 31, 2009.
40
Table of Contents
Senior Unsecured Credit Facility
Our senior unsecured credit facility originally provided senior unsecured financing of up to
$2,700 million, which consisted of:
| • |
the senior unsecured Term Loan A facility (the “Term Loan A”) in an aggregate
principal amount of $2,200 million with a term of five years, which was fully repaid in
December 2009 prior to its maturity, and under which no further borrowings may be made;
and
|
||
| • |
the Revolver in an aggregate principal amount of $500 million with a maturity in
2013. The balance of principal borrowings under the Revolver was $0 and $405 million as
of June 30, 2010 and December 31, 2009, respectively. Up to $75 million of the Revolver
is available for the issuance of letters of credit, of which $58 million and $41 million
were utilized as of June 30, 2010, and December 31, 2009, respectively. Balances
available for additional borrowings and letters of credit were $442 million and $17
million, respectively, as of June 30, 2010.
|
Borrowings under the senior unsecured credit facility bear interest at a floating rate per
annum based upon the London Interbank Offered Rate (“LIBOR”) or the Alternate Base Rate (“ABR”),
in each case plus an applicable margin which varies based upon our debt ratings, from 1.00% to
2.50% in the case of LIBOR loans and 0.00% to 1.50% in the case of ABR loans. The ABR means the
greater of (a) JPMorgan Chase Bank’s prime rate and (b) the federal funds effective rate plus one
half of 1%. Interest is payable on the last day of the interest period, but not less than
quarterly, in the case of any LIBOR loan and on the last day of March, June, September and December
of each year in the case of any ABR loan. There were no borrowings during the three months ended
June 30, 2010. The average interest rate was 4.50% for the three months ended June 30, 2009. The
average interest rate was 2.25% and 4.80% for the six months ended June 30, 2010 and 2009,
respectively. Interest expense was $22 million for the three months ended June 30, 2009 and $2
million and $48 million for the six months ended June 30, 2010 and 2009, respectively. Amortization
of deferred financing costs of $3 million for the three months ended June 30, 2009, and $1 million
and $7 million for the six months ended June 30, 2010 and 2009, respectively, was included in
interest expense. There was no interest expense or amortization of deferred financing costs for the
three months ended June 30, 2010.
We utilized interest rate swaps to effectively convert variable interest rates to fixed rates.
Refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for
further information regarding derivatives.
An unused commitment fee is payable quarterly to the lenders on the unused portion of the
commitments in respect of the Revolver equal to 0.15% to 0.50% per annum, depending upon our debt
ratings. There were minimal unused commitment fees for the three and six months ended June 30, 2010. We
incurred $1 million in unused commitment fees for the three and six months ended June 30, 2009.
Principal
amounts outstanding under the Revolver are due and payable in full at
maturity in 2013.
All obligations under the senior unsecured credit facility are guaranteed by substantially all
of our existing and future direct and indirect domestic subsidiaries.
The Facility Agreement contains customary negative covenants that, among other things,
restrict our ability to incur debt at subsidiaries that are not guarantors; incur liens; merge or
sell, transfer, lease or otherwise dispose of all or substantially all assets; enter into transactions with affiliates; and enter
into agreements restricting our ability to incur liens or the ability of subsidiaries to make
distributions. These covenants are subject to certain exceptions described in the Facility
Agreement. In addition, the Facility Agreement requires us to comply with a maximum total leverage
ratio covenant and a minimum interest coverage ratio covenant. The Facility Agreement also contains
certain usual and customary representations and warranties, affirmative covenants and events of
default. As of June 30, 2010 and December 31, 2009, we were in compliance with all covenant
requirements.
