Filed pursuant to Rule 424(b)(3)
Registration No. 333-155700

Prospectus

 

Dr Pepper Snapple Group, Inc.

Offer to Exchange

 

all outstanding unregistered 6.12% Senior Notes due 2013 ($250,000,000 aggregate principal amount)

 

for

 

6.12% Senior Notes due 2013 that have been registered under the Securities Act of 1933

 

and

 

all outstanding unregistered 6.82% Senior Notes due 2018 ($1,200,000,000 aggregate principal amount)

 

for

 

6.82% Senior Notes due 2018 that have been registered under the Securities Act of 1933

 

and

 

all outstanding unregistered 7.45% Senior Notes due 2038 ($250,000,000 aggregate principal amount)

 

for

 

7.45% Senior Notes due 2038 that have been registered under the Securities Act of 1933

 

 

Fully and unconditionally guaranteed as to payment of principal and interest by the Subsidiary Guarantors

 

 

This prospectus and accompanying letter of transmittal relate to our proposed offer to exchange up to $250,000,000 aggregate principal amount of 6.12% exchange senior notes due 2013, $1,200,000,000 aggregate principal amount of 6.82% exchange senior notes due 2018 and $250,000,000 aggregate principal amount of 7.45% exchange senior notes due 2038, which are registered under the Securities Act of 1933, as amended, for any and all of its unregistered 6.12% senior notes due 2013, unregistered 6.82% senior notes due 2018 and unregistered 7.45% senior notes due 2038 that were issued on April 30, 2008. The exchange notes are guaranteed as to payment of principal and interest by all of our domestic subsidiaries (except for two immaterial subsidiaries associated with our charitable foundations) (the “subsidiary guarantors”). The unregistered notes have certain transfer restrictions. The exchange notes will be freely transferable.

 

The principal features of the exchange offer are as follows:

 

 

Please see “Risk Factors” beginning on page 10 for a discussion of certain factors you should consider in connection with the exchange offer.

 

Neither the U.S. Securities and Exchange Commission nor any other federal or state agency has approved or disapproved of these securities to be distributed in the exchange offer, nor have any of these organizations determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is December 12, 2008.

 

Each holder of an unregistered note wishing to accept the exchange offer must deliver the unregistered note to be exchanged, together with the letter of transmittal that accompanies this prospectus and any other required documentation, to the exchange agent identified in this prospectus. Alternatively, you may effect a tender of unregistered notes by book-entry transfer into the exchange agent’s account at The Depository Trust Company (“DTC”). All deliveries are at the risk of the holder. You can find detailed instructions concerning delivery in the section called “The Exchange Offer” in this prospectus and in the accompanying letter of transmittal.

 

If you are a broker-dealer that receives exchange notes for your own account, you must acknowledge that you will deliver a prospectus in connection with any resale of the exchange notes. The letter of transmittal accompanying this prospectus states that, by so acknowledging and by delivering a prospectus, you will not be deemed to admit that you are an “underwriter” within the meaning of the Securities Act. You may use this prospectus, as we may amend or supplement it in the future, for your resales of exchange notes. We will use commercially reasonable efforts to have the registration statement, of which this prospectus forms a part, remain effective until 180 days after the exchange offer expires for use by the participating broker-dealers. We will also amend or supplement this prospectus during this 180-day period, if requested by one or more participating broker-dealers, in order to expedite or facilitate such resales.

 

Table of Contents

 

 

 

References to “DPS,” “our company,” “we,” “us” and “our” refer to Dr Pepper Snapple Group, Inc. and its subsidiaries, except in each case where otherwise indicated or the context otherwise requires.

 

You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date of this prospectus. Our business, financial condition, results of operations and prospects may have changed since this date.

 

The fiscal years presented in this prospectus are the 52-week periods ended December 31, 2007 and 2006, which we refer to as “2007” and “2006,” respectively, the 52-week period ended January 1, 2006, which we refer to as “2005,” and the 53-week period ended January 2, 2005, which we refer to as “2004.” Beginning in 2006, our fiscal year ends on December 31 of each year. In 2005 and 2004, the year end date represented the Sunday closest to December 31.

 

Whenever we refer in this prospectus to the 6.12% senior notes due 2013, 6.82% senior notes due 2018 and the 7.45% senior notes due 2038 issued on April 30, 2008, we will refer to them as the “unregistered notes.” Whenever we refer in this prospectus to the registered 6.12% senior notes due 2013, the registered 6.82% senior notes due 2018 and the registered 7.45% senior notes due 2038, we will refer to them as the “exchange notes.” The unregistered notes and the exchange notes are collectively referred to as the “notes.”

 

The market and industry data in this prospectus is from independent industry sources, including ACNielsen, Beverage Digest and Canadean. Although we believe that these independent sources are reliable, we have not verified the accuracy or completeness of this data or any assumptions underlying such data.

 

ACNielsen, a business of The Nielsen Company, is a marketing information provider, primarily serving consumer packaged goods manufacturers and retailers. We use ACNielsen data as our primary management tool to

track market performance because it has broad and deep data coverage, is based on consumer transactions at retailers, and is reported to us monthly. ACNielsen data provides measurement and analysis of marketplace trends such as market share, retail pricing, promotional activity and distribution across various channels, retailers and geographies. Measured categories provided to us by ACNielsen Scantrack include flavored (non-cola) carbonated soft drinks (“CSDs”), energy drinks, single-serve bottled water, non-alcoholic mixers and non-carbonated beverages, including ready-to-drink teas, single-serve and multi-serve juice and juice drinks, and sports drinks. ACNielsen also provides data on other food items such as apple sauce. The ACNielsen data we present in this prospectus is from ACNielsen’s Scantrack service, which compiles data based on scanner transactions in certain sales channels, including grocery stores, mass merchandisers, drug chains, convenience stores and gas stations. However, this data does not include the fountain or vending channels, Wal-Mart or small independent retail outlets, which together represent a meaningful portion of the U.S. liquid refreshment beverage market and of our net sales and volume.

 

Beverage Digest is an independent beverage research company that publishes an annual Beverage Digest Fact Book. We use Beverage Digest primarily to track market share information and broad beverage and channel trends. This annual publication provides a compilation of data supplied by beverage companies. Beverage Digest covers the following categories: CSDs, energy drinks, bottled water and non-carbonated beverages (including ready-to-drink teas, juice and juice drinks and sports drinks). Beverage Digest data does not include multi-serve juice products or bottled water in packages of 1.5 liters or more. Data is reported for certain sales channels, including grocery stores, mass merchandisers, club stores, drug chains, convenience stores, gas stations, fountains, vending machines and the “up-and-down-the-street” channel consisting of small independent retail outlets.

 

We use both ACNielsen and Beverage Digest to assess both our own and our competitors’ performance and market share in the United States. Different market share rankings can result for a specific beverage category depending on whether data from ACNielsen or Beverage Digest is used, in part because of the differences in the sales channels reported by each source. For example, because the fountain channel (where we have a relatively small business except for Dr Pepper) is not included in ACNielsen data, our market share using the ACNielsen data is generally higher for our CSD portfolio than the Beverage Digest data, which does include the fountain channel.

 

Canadean is a market research and data management company focusing on the international beverage industry and its suppliers. Beverage categories measured by Canadean include packaged water, carbonates, juice, nectars, still drinks, iced/ready-to-drink tea drinks, squash/syrups and fruit powders, sports drinks and energy drinks. Canadean provides data for certain sales channels, including off-premise distribution such as supermarkets, hypermarkets, department stores, “mom and pop” outlets, delicatessens, pharmacies/drugstores, street stalls, specialist drink shops and on-premise distribution such as vending machines, quick service restaurants, eating, drinking and accommodation establishments and institutions. We use Canadean data to assess both our own and our competitors’ performance and market share in Canada and Mexico.

 

In this prospectus, all information regarding the beverage market in the United States is from Beverage Digest, and, except as otherwise indicated, is from 2006. All information regarding the beverage market in Canada and Mexico is from Canadean and is from 2006. All information regarding our brand market positions in the United States is from ACNielsen and is based on retail dollar sales in 2007. All information regarding our brand market positions in Canada is from ACNielsen and is based on volume in 2007. All information regarding our brand market positions in Mexico is from Canadean and is based on volume in 2007.

 

This prospectus contains forward-looking statements including, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” or the negative of these terms or similar expressions in this prospectus. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance

may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements.

 

Our forward-looking statements are subject to risks and uncertainties, including:

 

 

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 prospectus, except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” and elsewhere in this prospectus. These risk factors may not be exhaustive as we operate in a continually changing business environment with new risks emerging from time to time that we are unable to predict or that we currently do not expect to have a material adverse effect on our business. You should carefully read this prospectus in its entirety as it contains important information about our business and the risks we face.

 

SUMMARY

	•	On May 2, 2008, Cadbury plc (“Cadbury plc”) became the parent company of Cadbury Schweppes.
	•	On May 7, 2008, Cadbury plc separated its Americas Beverages business from its global confectionery business by contributing the subsidiaries that operated its Americas Beverages business to us. In return for the transfer of the Americas Beverages business, we distributed our common stock to Cadbury plc shareholders. On May 7, 2008, we became an independent publicly-traded company listed on the New York Stock Exchange under the symbol “DPS”.

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

	•	the exchange notes have been registered under the Securities Act and, therefore, will contain no restrictive legends;
	•	the exchange notes will not have registration rights;
	•	the exchange notes will not have rights to additional interest; and
	•	the exchange notes will not be subject to the special mandatory redemption feature, because we consummated our separation from Cadbury on May 7, 2008.