Senior Unsecured Notes
The 2011 and 2012 Notes
In December 2009, we completed the issuance of $850 million aggregate principal amount of
senior unsecured notes consisting of the 2011 and 2012 Notes. The weighted average interest rate of
the 2011 and 2012 Notes was 2.04% for the three and six months ended June 30, 2010. The net
proceeds from the sale of the debentures were used for repayment of existing indebtedness under the
Term Loan A. Interest on the 2011 and 2012 Notes is payable semi-annually on June 21 and December
21. Interest expense was $(1) million and $1 million for the three and six months ended June 30,
2010, respectively. As a result of changes in fair value of the
economic hedge, we recorded an unrealized gain of $4 million which
reduced
interest expense for the three and six months ended June 30, 2010. Interest expense included $1 million of amortization of deferred financing
costs associated with the 2011 and 2012 Notes for the three and six months ended June 30, 2010.
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Table of Contents
We utilize interest rate swaps designated as fair value and economic hedges, to convert fixed
interest rates to variable rates. Refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements
for further information regarding derivatives.
The indenture governing the 2011 and 2012 Notes, among other things, limits our ability to
incur indebtedness secured by principal properties, to enter into certain sale and leaseback
transactions and to enter into certain mergers or transfers of substantially all of DPS’
assets. The 2011 and 2012 Notes are guaranteed by substantially all of our existing and future
direct and indirect domestic subsidiaries. As of June 30, 2010 and December 31, 2009, we were in
compliance with all covenant requirements.
The 2013, 2018 and 2038 Notes
During 2008, we completed the issuance of $1,700 million aggregate principal amount of senior
unsecured notes consisting of $250 million aggregate principal amount of 6.12% senior notes due
May 1, 2013 (the “2013 Notes”), $1,200 million aggregate principal amount of 6.82% senior notes due
May 1, 2018 (the “2018 Notes”), and $250 million aggregate principal amount of 7.45% senior notes
due May 1, 2038 (the “2038 Notes”). The weighted average interest rate of the 2013, 2018 and 2038
Notes was 6.81% for each of the three and six month periods ended June 30, 2010 and 2009. Interest
on the senior unsecured notes is payable semi-annually on May 1 and November 1 and is subject to
adjustment. Interest expense was $30 million and $29 million for the three months ended June 30,
2010 and 2009, respectively, and $59 million and $58 million for the six months ended June 30, 2010
and 2009, respectively. Amortization of deferred financing costs of $1 million for the three and
six months ended June 30, 2010 and 2009 was included in interest expense.
The
indenture governing the 2013, 2018, and 2038 Notes, among other things, limits our ability to
incur indebtedness secured by principal properties, to enter into certain sale and lease-back
transactions and to enter into certain mergers or transfers of substantially all of DPS’
assets. The senior unsecured notes are guaranteed by substantially all of our existing and future
direct and indirect domestic subsidiaries. As of June 30, 2010 and December 31, 2009, we were in
compliance with all covenant requirements.
During the second quarter of 2010, our long term debt rating with Moody’s and S&P was Baa2
with a positive outlook and BBB with a stable outlook, respectively. These debt ratings impact the
interest we pay on our financing arrangement. A downgrade of one or both of our debt ratings below
investment grade could increase our interest expense and decrease the cash available to fund
anticipated obligations.
Cash Management
We fund our liquidity needs from cash flow from operations, cash on hand or amounts available
under our Revolver.
Capital Expenditures
Cash paid for capital expenditures was $114 million for the six months ended June 30, 2010.
Additions primarily related to the development of our new manufacturing and distribution center in
Victorville, California, expansion and replacement of existing cold drink equipment, and IT
investments for system upgrades. We continue to expect to incur discretionary annual capital
expenditures in an amount equal to approximately $175 million, which we expect to fund through cash
provided by operating activities.
Acquisitions
We may make future acquisitions. For example, we may make acquisitions of regional bottling
companies, distributors, and distribution rights to further extend our geographic coverage. Any
acquisitions may require future capital expenditures and restructuring expenses.
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Table of Contents
Liquidity
Based on our current and anticipated level of operations, we believe that our operating cash
flows will be sufficient to meet our anticipated obligations for the next twelve months. Excess
cash provided by operating activities may be used to fund capital expenditures, pay dividends and
repurchase shares of our common stock. To the extent that our operating cash flows are not
sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our
Revolver.
The following table summarizes our cash activity for the three months ended June 30, 2010 and
2009 (in millions):
| For the | ||||||||
| Six Months Ended | ||||||||
|
|
June 30, | |||||||
|
|
2010 |
|
2009 | |||||
|
Net cash provided by operating activities
|
$ | 1,266 | $ | 371 | ||||
|
Net cash used in investing activities
|
(98 | ) | (73 | ) | ||||
|
Net cash used in financing activities
|
(1,038 | ) | (281 | ) | ||||
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $895 million for the six months ended
June 30, 2010, compared with the year ago period. Deferred revenue and non-current deferred revenue
increased due to the receipt of a one-time nonrefundable cash payment of $900 million from PepsiCo.
Net Cash Used in Investing Activities
The increase of $25 million in cash used in investing activities for the six months ended
June 30, 2010, compared with the year ago period, was primarily attributable to the absence of the
one-time cash receipts in 2009 of $68 million primarily from the termination of certain
distribution agreements, partially offset by lower capital expenditures and higher proceeds from
disposal of property, plant and equipment in 2010.
Net Cash Used in Financing Activities
The
increase of $757 million in cash used in financing activities for the six months
ended June 30, 2010, compared with the year ago period, was driven by the repayment of our senior
unsecured credit facility, stock repurchases and dividend payments.
Cash and Cash Equivalents
As a result of the above, cash and cash equivalents increased $131 million to $411
million as of June 30, 2010.
Our cash balances are used to fund working capital requirements, scheduled debt and interest
payments, capital expenditures, income tax obligations, dividend payments and repurchases of our
common stock. Cash available in our foreign operations may not be immediately available for these
purposes. Foreign cash balances constitute approximately 15% of our total cash position as of June
30, 2010.
Dividends
On November 20, 2009, our Board declared our first dividend of $0.15 per share on outstanding
common stock, which was paid on January 8, 2010 to stockholders of record at the close of business
on December 21, 2009.
On February 3, 2010, our Board declared a quarterly dividend of $0.15 per share on outstanding
common stock, which was paid on April 9, 2010 to stockholders of record at the close of
business on March 22, 2010.
On May 19, 2010, our Board declared a dividend of $0.25 per share on outstanding common stock,
which was paid on July 9, 2010 to stockholders of record at the close of business on June 21,
2010.
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Table of Contents
Common Stock Repurchases
On February 24, 2010, the Board approved an increase in the total aggregate share repurchase
authorization up to $1 billion. Subsequent to the Board’s
authorization, we repurchased 15.6
million shares of our common stock valued at approximately $557 million in the six months ended
June 30, 2010. Refer to Part II, Item 2 of this Quarterly Report on Form 10-Q for additional
information regarding these repurchases.
On July 12, 2010, the Board authorized the repurchase of an additional $1 billion of our
outstanding common stock over the next three years, for a total authorization of $2 billion of
which $1.45 billion remains outstanding.
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 as of June
30, 2010. Based on our current and anticipated level of operations, we believe that our proceeds
from operating cash flows will be sufficient to meet our anticipated obligations. To the extent
that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash
on hand and amounts available under our Revolver. Refer to Notes 5 and 10 of the Notes to our
Unaudited Condensed Consolidated Financial Statements for additional information regarding the
items described in this table.
| Payments Due in Year | ||||||||||||||||||||||||||||
|
|
(in millions) | |||||||||||||||||||||||||||
|
|
Total |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
After 2014 | |||||||||||||||
|
Revolver
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
|
Interest payments
(1)
|
1,253 | 63 | 129 | 127 | 109 | 101 | 724 | |||||||||||||||||||||
|
Operating leases
|
302 | 24 | 46 | 39 | 36 | 32 | 125 | |||||||||||||||||||||
|
Purchase obligations
(2)
|
787 | 289 | 201 | 127 | 102 | 33 | 35 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | 2,342 | $ | 376 | $ | 376 | $ | 293 | $ | 247 | $ | 166 | $ | 884 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
| (1) |
Amounts represent our estimated interest payments based on (a) specified interest rates for fixed rate debt, (b) capital lease amortization schedules and (c) debt
amortization schedules.
|
|
| (2) |
Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital
obligations and long-term contractual obligations.
|
Through June 30, 2010, there have been no other material changes to the amounts disclosed in
our Annual Report on Form 10-K for the year ended December 31, 2009.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a
current or future material effect on our results of operations, financial condition, liquidity,
capital expenditures or capital resources other than letters of
credit outstanding.