The Exchange Offer		We are offering to exchange any and all of our 6.12% exchange senior notes due 2013, 6.82% exchange senior notes due 2018 and 7.45% exchange senior notes due 2038, which have been registered under the Securities Act, for any and all of our outstanding unregistered 6.12% senior notes due 2013, unregistered 6.82% senior notes due 2018 and unregistered 7.45% senior notes due 2038 that were issued on April 30, 2008. As of the date of this prospectus, $250 million in aggregate principal amount of our unregistered 6.12% senior notes due 2013, $1,200 million in aggregate principal amount of our unregistered 6.82% senior notes due 2018 and $250 million in aggregate principal amount of our unregistered 7.45% senior notes due 2038 are outstanding.
Expiration of the Exchange Offer		The exchange offer will expire at 5:00 p.m., New York City time, on January 14, 2009, unless we decide to extend the exchange offer.
Conditions of the Exchange Offer		We will not be required to accept for exchange any unregistered notes, and may amend or terminate the exchange offer if any of the following conditions or events occurs:
		• the exchange offer or the making of any exchange by a holder of unregistered notes violates applicable law or any applicable interpretation of the staff of the SEC;
		• any action or proceeding shall have been instituted or threatened with respect to the exchange offer which, in our reasonable judgment, would impair our ability to proceed with the exchange offer; and
		• any laws, rules or regulations or applicable interpretations of the staff of the SEC are issued or promulgated which, in our good faith determination, do not permit us to effect the exchange offer.

		We will give oral or written notice of any non-acceptance, amendment or termination to the registered holders of the unregistered notes as promptly as practicable. We reserve the right to waive any conditions of the exchange offer.
Resale of the Exchange Notes		Based on interpretative letters of the SEC staff to third parties unrelated to us, we believe that you can resell and transfer the exchange notes you receive pursuant to this exchange offer without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:
		• any exchange notes to be received by you will be acquired in the ordinary course of your business;
		• you are not engaged in, do not intend to engage in and have no arrangement or understanding with any person to engage in, the distribution of the unregistered notes or exchange notes;
		• you are not an “affiliate” (as defined in Rule 405 under the Securities Act) of ours, or, if you are such an affiliate, you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable;
		• if you are a broker-dealer, you have not entered into any arrangement or understanding with us or any of our “affiliates” to distribute the exchange notes; and
		• you are not acting on behalf of any person or entity that could not truthfully make these representations.
		If you wish to participate in the exchange offer, you must represent to us that these conditions have been met.
		If you are a broker-dealer and you will receive exchange notes for your own account in exchange for unregistered notes that were acquired as a result of market-making activities or other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of the exchange notes. See “Plan of Distribution” for a description of the prospectus delivery obligations of broker-dealers.
Accrued Interest on the Exchange Notes and Unregistered Notes		The unregistered notes accrue interest from and including April 30, 2008. The first interest payment on the unregistered notes was made on November 1, 2008. The exchange notes will accrue interest from and including November 1, 2008. We will pay interest on the exchange notes semiannually on May 1 and November 1 of each year, commencing May 1, 2009.
		Holders of unregistered notes that are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest accrued from the date of the last interest payment date in respect of the unregistered notes until the date of the issuance of the exchange notes. Consequently, holders of exchange notes will receive the same interest payments that they would have received had they not accepted the exchange offer.

Procedures for Tendering Unregistered Notes		If you wish to participate in the exchange offer, you must:
		• transmit a properly completed and signed letter of transmittal, and all other documents required by the letter of transmittal, to the exchange agent at the address set forth in the letter of transmittal. These materials must be received by the exchange agent before 5:00 p.m., New York City time, on January 14, 2009, the expiration date of the exchange offer. You must also provide physical delivery of your unregistered notes to the exchange agent’s address as set forth in the letter of transmittal. The letter of transmittal must also contain the representations you must make to us as described under “The Exchange Offer — Procedures for Tendering”; or
		• you may effect a tender of unregistered notes electronically by book-entry transfer into the exchange agent’s account at DTC. By tendering the unregistered notes by book-entry transfer, you must agree to be bound by the terms of the letter of transmittal.
Special Procedures for Beneficial Owners		If you are a beneficial owner of unregistered notes that are held through a broker, dealer, commercial bank, trust company or other nominee and you wish to tender such unregistered notes, you should contact the registered holder promptly and instruct them to tender your unregistered notes on your behalf.
Guaranteed Delivery Procedures for Unregistered Notes		If you cannot meet the expiration deadline, or you cannot deliver on time your unregistered notes, the letter of transmittal or any other required documentation, or comply on time with DTC’s standard operating procedures for electronic tenders, you may tender your unregistered notes according to the guaranteed delivery procedures set forth under “The Exchange Offer — Guaranteed Delivery Procedures.”
Acceptance of Outstanding Notes and Delivery of Exchange Notes		Subject to customary conditions, we will accept outstanding unregistered notes that are properly tendered in the exchange offer and not withdrawn prior to the expiration date. The exchange notes will be delivered as promptly as practicable following the expiration date.
Withdrawal Rights		You may withdraw the tender of your unregistered notes at any time prior to 5:00 p.m., New York City time, on January 14, 2009, the expiration date.
Consequences of Failure to Exchange		If you are eligible to participate in this exchange offer and you do not tender your unregistered notes as described in this prospectus, your unregistered notes may continue to be subject to transfer restrictions. As a result of the transfer restrictions and the availability of exchange notes, the market for the unregistered notes is likely to be much less liquid than before this exchange offer. The unregistered notes will, after this exchange offer, bear interest at the same rate as the exchange notes. The unregistered notes will not retain any rights under the registration rights agreement.
Certain United States Federal Income Tax Considerations		The exchange of the unregistered notes for exchange notes pursuant to the exchange offer will not be a taxable event for U.S. federal income tax purposes. See “Certain United States Federal Income Tax Considerations.”
Exchange Agent		Wells Fargo Bank, N.A., the trustee under the indenture, is serving as exchange agent in connection with the exchange offer.
Use of Proceeds		We will not receive any proceeds from the issuance of exchange notes in the exchange offer.

Issuer		Dr Pepper Snapple Group, Inc.
Exchange Notes		$250,000,000 aggregate principal amount of 6.12% exchange senior notes due 2013.
		$1,200,000,000 aggregate principal amount of 6.82% exchange senior notes due 2018.
		$250,000,000 aggregate principal amount of 7.45% exchange senior notes due 2038.
Maturities		The 6.12% exchange senior notes will mature on May 1, 2013.
		The 6.82% exchange senior notes will mature on May 1, 2018.
		The 7.45% exchange senior notes will mature on May 1, 2038.
Interest Payment Dates		May 1 and November 1 of each year, commencing May 1, 2009.
Optional Redemption		We may redeem the exchange notes of any series, in whole or in part from time to time, at our option, at a redemption price equal to the greater of (1) 100% of the principal amount of the exchange notes being redeemed and (2) the sum of the present value of the remaining scheduled payments of principal and interest in respect of the exchange notes being redeemed (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year of twelve 30-day months), at the Treasury Rate (as defined herein) plus 45 basis points in the case of 2013 notes, 45 basis points in the case of 2018 notes and 45 basis points in the case of the 2038 notes, plus, in each case, accrued and unpaid interest to the date of redemption. See “Description of the Exchange Notes — Optional Redemption.”
Offer to Repurchase Upon Change of Control Triggering Event		Upon the occurrence of a “Change of Control Triggering Event” (as defined herein), we will be required, unless we have exercised our right to redeem the exchange notes, within a specified period, to make an offer to purchase all exchange notes at a price equal to 101% of the principal amount, plus any accrued and unpaid interest to the date of repurchase. See “Description of the Exchange Notes — Offer to Repurchase Upon a Change of Control Triggering Event.”
Guarantees		The exchange notes will be fully and unconditionally guaranteed by all of our subsidiary guarantors.
Ranking		The exchange notes will be our unsecured and unsubordinated obligations and will rank equally with all of our current and future unsecured and unsubordinated indebtedness, including any borrowings under our senior credit facility, and senior to all of our future subordinated debt. The guarantees will be the subsidiary guarantors’ unsecured and unsubordinated obligations and will rank equally with all of the subsidiary guarantors’ current and future unsecured and unsubordinated indebtedness, including their guarantees of the senior credit facility, and senior to all of the subsidiary guarantors’ future subordinated debt. The exchange notes and the guarantees will effectively rank junior to any of our and the subsidiary guarantors’ current and future secured indebtedness to the

		extent of the value of the assets securing such indebtedness. As of September 30, 2008, our and the subsidiary guarantors’ total secured indebtedness was approximately $19 million.
		The exchange notes will not be guaranteed by all of our subsidiaries and will therefore be effectively subordinated to all existing and future liabilities of our subsidiaries that are not guaranteeing the notes. For the nine months ended September 30, 2008, our non-guarantor subsidiaries accounted for $463 million and $118 million of our net sales and income from operations, respectively, representing 11% and 18%, respectively, of our net sales and income from operations on a combined basis. As of September 30, 2008, the total liabilities of our non-guarantor subsidiaries were $118 million, including trade payables, and the total assets of such subsidiaries were $564 million.
Certain Covenants		The indenture governing the exchange notes will, among other things, limit our ability to:
		• incur indebtedness secured by principal properties;
		• enter into certain sale and leaseback transactions with respect to principal properties; and
		• enter into certain mergers, consolidations and transfers of substantially all of our assets.
		The above restrictions are subject to significant exceptions. See “Description of the Exchange Notes — Certain Covenants.”
Sinking Fund		None.
Form and Denomination		The exchange notes will be issued only in fully registered form without coupons in minimum denominations of $2,000 and larger integral multiples of $1,000.
Absence of Existing Trading Market for the Exchange Notes; No Listing		There is no existing market for the exchange notes. See “Risk Factors — Risks Related to the Exchange Notes and the Exchange Offer — You may be unable to sell your exchange notes if a trading market for the exchange notes does not develop.” We do not intend to apply for listing of the exchange notes on any securities exchange or automated quotation system.
Use of Proceeds		We will not receive any proceeds from the issuance of exchange notes pursuant to the exchange offer.
Additional Notes Issuances		We may from time to time without the consent of the holders of the exchange notes create and issue additional exchange notes of the same series as the notes offered hereby.
Trustee		Wells Fargo Bank, N.A.
Risk Factors		See “Risk Factors” and the other information in this prospectus for a discussion of risk factors related to our business.