Other Matters
On May 23, 2010, approximately 300 employees began a work stoppage at the Company’s
Williamson, New York manufacturing facility. We continue to work toward a resolution of which
the outcome cannot be predicted.
Effect of Recent Accounting Pronouncements
Refer to Note 1 of the Notes to our Unaudited Condensed Consolidated Financial Statements for
a discussion of recent accounting standards and pronouncements.
44
Table of Contents
Item 3.
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. We do not enter
into derivatives or other financial instruments for trading purposes.
Foreign Exchange Risk
The majority of our net sales, expenses, and capital purchases are transacted in United States
dollars. However, we 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. Exchange rate gains or losses related to foreign currency transactions are recognized
as transaction gains or losses in our income statement as incurred. As of June 30, 2010, the impact
to net income of a 10% change (up or down) in exchange rates is estimated to be an increase or
decrease of approximately $11 million on an annual basis.
We use derivative instruments such as foreign exchange forward contracts to manage our
exposure to changes in foreign exchange rates. For the period ending June 30, 2010, we had
contracts outstanding with a notional value of $74 million maturing at various dates through
December 15, 2011.
Interest Rate Risk
We centrally manage our debt portfolio and monitor our mix of fixed-rate and variable rate
debt.
We are subject to floating interest rate risk with respect to any borrowings, including those
we may borrow in the future, under the senior unsecured credit facility. As of June 30, 2010, there
were no borrowings outstanding under the senior unsecured credit facility.
Interest Rate Swaps
We enter into interest rate swaps to convert fixed-rate, long-term debt to floating-rate debt.
These swaps are accounted for as either a fair value hedge or an economic hedge under U.S. GAAP.
The fair value hedges qualify for the short-cut method of recognition; therefore, no portion of
these swaps is treated as ineffective.
In December 2009, we entered into interest rate swaps having an aggregate notional amount of
$850 million and durations 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 the interest rate swap linked to the 2012 Notes was
restructured to reflect a change in the variable interest rate to be paid by us. This change
triggered the de-designation of the $225 million notional fair value hedge and the corresponding
fair value hedging relationship was discontinued. The $225 million notional restructured interest
rate swap was subsequently accounted for as an economic hedge and the gain or loss on the
instrument is recognized in earnings.
As a result of these interest rate swaps, we pay an average floating rate, which fluctuates
semi-annually, based on LIBOR. The average floating rate to be paid by us as of June 30, 2010 was
less than 1%. The average fixed rate to be received by us as of June 30, 2010 was 2.0%
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 high
fructose corn syrup), natural gas (for use in processing and packaging), PET and fuel.
We 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. The fair
market value of these contracts as of June 30, 2010, was a net asset of $4 million.
As of June 30, 2010, the impact to net income of a 10% change (up or down) in market prices of
these commodities is estimated to be an increase or decrease of approximately $8 million on an
annual basis.
45
Table of Contents
Item 4.
Controls and Procedures.
Based on evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Exchange Act) our management, including our Chief Executive Officer and
Chief Financial Officer, has concluded that, as of June 30, 2010, our disclosure controls and
procedures are effective to (i) provide reasonable assurance that information required to be
disclosed in the Exchange Act filings is recorded, processed, summarized and reported within the
time periods specified by the Securities and Exchange Commission’s rules and forms, and (ii) ensure
that information required to be disclosed by us in the reports we file or submit under the Exchange
Act is accumulated and communicated to our management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of
the Exchange Act) occurred during the quarter that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
46
Table of Contents
| Item 1. | Legal Proceedings. |
Information regarding legal proceedings is incorporated by reference from Note 13 of the Notes
to our Unaudited Condensed Consolidated Financial Statements.
| Item 1A. | Risk Factors. |
There have been no material changes that we are aware of from the risk factors set forth in
Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2009.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
We repurchased 9.8 million shares of our common stock valued at approximately $355 million in
the second quarter of 2010. Our share repurchase activity for each of the three months and the
quarter ended June 30, 2010 were as follows (in thousands, except per share data):
| Maximum Dollar | ||||||||||||||||
| Value of Shares | ||||||||||||||||
| Total Number of | that May Yet be | |||||||||||||||
| Shares Purchased | Purchased Under | |||||||||||||||
| as Part of Publicly | Publicly | |||||||||||||||
| Number of Shares | Average Price | Announced Plans | Announced Plans | |||||||||||||
| Period | Purchased (1) | Paid per Share | or Programs (2) | or Programs (3) | ||||||||||||
|
April 1, 2010 – April 30, 2010
|
2,857 | $ | 35.00 | 2,857 | $ | 697,606 | ||||||||||
|
May 1, 2010 – May 31, 2010
|
2,736 | 36.52 | 2,736 | 597,661 | ||||||||||||
|
June 1 2010 – June 30, 2010
|
4,159 | 37.31 | 4,019 | 447,741 | ||||||||||||
|
|
||||||||||||||||
|
For the quarter ended June 30, 2010
|
9,752 | 36.41 | 9,612 | |||||||||||||
|
|
||||||||||||||||
| (1) |
The total number of shares purchased includes: (i) shares purchased in open-market transactions pursuant to our publicly announced repurchase program
described in footnote 2 below totaling 2,857 thousand shares, 2,736 thousand shares and 4,019 thousand shares for the months of April, May and June,
respectively; and (ii) shares that were repurchased pursuant to a previously unannounced oddlot repurchase program totaling 140 thousand shares for the month
of June.
|
|
| (2) |
As previously announced, on November 20, 2009, the Board of Directors (“the Board”) authorized the repurchase of up to $200 million of the Company’s
outstanding common stock during 2010, 2011 and 2012. On February 24, 2010, the Board approved the repurchase of up to an additional $800 million of the
Company’s outstanding common stock, bringing the total aggregate share repurchase authorization up to $1 billion. On March 11, 2010, pursuant to authority
granted by the Board, the Company’s Audit Committee authorized the Company to attempt to effect up to $1 billion in share repurchases during 2010 if
prevailing market conditions permit. The repurchase authorization noted above is also subject to certain repurchase parameters, including a maximum price per
share. As a result, there can be no assurance that the Company will
be able to execute its share repurchase program up to the authorized levels during 2010. This column discloses the number of shares purchased pursuant to these programs
during the indicated time periods.
|
|
| (3) |
On July 12, 2010, the Board authorized the repurchase of an additional $1 billion of the Company’s outstanding common stock over the next three years, for a
total of $2 billion authorized of which $1.45 billion remains outstanding.
|
|
| (4) |
This column discloses the dollar value remaining under previously announced share repurchase authorizations by the Board. The dollar value of shares to
be repurchased under the plan announced subsequent to June 30, 2010 has not been included.
|
47
Table of Contents
| Item 6. | Exhibits. |
| 2.1 |
Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple
Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc, dated as of May
1, 2008 (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K (filed on May 5,
2008) and incorporated herein by reference).
|
|
| 3.1 |
Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. (filed as
Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed on May 12, 2008) and
incorporated herein by reference).
|
|
| 3.2 |
Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc. (filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K (filed on July 16, 2009) and incorporated herein by
reference).
|
|
| 4.1 |
Indenture, dated April 30, 2008, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank,
N.A. (filed an Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed on May 1, 2008)
and incorporated herein by reference).