		Nine Months Ended
		September 30,								Fiscal Year
		2008				2007				2007				2006				2005
		(Unaudited)
		(In millions, except per share data)
Statements of Operations Data:
Net sales		$	4,369			$	4,347			$	5,748			$	4,735			$	3,205
Cost of sales			2,003				1,984				2,617				1,994				1,120
Gross profit			2,366				2,363				3,131				2,741				2,085
Selling, general and administrative expenses			1,586				1,527				2,018				1,659				1,179
Depreciation and amortization			84				69				98				69				26
Impairment of intangible assets			—				—				6				—				—
Restructuring costs			31				36				76				27				10
Gain on disposal of property and intangible assets, net			(3	)			—				(71	)			(32	)			(36	)
Income from operations			668				731				1,004				1,018				906
Interest expense			199				195				253				257				210
Interest income			(30	)			(38	)			(64	)			(46	)			(40	)

		Nine Months Ended
		September 30,								Fiscal Year
		2008				2007				2007				2006				2005
		(Unaudited)
		(In millions, except per share data)
Other (income) expense			(8	)			(2	)			(2	)			2				(51	)
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and cumulative effect of change in accounting policy			507				576				817				805				787
Provision for income taxes			199				218				322				298				321
Income before equity in earnings of unconsolidated subsidiaries and cumulative effect of change in accounting policy			308				358				495				507				466
Equity in earnings of unconsolidated subsidiaries			1				1				2				3				21
Income before cumulative effect of change in accounting policy			309				359				497				510				487
Cumulative effect of change in accounting policy, net of tax			—				—				—				—				10
Net income		$	309			$	359			$	497			$	510			$	477
Earnings per share(1)		$	1.21			$	1.42			$	1.96			$	2.01			$	1.88
Balance Sheet Data:
Cash and cash equivalents		$	239			$	34			$	67			$	35			$	28
Total assets			9,822				10,896				10,528				9,346				7,433
Current portion of long-term debt			35				258				126				708				404
Long-term debt			3,587				2,969				2,912				3,084				2,858
Other non-current liabilities			2,002				1,381				1,460				1,321				1,013
Total invested equity			3,330				4,992				5,021				3,250				2,426
Statements of Cash Flows:
Cash provided by (used in):
Operating activities(2)		$	523			$	706			$	603			$	581			$	583
Investing activities			1,175				(1,450	)			(1,087	)			(502	)			283
Financing activities(2)			(1,523	)			742				515				(72	)			(815	)
Depreciation expense(3)			102				89				120				94				48
Amortization expense(3)			44				38				49				45				31
Capital expenditures			(203	)			(123	)			(230	)			(158	)			(44	)

(1)		Earnings per share (“EPS”) are computed by dividing net income by the weighted average number of common shares outstanding for the period. For all periods prior to May 7, 2008, the number of basic shares used is the number of shares outstanding on May 7, 2008, as no common stock of DPS was traded prior to May 7, 2008 and no DPS equity awards were outstanding for the prior periods. As of May 7, 2008, the number of basic shares includes the 512,580 shares related to former Cadbury Schweppes benefit plans converted to DPS shares on a daily volume weighted average.
(2)		The cash provided by operating and financing activities for the nine months ended September 30, 2007, reflect the effects of the restatement to cash flows, as more fully described in Note 19 to our unaudited condensed consolidated financial statements.
(3)		The depreciation and amortization expenses reflected in this section of the table represent our total depreciation and amortization expenses as reflected on our combined statements of cash flows. Depreciation and amortization expenses in our combined statements of operations data are reflected in various line items including “depreciation and amortization” and “cost of sales”.

 

You should carefully consider the risks described below before making a decision to participate in the exchange offer. You should also consider the other information included in this prospectus before making a decision to participate in the exchange offer. Any of the following risks, as well as other risks and uncertainties, could harm our business and financial results and cause the value of the notes to decline, which in turn could cause you to lose all or part of your investment.

 

Risks Related to Our Business

 

We operate in highly competitive markets.

 

Our industry is highly competitive. We compete with multinational corporations with significant financial resources, including Coca-Cola and PepsiCo. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities. We also compete against a variety of smaller, regional and private label manufacturers. Smaller companies may be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche markets. Our inability to compete effectively could result in a decline in our sales. As a result, we may have to reduce our prices or increase our spending on marketing, advertising and product innovation. Any of these could negatively affect our business and financial performance.

 

We may not effectively respond to changing consumer preferences, trends, health concerns and other factors.

 

Consumers’ preferences can change due to a variety of factors, including aging of the population, social trends, negative publicity, economic downturn or other factors. For example, consumers are increasingly concerned about health and wellness, and demand for regular CSDs has decreased as consumers have shifted towards low or no calorie soft drinks and, increasingly, to NCBs, such as water, ready-to-drink teas and sports drinks. If we do not effectively anticipate these trends and changing consumer preferences, then quickly develop new products in response, our sales could suffer. Developing and launching new products can be risky and expensive. We may not be successful in responding to changing markets and consumer preferences, and some of our competitors may be better able to respond to these changes, either of which could negatively affect our business and financial performance.

 

Costs for our raw materials may increase substantially.

 

The principal raw materials we use in our business are aluminum cans and ends, glass bottles, PET bottles and caps, paperboard packaging, high fructose corn syrup (“HFCS”) and other sweeteners, juice, fruit, electricity, fuel and water. The cost of the raw materials can fluctuate substantially. For example, aluminum, glass, PET and HFCS prices increased significantly in recent periods. In addition, we are significantly impacted by increases in fuel costs due to the large truck fleet we operate in our distribution businesses. Under many of our supply arrangements, the price we pay for raw materials fluctuates along with certain changes in underlying commodities costs, such as aluminum in the case of cans, natural gas in the case of glass bottles, resin in the case of PET bottles and caps, corn in the case of HFCS and pulp in the case of paperboard packaging. We expect these increases to continue to exert pressure on our costs and we may not be able to pass along any such increases to our customers or consumers, which could negatively affect our business and financial performance.

 

Certain raw materials we use are available from a limited number of suppliers and shortages could occur.

 

Some raw materials we use, such as aluminum cans and ends, glass bottles, PET bottles, HFCS and other ingredients, are available from only a few suppliers. If these suppliers are unable or unwilling to meet our requirements, we could suffer shortages or substantial cost increases. Changing suppliers can require long lead times. The failure of our suppliers to meet our needs could occur for many reasons, including fires, natural disasters, weather, manufacturing problems, disease, crop failure, strikes, transportation interruption, government regulation, political instability and terrorism. A failure of supply could also occur due to suppliers’ financial difficulties, including bankruptcy. Some of these risks may be more acute where the supplier or its plant is located in riskier or

less-developed countries or regions. Any significant interruption to supply or cost increase could substantially harm our business and financial performance.

 

Substantial disruption to production at our beverage concentrates or other manufacturing facilities could occur.

 

A disruption in production at our beverage concentrates manufacturing facility, which manufactures almost all of our concentrates, could have a material adverse effect on our business. In addition, a disruption could occur at any of our other facilities or those of our suppliers, bottlers or distributors. The disruption could occur for many reasons, including fire, natural disasters, weather, manufacturing problems, disease, strikes, transportation interruption, government regulation or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance.

 

Our products may not meet health and safety standards or could become contaminated.

 

We have adopted various quality, environmental, health and safety standards. However, our products may still not meet these standards or could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our bottlers, distributors or suppliers. This could result in expensive production interruptions, recalls and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.

 

Our facilities and operations may require substantial investment and upgrading.

 

We are engaged in an ongoing program of investment and upgrading in our manufacturing, distribution and other facilities. We expect to incur substantial costs to upgrade or keep up-to-date various facilities and equipment or restructure our operations, including closing existing facilities or opening new ones. If our investment and restructuring costs are higher than anticipated or our business does not develop as anticipated to appropriately utilize new or upgraded facilities, our costs and financial performance could be negatively affected.

 

Weather and climate changes could adversely affect our business.

 

Unseasonable or unusual weather or long-term climate changes may negatively impact the price or availability of raw materials, energy and fuel, and demand for our products. Unusually cool weather during the summer months may result in reduced demand for our products and have a negative effect on our business and financial performance.

 

We depend on a small number of large retailers for a significant portion of our sales.

 

Food and beverage retailers in the United States have been consolidating. Consolidation has resulted in large, sophisticated retailers with increased buying power. They are in a better position to resist our price increases and demand lower prices. They also have leverage to require us to provide larger, more tailored promotional and product delivery programs. If we, and our bottlers and distributors, do not successfully provide appropriate marketing, product, packaging, pricing and service to these retailers, our product availability, sales and margins could suffer. Certain retailers make up a significant percentage of our products’ retail volume, including volume sold by our bottlers and distributors. For example, Wal-Mart Stores, Inc., the largest retailer of our products, represented approximately 10% of our net sales in 2007. Some retailers also offer their own private label products that compete with some of our brands. The loss of sales of any of our products in a major retailer could have a material adverse effect on our business and financial performance.

 

We depend on third-party bottling and distribution companies for a substantial portion of our business.

 

We generate a substantial portion of our net sales from sales of beverage concentrates to third-party bottling companies. During 2007, approximately two-thirds of our beverage concentrates volume was sold to bottlers that we do not own. Some of these bottlers are partly owned by our competitors, and much of their business comes from

selling our competitors’ products. In addition, some of the products we manufacture are distributed by third parties. As independent companies, these bottlers and distributors make their own business decisions. They may have the right to determine whether, and to what extent, they produce and distribute our products, our competitors’ products and their own products. They may devote more resources to other products or take other actions detrimental to our brands. In most cases, they are able to terminate their bottling and distribution arrangements with us without cause. We may need to increase support for our brands in their territories and may not be able to pass on price increases to them. Their financial condition could also be adversely affected by conditions beyond our control and our business could suffer. Any of these factors could negatively affect our business and financial performance.

 

Our intellectual property rights could be infringed or we could infringe the intellectual property rights of others and adverse events regarding licensed intellectual property, including termination of distribution rights, could harm our business.

 

We possess intellectual property that is important to our business. This intellectual property includes ingredient formulas, trademarks, copyrights, patents, business processes and other trade secrets. See “Business — Intellectual Property and Trademarks” for more information. We and third parties, including competitors, could come into conflict over intellectual property rights. Litigation could disrupt our business, divert management attention and cost a substantial amount to protect our rights or defend ourselves against claims. We cannot be certain that the steps we take to protect our rights will be sufficient or that others will not infringe or misappropriate our rights. If we are unable to protect our intellectual property rights, our brands, products and business could be harmed.

 

We also license various trademarks from third parties and license our trademarks to third parties. In some countries, other companies own a particular trademark which we own in the United States, Canada or Mexico. For example, the Dr Pepper trademark and formula is owned by Coca-Cola in certain other countries. Adverse events affecting those third parties or their products could affect our use of the trademark and negatively impact our brands.

 

In some cases, we license products from third-parties which we distribute. The licensor may be able to terminate the license arrangement upon an agreed period of notice, in some cases without payment to us of any termination fee. The termination of any material license arrangement could adversely affect our business and financial performance. For example, following its acquisition by Coca-Cola on August 30, 2007, Energy Brands, Inc. notified us that it was terminating our distribution agreement for glacéau products.

 

Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.

 

We are party to various litigation claims and legal proceedings. We evaluate these claims and proceedings to assess the likelihood of unfavorable outcomes and estimate, if possible, the amount of potential losses. We may establish a reserve as appropriate based upon assessments and estimates in accordance with our accounting policies. We base our assessments, estimates and disclosures on the information available to us at the time and rely on legal and management judgment. Actual outcomes or losses may differ materially from assessments and estimates. Actual settlements, judgments or resolutions of these claims or proceedings may negatively affect our business and financial performance. For more information, see “Business — Legal Matters.”

 

We may not comply with applicable government laws and regulations, and they could change.

 

We are subject to a variety of federal, state and local laws and regulations in the United States, Canada, Mexico and other countries in which we do business. These laws and regulations apply to many aspects of our business including the manufacture, safety, labeling, transportation, advertising and sale of our products. See “Business — Regulatory Matters” for more information regarding many of these laws and regulations. Violations of these laws or regulations could damage our reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations could result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special taxes on soft drinks or ingredients could increase our costs. Regulatory focus on the health, safety and marketing of food products is increasing. Certain state warning and labeling laws, such as California’s “Prop 65,” which requires warnings on any product with substances that the state

lists as potentially causing cancer or birth defects, could become applicable to our products. Some local and regional governments and school boards have enacted, or have proposed to enact, regulations restricting the sale of certain types of soft drinks in schools. Any violations or changes of regulations could have a material adverse effect on our profitability, or disrupt the production or distribution of our products, and negatively affect our business and financial performance.

 

We may not be able to renew collective bargaining agreements on satisfactory terms, or we could experience strikes.

 

As of December 31, 2007, approximately 5,000 of our employees, many of whom are at our key manufacturing locations, were covered by collective bargaining agreements. These agreements typically expire every three to four years at various dates. We may not be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could impair our ability to manufacture and distribute our products and result in a substantial loss of sales. The terms of existing or renewed agreements could also significantly increase our costs or negatively affect our ability to increase operational efficiency.

 

We could lose key personnel or may be unable to recruit qualified personnel.

 

Our performance significantly depends upon the continued contributions of our executive officers and key employees, both individually and as a group, and our ability to retain and motivate them. Our officers and key personnel have many years of experience with us and in our industry and it may be difficult to replace them. If we lose key personnel or are unable to recruit qualified personnel, our operations and ability to manage our business may be adversely affected. We do not have “key person” life insurance for any of our executive officers or key employees.

 

Benefits cost increases could reduce our profitability.

 

Our profitability is substantially affected by the costs of pension, postretirement medical and employee medical and other benefits. In recent years, these costs have increased significantly due to factors such as increases in health care costs, declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities. Although we actively seek to control increases, there can be no assurance that we will succeed in limiting future cost increases, and continued upward pressure in these costs could have a material adverse affect on our business and financial performance.

 

We depend on key information systems and third-party service providers.

 

We depend on key information systems to accurately and efficiently transact our business, provide information to management and prepare financial reports. We rely on third-party providers for a number of key information systems and business processing services, including hosting our primary data center and processing various accounting, order entry and other transactional services. These systems and services are vulnerable to interruptions or other failures resulting from, among other things, natural disasters, terrorist attacks, software, equipment or telecommunications failures, processing errors, computer viruses, hackers, other security issues or supplier defaults. Security, backup and disaster recovery measures may not be adequate or implemented properly to avoid such disruptions or failures. Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance.

 

We may not realize benefits of acquisitions.

 

We have recently acquired various bottling and distribution businesses and are integrating their operations into our business. We may pursue further acquisitions of independent bottlers, distributors and distribution rights to complement our existing capabilities and further expand the distribution of our brands. We may also pursue acquisition of brands and products to expand our brand portfolio. The failure to successfully identify, make and integrate acquisitions may impede the growth of our business. The timing or success of any acquisition and integration is uncertain, requires significant expenses, and diverts financial and managerial resources away from our

existing businesses. We also may not be able to raise the substantial capital required for acquisitions and integrations on satisfactory terms, if at all. In addition, even after an acquisition, we may not be able to successfully integrate an acquired business or brand or realize the anticipated benefits of an acquisition, all of which could have a negative effect on our business and financial performance.

 

Determinations in the future that a significant impairment of the value of our goodwill and other indefinite lived intangible assets has occurred could have a material adverse effect on our financial performance.

 

As of December 31, 2007, we had approximately $10.5 billion of total assets, of which approximately $6.8 billion were intangible assets. Intangible assets include goodwill, and other intangible assets in connection with brands, bottler agreements, distribution rights and customer relationships. We conduct impairment tests on goodwill and all indefinite lived intangible assets annually, as of December 31, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Our annual impairment analysis, performed as of December 31, 2007, resulted in impairment charges of $6 million, of which $4 million was related to the Accelerade brand. For additional information about these intangible assets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Goodwill and Other Indefinite Lived Intangible Assets” and our audited combined financial statements included elsewhere in this prospectus.

 

The impairment tests require us to make an estimate of the fair value of intangible assets. Since a number of factors may influence determinations of fair value of intangible assets, including those set forth in this discussion of “Risk Factors” and in “Special Note Regarding Forward-Looking Statements,” we are unable to predict whether impairments of goodwill or other indefinite lived intangibles will occur in the future. Any such impairment would result in us recognizing a charge to our operating results, which may adversely affect our financial performance.

 

We have a significant amount of outstanding debt, which could adversely affect our business and our ability to meet our obligations.

 

As of September 30, 2008 our total indebtedness was $3,624 million. This significant amount of debt could have important consequences to us and our investors, including:

 

 

To the extent we become more leveraged, the risks described above would increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay at maturity all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

 

In addition, the credit agreement governing the debt that we entered into in connection with the separation contains covenants that, among other things, limit our ability to incur debt at subsidiaries that are not guarantors,

incur liens, merge or sell, transfer or otherwise dispose of all or substantially all of our assets, make investments, loans, advances, guarantees and acquisitions, enter into transactions with affiliates and enter into agreements restricting our ability to incur liens or the ability of our subsidiaries to make distributions. The agreement also requires us to comply with certain affirmative and financial covenants. For additional information about our credit agreement, see “Description of Other Indebtedness.”

 

Our financial results may be negatively impacted by the recent global financial events.

 

The recent global financial events have resulted in the consolidation, failure or near failure of a number of institutions in the banking, insurance and investment banking industries and have substantially reduced the ability of companies to obtain financing. These events have also caused a substantial reduction in the stock market. These events could have a number of different effects on our business, including:

 

 

Other events or conditions may arise directly or indirectly from the global financial events that could negatively impact our business.

 

Risks Related to Our Separation from and Relationship with Cadbury

 

We may not realize the benefits we anticipated from the separation.

 

We may not realize the benefits that we anticipated from our separation from Cadbury. These benefits include the following:

 

 

We may not achieve the anticipated benefits from our separation for a variety of reasons. For example, the process of operating as a newly independent public company may distract our management from focusing on our business and strategic priorities. Although as an independent public company we are now able to control how we allocate our capital, we may not succeed in allocating our capital in ways that benefit our business. In addition, although we now have direct access to the debt and equity capital markets following the separation, we may not be able to issue debt or equity on terms acceptable to us or at all. The availability of shares of our common stock for use as consideration for acquisitions also will not ensure that we will be able to successfully pursue acquisitions or that the acquisitions will be successful. Moreover, even with equity compensation tied to our business we may not be able to attract and retain employees as desired. We also may not realize the anticipated benefits from our separation if any of the matters identified as risks in this Risk Factors section were to occur. If we do not realize the anticipated benefits from our separation for any reason, our business may be adversely affected.

Our historical financial performance may not be representative of our financial performance as a separate, stand-alone company.

 

The historical financial information for periods prior to May 7, 2008, the date we completed our separation from Cadbury, included in this prospectus has been derived from Cadbury’s consolidated financial statements and does not reflect what our financial condition, results of operations or cash flows would have been had we operated as a separate, stand-alone company during those periods. Cadbury historically provided certain corporate functions to us and costs associated with these functions have been allocated to us. These functions included corporate communications, regulatory, human resources and benefits management, treasury, investor relations, corporate controller, internal audit, Sarbanes-Oxley compliance, information technology, corporate legal and compliance, and community affairs. The total amount of these allocations from Cadbury was approximately $161 million in 2007. All of these allocations were based on what we and Cadbury considered to be reasonable reflections of the historical levels of the services and support provided to our business. The historical information does not necessarily indicate what our results of operations, financial condition, cash flows or costs and expenses will be going forward as an independent publicly-traded, stand-alone company.

 

We had significant changes in our capital structure in connection with our separation from Cadbury. We borrowed an aggregate of $3.9 billion under our debt agreements in connection with the separation. For additional information see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

We may experience increased costs resulting from a decrease in the purchasing power and other operational efficiencies we historically had due to our association with Cadbury.

 

Prior to the separation, we were able to take advantage of Cadbury’s purchasing power in technology and services, including information technology, media purchasing, insurance, treasury services, property support and, to a lesser extent, the procurement of goods. As a smaller separate, stand-alone company, it may be more difficult for us to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to the separation.

 

Prior to the separation, we entered into agreements with Cadbury under which Cadbury will provide some of these services to us on a transitional basis, for which we will pay Cadbury. These services may not be sufficient to meet our needs and, after these agreements with Cadbury end, we may not be able to replace these services at all or obtain these services at acceptable prices and terms.

 

Our ability to operate our business effectively may suffer if we do not cost effectively establish our own financial, administrative and other support functions to operate as a stand-alone company.

 

Prior to the separation, we relied on certain financial, administrative and other support functions of Cadbury to operate our business. With our separation from Cadbury, we are enhancing our own financial, administrative and other support systems. We have also established our own accounting and auditing policies. Any failure in our own financial or administrative policies and systems could impact our financial performance and could materially harm our business and financial performance.

 

The obligations associated with being a public company will require significant resources and management attention.

 

In connection with the separation from Cadbury and the distribution of our common stock, we became subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 and we are required to prepare our financial statements according to accounting principles generally accepted in the United States (“U.S. GAAP”) which differs from our historical method of preparing financials, which was generally pursuant to IFRS. In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. The Sarbanes-Oxley Act requires that we, among other things, establish and maintain effective internal controls and procedures for financial reporting and we are presently evaluating our existing internal controls in light of the standards adopted by the Public Company Accounting Oversight Board. During the course of our evaluation, we

may identify areas requiring improvement and may be required to design enhanced processes and controls to address issues identified through this review. This could result in significant cost to us and require us to divert substantial resources, including management time, from other activities.

 

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with our 2009 annual report that we will file with the SEC in 2010. In preparation for this, we may identify deficiencies that we may not be able to remediate in time to meet the deadline for compliance with the requirements of Section 404. Our failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could have a material adverse effect on our business and our common stock.

 

We and Cadbury could have significant indemnification obligations to each other with respect to tax liabilities.

 

Upon separation, we entered into a tax-sharing and indemnification agreement with Cadbury that sets forth the rights and obligations of Cadbury and us (along with our respective subsidiaries) with respect to taxes and, in general, provides that we and Cadbury each will be responsible for taxes imposed on our respective businesses and subsidiaries for all taxable periods, whether ending on, before or after the date of the separation and distribution.

 

Cadbury has, subject to certain conditions, agreed to indemnify us for income taxes that are attributable to certain restructuring transactions undertaken in connection with the separation and distribution and various other transactions between Cadbury and us that were entered into in prior taxable periods. Such potential tax liabilities could be for significant amounts. Notwithstanding these tax indemnification obligations of Cadbury, if the treatment of these transactions were successfully challenged by a taxing authority, we generally would be required under applicable tax law to pay the resulting tax liabilities in the event that either (1) Cadbury were to default on their obligations to us, (2) we breached certain covenants or other obligations or (3) we are involved in certain change-in-control transactions including certain acquisitions of our stock representing more than 35% of the voting power represented by our issued and outstanding stock. Thus, since we have primary liability for income taxes in respect of these transactions, if Cadbury fails to, is not required to or cannot indemnify or reimburse us, our resulting tax liability could be significant and could have a material adverse effect on our results of operations, cash flows and financial condition.

 

In addition, we generally will be liable for any liabilities, taxes or other charges that are imposed on Cadbury, including as a result of the separation and distribution failing to qualify for non-recognition treatment for U.S. federal income tax purposes, if such failure is the result of a breach by us of certain of our representations or covenants, including, for example, our failure to continue the active conduct of the historic business relied upon for purposes of the private letter ruling issued by the IRS and taking any action inconsistent with the written statements and representations furnished to the IRS in connection with the private letter ruling request. The parties could have significant indemnification obligations to each other with respect to tax liabilities.

 

Risks Related to the Exchange Notes and the Exchange Offer

 

We are a holding company and our ability to make payments on our outstanding indebtedness, including the exchange notes, is dependent upon the receipt of funds from our subsidiaries by way of dividends, fees, interests, loans or otherwise.

 

The exchange notes are obligations of Dr Pepper Snapple Group, Inc., which is a holding company with no material assets, other than the stock of its subsidiaries. All of Dr Pepper Snapple Group, Inc.’s revenue and cash flow is generated through its subsidiaries. Accordingly, Dr Pepper Snapple Group, Inc.’s ability to make payments on its indebtedness, including the exchange notes offered hereby, and to fund its other obligations is dependent not only on the ability of its subsidiaries to generate cash, but also on the ability of its subsidiaries to distribute cash to it in the form of dividends, fees, interest, loans or otherwise. Although certain subsidiaries will guarantee Dr Pepper Snapple Group, Inc.’s payment obligations on the notes, these guarantees may be released under certain circumstances. See “— The exchange notes are effectively subordinated to the indebtedness of our subsidiaries that are not guaranteeing such notes” and “Description of the Exchange Notes — Guarantees.”

The exchange notes are effectively subordinated to the indebtedness of our subsidiaries that are not guaranteeing such notes.

 

Only certain of our subsidiaries will guarantee our payment obligations on the exchange notes. Our and our subsidiary guarantors’ right to participate in any distribution of assets of any non-guarantor subsidiary upon that subsidiary’s dissolution, winding-up, liquidation, reorganization or otherwise is subject to the prior claims of the creditors of that subsidiary, except to the extent that we or a subsidiary guarantor is a creditor of the subsidiary and we or such subsidiary guarantor’s claims are recognized. Therefore, the exchange notes will be effectively subordinated to all indebtedness and other obligations of our non-guarantor subsidiaries. Our non-guarantor subsidiaries are separate legal entities and have no obligations to pay any amounts due on the notes. For the nine months ended September 30, 2008, and the years ended December 31, 2007 and 2006, respectively, our non-guarantor subsidiaries accounted for $463 million, $575 million and $534 million of net sales, and $118 million, $126 million and $125 million of income from operations. As of September 30, 2008, and December 31, 2007 and 2006, respectively, the total liabilities of our non-guarantor subsidiaries were approximately $118 million, $153 million and $670 million, and the total assets of such subsidiaries were approximately $564 million, $590 million and $468 million.

 

In addition, the obligation of the subsidiary guarantors to guarantee payment of the exchange notes will be released and discharged automatically and unconditionally upon release of the subsidiary guarantors’ guarantees of all other indebtedness of ours (unless we notify the trustee under the indenture that no release and discharge shall occur as a result thereof). See “Description of the Exchange Notes — Guarantees.” If the exchange notes are not guaranteed by any of our subsidiaries, then such notes will be effectively subordinated to all indebtedness and other obligations of all of our subsidiaries. The indenture governing the exchange notes does not limit the ability of our subsidiaries to incur additional indebtedness.

 

The exchange notes are not secured by any of our assets and any secured creditors would have a prior claim on our assets.

 

The exchange notes are not secured by any of our assets. The terms of the indenture permit us to incur a certain amount of secured indebtedness without equally and ratably securing the exchange notes. If we become insolvent or are liquidated, or if payment under any of the agreements governing any secured debt is accelerated, the lenders under our secured debt agreements will be entitled to exercise the remedies available to a secured lender. Accordingly, the lenders will have a prior claim on our assets to the extent of their liens, and it is possible that there will be insufficient assets remaining from which claims of the holders of the exchange notes can be satisfied. As of September 30, 2008, our total secured indebtedness was approximately $19 million.

 

Negative covenants in the indenture offer only limited protection to holders of the exchange notes.

 

The indenture governing the exchange notes will contain negative covenants that apply to us and our subsidiaries. However, the indenture does not:

 

 

In addition, the limitation on secured indebtedness covenant in the indenture contains exceptions that will allow us and our subsidiaries to create, grant or incur liens or security interests to secure a certain amount of indebtedness and a variety of other obligations without equally and ratably securing the exchange notes. See “Description of the Exchange Notes” for a description of this covenant and related definitions. In light of these exceptions, holders of the exchange notes may be structurally subordinated to new lenders.

Changes in our credit ratings may adversely affect the value of the exchange notes.

 

The exchange notes are rated Baa3 with a stable outlook from Moody’s Investor Service (“Moody’s”) and BBB- with a negative outlook from Standard & Poor’s (“Standard & Poor’s”). Such ratings could be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances warrant. Notwithstanding that the terms of the exchange notes include a step-up in interest payable following certain ratings downgrades, actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect the market value of the exchange notes. In addition, a step-up in interest payable on each series of exchange notes will permanently cease to apply if the notes of that series become rated A3 or higher by Moody’s (or any substitute rating agency) or A- or higher by Standard & Poor’s (or any substitute rating agency). If our ratings are lowered while the interest step-up provisions are in effect, our interest expense will increase.

 

Federal and state laws regarding fraudulent conveyance allow courts, under specific circumstances, to void debts, including guarantees, and would require holders of the exchange notes to return payments received from us or the subsidiary guarantors.

 

The exchange notes will be guaranteed by certain of our subsidiaries. If a bankruptcy proceeding or lawsuit were to be initiated by unpaid creditors, the exchange notes and the subsidiary guarantees of such notes could come under review for federal or state fraudulent transfer violations. Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, obligations under a note or a guaranty could be voided, or claims in respect of a note or a guaranty could be subordinated to all other debts of the company or guarantor if, among other things, the company or guarantor at the time it incurred the indebtedness evidenced by its note or guaranty:

 

 

 

In addition, any payment by the company or guarantor under its note or guarantee could be voided and required to be returned to the company or guarantor, as the case may be, or to a fund for the benefit of the creditors of the debtor or guarantor.

 

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, the company or a guarantor would be considered insolvent if:

 

 

We may not have the ability to raise the funds necessary to finance the offer to redeem the exchange notes upon a Change of Control Triggering Event.

 

Upon the occurrence of a Change of Control Triggering Event, we will be required to offer to repurchase all outstanding exchange notes. We cannot assure you that we will have sufficient funds available to make any required repurchases of the exchange notes upon a Change of Control Triggering Event. Any failure to purchase tendered

notes would constitute a default under the indenture governing the exchange notes, which, in turn, would constitute a default under our senior credit facilities. A default could result in the declaration of the principal and interest on all the exchange notes and our indebtedness outstanding under the senior credit facilities to be due and payable. The term “Change of Control Triggering Event” is defined under “Description of the Exchange Notes.”

 

If you do not properly tender your unregistered notes, your ability to transfer such outstanding notes will be adversely affected.

 

We will only issue exchange notes in exchange for unregistered notes that are timely received by the exchange agent, together with all required documents, including a properly completed and signed letter of transmittal. Therefore, you should allow sufficient time to ensure timely delivery of the unregistered notes and you should carefully follow the instructions on how to tender your unregistered notes. None of us, the subsidiary guarantors or the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the unregistered notes. If you do not tender your unregistered notes or if your tender of unregistered notes is not accepted because you did not tender your unregistered notes properly, then, after consummation of the exchange offer, you will continue to hold unregistered notes that are subject to the existing transfer restrictions. After the exchange offer is consummated, if you continue to hold any unregistered notes, you may have difficulty selling them because there will be fewer unregistered notes remaining and the market for such unregistered notes, if any, will be much more limited than it is currently. In particular, the trading market for unexchanged unregistered notes could become more limited than the existing trading market for the unregistered notes and could cease to exist altogether due to the reduction in the amount of the unregistered notes remaining upon consummation of the exchange offer. A more limited trading market might adversely affect the liquidity, market price and price volatility of such untendered unregistered notes.

 

If you are a broker-dealer or participating in a distribution of the exchange notes, you may be required to deliver prospectuses and comply with other requirements.

 

If you tender your unregistered notes for the purpose of participating in a distribution of the exchange notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes. If you are a broker-dealer that receives exchange notes for your own account in exchange for unregistered notes that you acquired as a result of market-making activities or any other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of such exchange notes.

 

You may be unable to sell your exchange notes if a trading market for the exchange notes does not develop.

 

There are no existing markets for the exchange notes and we do not intend to apply for listing of the exchange notes on any securities exchange or any automated quotation system. Accordingly, trading markets for the exchange notes may not develop and any markets that do develop may not provide sufficient liquidity for the holders to sell their notes at attractive prices, or at all. Future trading prices of the exchange notes will depend on many factors, including prevailing interest rates, our financial condition and results of operations, the then-current ratings assigned to the exchange notes and the market for similar securities. Any trading markets that develop would be affected by many factors independent of and in addition to the foregoing, including:

 

 

The following table sets forth our ratio of consolidated earnings to consolidated fixed charges for the nine months ended September 30, 2008 and the four fiscal years 2007, 2006, 2005 and 2004.

 

 

The exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the exchange notes pursuant to the exchange offer. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive a like principal amount of the unregistered notes, the terms of which are identical in all material respects to the exchange notes, except as otherwise noted in this prospectus. We will retire and cancel all of the unregistered notes tendered in the exchange offer. Accordingly, the issuance of the exchange notes will not result in any change in our indebtedness or capitalization.

 

The following table sets forth our cash and cash equivalents, short-term debt, long-term debt, capital lease obligations (less the current portion), stockholders’ equity and total capitalization as of September 30, 2008. This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited and unaudited financial statements and the related notes thereto included elsewhere in this prospectus.

 

 

The following table presents our selected historical financial data. Our selected historical data presented below as of and for the nine months ended September 30, 2008 and 2007 have been derived from our unaudited condensed consolidated financial statements, included elsewhere in this prospectus. Our selected historical financial data presented below as of December 31, 2007 and 2006 and for the three fiscal years 2007, 2006 and 2005 have been derived from our audited combined financial statements, included elsewhere in this prospectus. Our selected historical balance sheet data as of January 1, 2006 (the last day of fiscal 2005) and our selected historical financial data as of and for the fiscal year ended January 2, 2005 (the last day of fiscal 2004) presented below have been derived from our accounting records, which are unaudited.

 

For periods prior to May 7, 2008, our financial data have been prepared on a “carve-out” basis from Cadbury’s consolidated financial statements using the historical results of operations, assets and liabilities attributable to Cadbury’s Americas Beverages business and including allocations of expenses from Cadbury. The historical Cadbury’s Americas Beverages information is our predecessor financial information. The results included below and elsewhere in this document are not necessarily indicative of our future performance and do not reflect our financial performance had we been an independent, publicly-traded company during the periods prior to May 7, 2008. You should read this information along with the information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited financial statements and the related notes thereto included elsewhere in this prospectus.

 

On May 2, 2006, we acquired approximately 55% of the outstanding shares of DPSUBG, which combined with our pre-existing 45% ownership, resulted in our full ownership of DPSUBG. DPSUBG’s results have been included in the individual line items within our combined financial statements beginning on May 2, 2006. Prior to this date, the existing investment in DPSUBG was accounted for under the equity method and reflected in the line item captioned “equity in earnings of unconsolidated subsidiaries, net of tax.” In addition, on June 9, 2006 we acquired the assets of All American Bottling Company, on August 7, 2006 we acquired Seven Up Bottling Company of San Francisco and on July 11, 2007 we acquired SeaBev. Each of these four acquisitions is included in our combined financial statements beginning on its date of acquisition. As a result, our financial data is not necessarily comparable on a period-to-period basis.

 

Our financial data for 2003 has been omitted from this prospectus because it is not available without unreasonable effort and expense. We believe the omission of the financial data for the year ended December 31, 2003 does not have a material impact on the understanding of our financial performance and related trends.

 

 

 

 

The following table sets forth our selected historical quarterly financial data. We derived this data from our unaudited consolidated financial statements.

 

For periods prior to May 7, 2008, our financial data has been prepared on a “carve-out” basis from Cadbury’s consolidated financial statements using the historical results of operations, assets and liabilities attributable to Cadbury’s Americas Beverages business and including allocations of expenses from Cadbury. The historical Cadbury’s Americas Beverages information is our predecessor financial information. The results included below and elsewhere in this document are not necessarily indicative of our future performance and do not reflect our financial performance had we been an independent, publicly-traded company during the periods prior to May 7, 2008. You should read this information along with the information included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited financial statements and the related notes thereto included elsewhere in this prospectus.

 

 

 

 

You should read the following discussion in conjunction with our audited and unaudited financial statements and the related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of various factors including the factors we describe under “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and elsewhere in this prospectus.

 

The periods presented in this section are the nine months ended September 30, 2008 and 2007, the 52-week periods ended December 31, 2007 and 2006, which we refer to as “2007” and “2006”, respectively, and the 52-week period ended January 1, 2006, which we refer to as “2005.” Effective 2006, our fiscal year ends on December 31 of each year. In 2005, the year end date represented the Sunday closest to December 31.

 

Formation of the Company and Separation from Cadbury

 

On May 7, 2008, Cadbury separated its Americas Beverages business from its global confectionery business by contributing the subsidiaries that operated its Americas Beverages business to us. In return for the transfer of the Americas Beverages business, we distributed our common stock to Cadbury plc shareholders. As of the date of distribution, a total of 800 million shares of our common stock, par value $0.01 per share, and 15 million shares of our preferred stock, all of which are undesignated, were authorized. On the date of distribution, 253.7 million shares of our common stock were issued and outstanding and no shares of preferred stock were issued. On May 7, 2008, we became an independent publicly-traded company listed on the New York Stock Exchange under the symbol “DPS”.

 

In connection with the separation, we entered into a Separation and Distribution Agreement, Transition Services Agreement, Tax Sharing and Indemnification Agreement (“Tax Indemnity Agreement”) and Employee Matters Agreement with Cadbury, each dated as of May 1, 2008.

 

Accounting for the Separation from Cadbury

 

Settlement of Related Party Balances

 

Upon our separation from Cadbury, we settled debt and other balances with Cadbury, eliminated Cadbury’s net investment in us and purchased certain assets from Cadbury related to our business. As of September 30, 2008, we had receivable and payable balances with Cadbury pursuant to the Separation and Distribution Agreement, Transition Services Agreement, Tax Indemnity Agreement and Employee Matters Agreement. See Note 7 to our unaudited condensed consolidated financial statements for additional information.

 

The following debt and other balances were settled with Cadbury upon separation (in millions):

 

Items Impacting the Statement of Operations

 

The following transactions related to our separation from Cadbury were included in the statement of operations for the nine months ended September 30, 2008 (in millions):

 

 

 

 

Items Impacting Income Taxes

 

The unaudited condensed consolidated financial statements present the taxes of our stand alone business and contain certain taxes transferred to us at separation in accordance with the Tax Indemnity Agreement between us and Cadbury. This agreement provides for the transfer to us of taxes related to an entity that was part of Cadbury’s confectionery business and therefore not part of our historical condensed consolidated financial statements. The unaudited condensed consolidated financial statements also reflect that the Tax Indemnity Agreement requires Cadbury to indemnify us for these taxes. These taxes and the associated indemnity may change over time as estimates of the amounts change. Changes in estimates will be reflected when facts change and those changes in estimate will be reflected in our statement of operations at the time of the estimate change. In addition, pursuant to the terms of the Tax Indemnity Agreement, if we breach certain covenants or other obligations or we are involved in certain change-in-control transactions, Cadbury may not be required to indemnify us for any of these unrecognized tax benefits that are subsequently realized.

 

See Note 8 to our unaudited condensed consolidated financial statements for additional information regarding the tax impact of the separation.

 

Items Impacting Equity

 

In connection with our separation from Cadbury, the following transactions were recorded as a component of Cadbury’s net investment in us (in millions):

 

Prior to the May 7, 2008, separation date, our total invested equity represented Cadbury’s interest in our recorded assets. In connection with the distribution of our stock to Cadbury plc shareholders on May 7, 2008, Cadbury’s total invested equity was reclassified to reflect the post-separation capital structure of $3 million par value of outstanding common stock and contributed capital of $3,158 million.

 

Overview

 

We are a leading integrated brand owner, bottler and distributor of non-alcoholic beverages in the United States, Canada and Mexico with a diverse portfolio of flavored CSDs and NCBs, including ready-to-drink teas, juices, juice drinks and mixers. Our brand portfolio includes popular CSD brands such as Dr Pepper, 7UP, Sunkist, A&W, Canada Dry, Schweppes, Squirt and Peñafiel, and NCB brands such as Snapple, Mott’s, Hawaiian Punch, Clamato, Mr & Mrs T, Margaritaville and Rose’s. Our largest brand, Dr Pepper, is the #2 selling flavored CSD in the United States according to ACNielsen, which generated approximately one-third of our volume in 2007. We have some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers.

 

We operate primarily in the United States, Mexico and Canada, the first, second and tenth largest beverage markets, respectively, by CSD volume, according to Beverage Digest and Canadean. We also distribute our products in the Caribbean. In 2007, 89% of our net sales were generated in the United States, 4% in Canada and 7% in Mexico and the Caribbean.

 

Our Business Model

 

We operate as a brand owner, a bottler and a distributor through our four segments as follows:

 

 

Our Brand Ownership Businesses.  As a brand owner, we build our brands by promoting brand awareness through marketing, advertising and promotion, and by developing new and innovative products and product line extensions that address consumer preferences and needs. As the owner of the formulas and proprietary know-how required for the preparation of beverages, we manufacture, sell and distribute beverage concentrates and syrups used primarily to produce CSDs and we manufacture, bottle, sell and distribute primarily finished NCBs. Most of our sales of beverage concentrates are to bottlers who manufacture, bottle, sell and distribute our branded products into retail channels. Approximately one-third of our U.S. beverage concentrates by volume are sold to our Bottling Group, with the balance being sold to third-party bottlers affiliated with Coca-Cola or PepsiCo, as well as independent bottlers. We also manufacture, sell and distribute syrups for use in beverage fountain dispensers to restaurants and retailers, as well as to fountain wholesalers, who resell it to restaurants and retailers. In addition, we distribute finished NCBs through ourselves and through third-party distributors.

 

Our beverage concentrates and syrup brand ownership businesses are characterized by relatively low capital investment, raw materials and employee costs. Although the cost of building or acquiring an established brand can be significant, established brands typically do not require significant ongoing expenditures, other than marketing, and therefore generate relatively high margins. Our finished beverages brand ownership business has characteristics of both of our beverage concentrates and syrup brand ownership businesses as well as our bottling and distribution businesses discussed below.

 

Our Bottling and Distribution Businesses.  We manufacture, bottle, sell and distribute finished CSDs from concentrates and finished NCBs and products mostly from ingredients other than concentrates. We sell and distribute finished beverages and other products primarily into retail channels either directly to retail shelves or to warehouses through our large fleet of delivery trucks or through third-party logistics providers.

Our bottling and distribution businesses are characterized by relatively high capital investment, raw material, selling and distribution costs, in each case compared to our beverage concentrates and syrup brand ownership businesses. Our capital costs include investing in, and maintaining, our manufacturing and warehouse equipment and facilities. Our raw material costs include purchasing concentrates, ingredients and packaging materials (including cans and bottles) from a variety of suppliers. Our selling and distribution costs include significant costs related to operating our large fleet of delivery trucks (including fuel) and employing a significant number of employees to sell and deliver finished beverages and other products to retailers. As a result of the high fixed costs associated with these types of businesses, we are focused on maintaining an adequate level of volumes as well as controlling capital expenditures, raw material, selling and distribution costs. In addition, geographic proximity to our customers is a critical component of managing the high cost of transporting finished beverages relative to their retail price. The profitability of the bottling and distribution businesses is also dependent upon our ability to sell our products into higher margin channels. As a result of the foregoing, the margins of our bottling and distribution businesses are significantly lower than those of our brand ownership businesses. In light of the largely fixed cost nature of the bottling and distribution businesses, increases in costs, for example raw materials tied to commodity prices, could have a significant negative impact on the margins of our businesses.

 

Approximately three-fourths of our 2007 Bottling Group net sales of branded products come from our own brands, with the remaining from the distribution of third-party brands such as FIJI mineral water and Big Red soda. In addition, a small portion of our Bottling Group sales come from bottling beverages and other products for private label owners or others for a fee (which we refer to as co-packing).

 

Integrated Business Model.  We believe our brand ownership, bottling and distribution are more integrated than the U.S. operations of our principal competitors and that this differentiation provides us with a competitive advantage. We believe our integrated business model:

 

 

Trends Affecting our Business

 

According to data from Beverage Digest, in 2007, the U.S. CSD market segment grew by 2.7% in retail sales, despite a 2.3% decline in total CSD volume. The U.S. NCB volume and retail sales increased by 13.2% and 14.8%, respectively, in 2006. In addition, NCBs experienced strong growth over the last five years with their volume share of the overall U.S. liquid refreshment beverage market increasing from 12.7% in 2001 to 16.3% in 2006.

 

We believe the key trends influencing the North American liquid refreshment beverage market include:

 

 

 

Seasonality

 

The beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and religious festivals as well as weather fluctuations.

 

Significant Acquisitions

 

Our Bottling Group was created through the acquisition of several bottling businesses. On May 2, 2006, we acquired approximately 55% of the outstanding shares of DPSUBG, which combined with our pre-existing 45% ownership, resulted in our full ownership of DPSUBG. The purchase price consisted of $370 million in cash and we assumed debt of $651 million in connection with this acquisition.

 

DPSUBG’s results have been included in the individual line items within our combined financial statements beginning on May 2, 2006. Prior to this date, the existing investment in DPSUBG was accounted for under the equity method and reflected in the line item captioned “equity in earnings of unconsolidated subsidiaries, net of tax” in our combined statements of operations.

 

On June 9, 2006, we acquired the assets of All American Bottling Company for $58 million, and on August 7, 2006, we acquired Seven Up Bottling Company of San Francisco for $51 million. On July 11, 2007, we acquired SeaBev for approximately $53 million. Each of these acquisitions is included in our combined statements of operations beginning on its date of acquisition.

 

We refer to the foregoing four acquisitions as our “bottling acquisitions,” and they are reported in our combined financial statements collectively as our Bottling Group segment. We previously have referred to our Bottling Group segment as the Cadbury Schweppes Bottling Group. These bottling acquisitions have had an impact on our results of operations and therefore impact the comparability of our pre- and post-acquisition period results.

 

Our Separation from Cadbury

 

On May 7, 2008, we completed our separation from Cadbury. Upon the separation, we became the owner of the Americas Beverages business previously owned by Cadbury and its subsidiaries, and shares of our common stock were distributed to holders of Cadbury ordinary shares and ADRs.

 

Upon the separation, effective May 7, 2008, we became an independent company and established a new consolidated reporting structure. For periods prior to May 7, 2008 our historical financial information was prepared on a “carve-out” basis from Cadbury’s consolidated financial statements using the historical results of operations, assets and liabilities, attributable to Cadbury’s Americas Beverages business and including allocations of expenses from Cadbury. Our combined financial statements are presented in U.S. dollars, and have been prepared in accordance with U.S. GAAP. As a subsidiary of Cadbury (a U.K. company), historically we maintained our books and records, managed our business and reported our results based on International Financials Reporting Standards

(“IFRS”). The preparation of our U.S. GAAP information uses IFRS as our base financial system and includes a process for capturing accounting and disclosure differences relevant to U.S. GAAP. This adds a level of complexity and time to the process. We intend to migrate to a U.S. GAAP-based system over time following separation. Our segment information has been prepared and presented on the basis which management uses to assess the performance of our segments, which is principally in accordance with IFRS. Our consolidated and segment results are not necessarily indicative of our future performance and do not reflect what our financial performance would have been had we been an independent publicly-traded company during the periods presented.

 

Historically, Cadbury allocated certain costs to us, including costs in respect of certain corporate functions provided for us by Cadbury. These functions included corporate communications, regulatory, human resources and benefits management, treasury, investor relations, corporate controller, internal audit, Sarbanes-Oxley compliance, information technology, corporate legal and compliance and community affairs. The total amount of these allocations from Cadbury was $6 million for the nine months ended September 30, 2008, $161 million in 2007 and $142 million in 2006. As an independent publicly-traded company, effective as of our separation from Cadbury Schweppes, we assumed responsibility for these costs.

 

Segments

 

We report our business in four segments: Beverage Concentrates, Finished Goods, Bottling Group and Mexico and the Caribbean.

 

 

Our current segment reporting structure is largely the result of acquiring and combining various portions of our businesses over the past several years. Although we continue to report our segments separately, due to the integrated nature of our business model, we manage our business to maximize profitability for our company as a whole. As a result, profitability trends in individual segments may not be consistent with the profitability of our company or comparable to our competitors. For example, following our bottling acquisitions in 2006, we changed certain funding and manufacturing arrangements between our Beverage Concentrates and Finished Goods segments and our newly acquired bottling companies, which reduced the profitability of our Bottling Group segment while benefiting our other segments.

 

We have significant intersegment transactions. For example, our Bottling Group purchases concentrates at an arm’s length price from our Beverage Concentrates segment. We expect these purchases to account for approximately one-third of our Beverage Concentrates segment annual net sales and therefore drive a similar proportion of our Beverage Concentrates segment profitability. In addition, our Bottling Group segment purchases finished beverages from our Finished Goods segment. All intersegment transactions are eliminated in preparing our combined results of operations.

 

We incur selling, general and administrative expenses in each of our segments. In our segment reporting, the selling, general and administrative expenses of our Bottling Group and Mexico and the Caribbean segments relate primarily to those segments. However, as a result of our historical segment reporting policies, certain combined selling activities that support our Beverage Concentrates and Finished Goods segments have not been proportionally allocated between those two segments. We also incur certain centralized finance and corporate costs that support our entire business, which have not been directly allocated to our respective segments but rather have been allocated primarily to our Beverage Concentrates segment.

The key financial measures management uses to assess the performance of our segments are net sales and underlying operating profit (loss) (“UOP”).

 

UOP represents a non-GAAP measure of income from operations. To reconcile total UOP of our segments to our total company income from operations on a U.S. GAAP basis, adjustments are primarily required for: (1) restructuring costs, (2) non-cash compensation charges on stock option and restricted stock awards, (3) amortization and impairment of intangibles and (4) incremental pension costs. In addition, adjustments are required for total company corporate costs and other items, which relate primarily to general and administrative expenses not allocated to the segments and equity in earnings of unconsolidated subsidiaries. To reconcile total company income from operations to the line item “income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and cumulative effect of change in accounting policy” as reported on a U.S. GAAP basis, additional adjustments are required for interest expense, interest income and other expense (income).

 

Components of Net Sales and Costs and Expenses

 

Net Sales

 

We generate net sales primarily from:

 

 

We offer a variety of incentives and discounts to bottlers, customers and consumers through various programs to support in the distribution and promotion of our products. These incentives and discounts include cash discounts, price allowances, volume based rebates, product placement fees and other financial support for items such as trade promotions, displays, new products, consumer incentives and advertising assistance. These incentives and discounts, collectively referred to as trade spend, are reflected as a reduction of gross sales to arrive at net sales.

 

Cost of Sales

 

Our cost of sales include costs associated with the operation of our manufacturing and other related facilities, including depreciation, as well as the following:

 

 

Our selling, general and administrative expenses include:

 

 

Depreciation and Amortization

 

Our depreciation expense includes depreciation of buildings, machinery and equipment relating to our manufacturing, distribution and office facilities as well as coolers and other cold drink equipment and computer software. Our amortization expense includes amortization of definite-lived intangible assets including our brands, bottler agreements, distribution rights, customer relationships and vending contracts. Depreciation directly attributable to our manufacturing and distribution operations is included in our cost of sales. Amortization related to our long-term vending contracts is recorded in selling, general and administrative expenses. All other depreciation and amortization is included as a separate line item.

 

Restructuring Costs

 

We implement restructuring programs from time to time and incur costs that are designed to improve operating effectiveness and lower costs. These programs have included closure of manufacturing plants, reductions in workforce, integrating back office operations and outsourcing certain transactional activities. When we implement these programs, we incur various charges, including severance and other employment-related costs. In 2007, we incurred $76 million of restructuring costs primarily related to the organizational restructuring we announced on October 10, 2007 and the ongoing integration of our bottling acquisitions.

 

Interest Expense

 

Historically, we have borrowed funds from subsidiaries of Cadbury. We have also borrowed funds from third-party banks and other lenders. The interest incurred with respect to this debt is recorded as interest expense. Our interest expense has increased as the result of borrowings under our $2.2 billion term loan A facility and the $1.7 billion notes.

 

Interest Income

 

Interest income is the return we earn on our cash and cash equivalents held at third-party banks. Historically, we have also generated interest income from our note receivable balances with subsidiaries of Cadbury, which were a result of Cadbury’s cash management practices. Our interest income has decreased as a result of the repayment of intercompany receivables by Cadbury as part of the separation.

 

Other Expense (Income)

 

Other expense (income) includes miscellaneous items not reflected in our income from operations. This line item in future periods will be impacted by the income we may record as a result of Cadbury’s agreement to indemnify us for certain tax liabilities.

 

Income Taxes

 

Our effective income tax rate fluctuates from period-to-period and can be impacted by various items, including shifts in the mix of our earnings from various jurisdictions, changes in requirements for tax uncertainties, timing and results of any reviews or audits of our income tax filing positions or returns, and changes in tax legislation. Our effective tax rate in future periods will be impacted by the accrual of interest we will record as a result of the unrecognized tax benefits transferred to us in connection with the separation. We expect any amount recorded in respect of the indemnified unrecognized tax benefits reflected in income taxes will have an offsetting amount recorded in “other expense (income),” unless Cadbury fails to, is not required to or cannot indemnify or reimburse us.

 

Volume

 

In evaluating our performance, we consider different volume measures depending on whether we sell beverage concentrates and syrups or finished beverages.

Beverage Concentrates Sales Volume

 

In our beverage concentrates and syrup businesses, we measure our sales volume in two ways: (1) “concentrates case sales” and (2) “bottler case sales.” The unit of measurement for both concentrates case sales and bottler case sales equals 288 fluid ounces of finished beverage, or 24 twelve ounce servings.

 

Concentrates case sales represent units of measurement for concentrates and syrups sold by us to our bottlers and distributors. A concentrates case is the amount of concentrates needed to make one case of 288 fluid ounces of finished beverage. It does not include any other component of the finished beverage other than concentrates. Our net sales in our concentrates businesses are based on concentrates cases sold.

 

Bottler case sales represent the number of cases of our finished beverages sold by us and our bottling partners. Bottler case sales are calculated based upon volumes from both our Bottling Group and volumes reported to us by our third party bottlers.

 

Bottler case sales and concentrates case sales are not equal during any given period due to changes in bottler concentrates inventory levels, which can be affected by seasonality, bottler inventory and manufacturing practices, and the timing of price increases and new product introductions.

 

Although our net sales in our concentrates businesses are based on concentrates case sales, we believe that bottler case sales are also a significant measure of our performance because they measure sales of our finished beverages into retail channels.

 

Finished Beverages Sales Volume

 

In our finished beverages businesses, we measure volume as case sales to customers. A case sale represents a unit of measurement equal to 288 fluid ounces of finished beverage sold by us. Case sales include both our owned-brands and certain brands licensed to and/or distributed by us.

 

Volume in Bottler Case Sales

 

In addition to sales volume, we also measure volume in bottler case sales (“volume (BCS)”) as sales of finished beverages, in equivalent 288 ounce cases, sold by us and our bottlers to retailers and independent distributors.

 

Results of Operations

 

For the periods prior to May 7, 2008, our condensed consolidated financial statements have been prepared on a “carve-out” basis from Cadbury’s consolidated financial statements using historical results of operations, assets and liabilities attributable to Cadbury’s Americas Beverages business and including allocations of expenses from Cadbury. The historical Cadbury’s Americas Beverages information is our predecessor financial information. We eliminate from our financial results all intercompany transactions between entities included in the combination and the intercompany transactions with our equity method investees. Subsequent to May 7, 2008, we are an independent company.

 

References in the financial tables to percentage changes that are not meaningful are denoted by “NM.”

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

 

Consolidated Operations

 

The following table sets forth our unaudited consolidated results of operation for the nine months ended September 30, 2008 and 2007 (dollars in millions).

 

 

Volume (BCS) declined 3%. CSDs declined 2% and NCBs declined 7%. The absence of glaceau sales following the termination of the distribution agreement in 2007 negatively impacted total volumes and NCB volumes by 1 percentage point and 7 percentage points, respectively. In CSDs, Dr Pepper declined 1%. Our “Core 4” brands, which include 7UP, Sunkist, A&W and Canada Dry, declined 3%, primarily related to an 8% decline in 7UP, as the brand cycled the final stages of launch support for 7UP with 100% Natural Flavors and the re-launch of Diet 7UP. In NCBs, 6% growth in Hawaiian Punch, 5% growth in Motts and a 7% growth in Clamato were more than offset by declines of 17% in Aguafiel, 4% in Snapple and the loss of glaceau distribution rights. Aguafiel declined 17% reflecting price increases and a more competitive environment. Our Snapple volumes were down 4% as the brand overlapped 5% growth in the year ago period driven by aggressive pricing and promotional activity that we chose not to repeat in 2008 and the impact of a slow down in consumer spending. We are extending and repositioning our Snapple offerings to support the long term health of the brand. In North America volume declined 3% and in Mexico and the Caribbean volume declined 4%.

 

Net Sales.  Net sales increased $22 million, or 1%, for the nine months ended September 30, 2008, compared with the nine months ended September 30, 2007. Price increases were partially offset by a decline in sales volumes and an increase in discounts paid to customers. The termination of the glaceau brand distribution agreements reduced net sales by $197 million. Net sales resulting from the acquisition of SeaBev added an incremental $61 million to consolidated net sales.

Gross Profit.  Gross profit remained flat for the nine months ended September 30, 2008, compared with the year ago period. Increased pricing largely offset increased commodity costs prices across our segments. Gross profit for the nine months ended September 30, 2008, includes LIFO expense of $17 million, compared to $7 million in the year ago period. LIFO is an inventory costing method that assumes the most recent goods manufactured are sold first, which in periods of rising prices results in an expense that eliminates inflationary profits from net income. Gross margin was 54% for the nine months ended September 30, 2008 and 2007.

 

Selling, General and Administrative Expenses.  SG&A expenses increased to $1,586 million for the nine months ended September 30, 2008, primarily due to separation related costs, higher transportation costs and increased payroll and payroll related costs. In connection with our separation from Cadbury, we incurred transaction costs and other one time costs of $29 million for the nine months ended September 30, 2008, which are included as a component of SG&A expenses. We expect to incur additional separation related costs of $6 million for the remainder of the year. We incurred higher transportation costs principally due to an increase of $24 million related to higher fuel prices. Additionally, our payroll and payroll related costs increased. These increases were partially offset by benefits from restructuring initiatives announced in 2007, lower marketing costs and lower stock-based compensation expense. Stock-based compensation expense was $7 million lower in 2008 due to a reduction in the number of unvested shares outstanding and as all Cadbury stock-based compensation plans became fully vested upon our separation from Cadbury.

 

Depreciation and Amortization.  An increase of $15 million in depreciation and amortization was principally due to increases in capital spending.

 

Restructuring Costs.  The $31 million cost for the nine months ended September 30, 2008, was primarily due to an organizational restructuring intended to create a more efficient organization and resulted in the reduction of employees in the Company’s corporate, sales and supply chain functions and the continued integration of the Bottling Group. As of September 30, 2008, we expect to incur approximately $12 million of additional costs through the end of 2008 in connection with our restructuring activities. The $36 million of restructuring cost for the nine months ended September 30, 2007, was primarily related to the integration of our Bottling Group into existing businesses, the integration of technology facilities, and the closure of a facility.

 

Gain on Disposal of Property and Intangible Assets, net.  We recognized a $3 million gain for the nine months ended September 30, 2008, related to the disposal of assets and the termination of the glaceau brand distribution agreement partially offset by the write-off of assets.

 

Income from Operations.  Income from operations for the nine months ended September 30, 2008, was $668 million, a decrease from $731 million for the nine months ended September 30, 2007. The loss of the glaceau distribution agreement reduced income from operations by $36 million. Additionally, the increase in SG&A expenses, including $29 million of transaction costs and other one time costs incurred in connection with our separation from Cadbury, reduced income from operations.

 

Interest Expense.  Interest expense increased $4 million reflecting the company’s capital structure as a stand-alone company. Decreases of $105 million related to interest expense on debt owed to Cadbury and $18 million related to third party debt settlement were partially offset by interest expense principally related to our term loan A and unsecured notes. Interest expense for the nine months ended September 30, 2008, also contained $26 million related to our bridge loan facility, including $21 million of financing fees when the bridge loan facility was terminated.

 

Interest Income.  The $8 million decrease in interest income was primarily due to the loss of interest income earned on note receivable balances with subsidiaries of Cadbury, partially offset as we earned interest income on the funds from the bridge loan facility and other cash balances.

 

Provision for Income Taxes.  The effective tax rates for the nine months ended September 30, 2008 and 