|
|
| 4.2 |
Form of 6.12% Senior Notes due 2013 (filed as Exhibit 4.2 to the Company’s Current Report on
Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
|
|
| 4.3 |
Form of 6.82% Senior Notes due 2013 (filed as Exhibit 4.3 to the Company’s Current Report on
Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
|
|
| 4.4 |
Form of 7.45% Senior Notes due 2013 (filed as Exhibit 4.4 to the Company’s Current Report on
Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
|
|
| 4.5 |
Registration Rights Agreement, dated April 30, 2008, between Dr Pepper Snapple Group, Inc.,
J.P. Morgan Securities Inc., Banc of America Securities LLC, Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, UBS Securities LLC, BNP Paribas Securities Corp., Mitsubishi UFJ
Securities International plc, Scotia Capital (USA) Inc., SunTrust Robinson Humphrey, Inc.,
Wachovia Capital Markets, LLC and TD Securities (USA) LLC (filed as Exhibit 4.5 to the
Company’s Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by
reference).
|
|
| 4.6 |
Supplemental Indenture, dated May 7, 2008, among Dr Pepper Snapple Group, Inc., the
subsidiary guarantors named therein and Wells Fargo Bank, N.A., as trustee (filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K (filed on May 12, 2008) and incorporated
herein by reference).
|
|
| 4.7 |
Second Supplemental Indenture dated March 17, 2009, to be effective as of December 31, 2008,
among Splash Transport, Inc., as a subsidiary guarantor, Dr Pepper Snapple Group, Inc., and
Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company’s Annual Report on
Form 10-K (filed on March 26, 2009) and incorporated herein by reference).
|
|
| 4.8 |
Registration Rights Agreement Joinder, dated May 7, 2008, by the subsidiary guarantors named
therein (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed on May 12,
2008) and incorporated herein by reference).
|
|
| 4.9 |
Third Supplemental Indenture, dated October 19, 2009, among 234DP Aviation, LLC, as a
subsidiary guarantor; Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee
(filed as Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q (filed November 5, 2009)
and incorporated herein by reference).
|
|
| 4.10 |
Indenture, dated as of December 15, 2009, between Dr Pepper Snapple Group, Inc. and Wells
Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K
(filed on December 23, 2009) and incorporated herein by reference).
|
|
| 4.11 |
First Supplemental Indenture, dated as of December 21, 2009, among Dr Pepper Snapple Group,
Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit
4.2 to the Company’s Current Report on Form 8-K (filed on December 23, 2009) and incorporated
herein by reference).
|
|
| 4.12 |
1.70% Senior Notes due 2011 (in global form) (filed as Exhibit 4.3 to the Company’s Current
Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
|
|
| 4.13 |
2.35% Senior Notes due 2012 (in global form) (filed as Exhibit 4.4 to the Company’s Current
Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
|
48
Table of Contents
| 10.1 |
Letter Agreement, dated June 7, 2010, between Dr Pepper/Seven Up, Inc. and The Coca-Cola
Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on June 7,
2010) and incorporated herein by reference).
|
|
| 12.1* |
Computation of Ratio of Earnings to Fixed Charges.
|
|
| 31.1* |
Certification of Chief Executive Officer of Dr Pepper Snapple Group, Inc. pursuant to
Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act .
|
|
| 31.2* |
Certification of Chief Financial Officer of Dr Pepper Snapple Group, Inc. pursuant to
Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
|
|
| 32.1** |
Certification of Chief Executive Officer of Dr Pepper Snapple Group, Inc. pursuant to
Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63
of Title 18 of the United States Code.
|
|
| 32.2** |
Certification of Chief Financial Officer of Dr Pepper Snapple Group, Inc. pursuant to
Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63
of Title 18 of the United States Code.
|
* Filed herewith.
** Furnished herewith.
49
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
| Dr Pepper Snapple Group, Inc. | ||||||
|
|
||||||
|
|
By: | /s/ Martin M. Ellen | ||||
|
|
||||||
|
|
Name: | Martin M. Ellen | ||||
|
|
Title: |
Executive Vice President and Chief Financial
Officer of Dr Pepper Snapple Group, Inc. |
||||
Date: July 29, 2010
50
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial Statements (unaudited)Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits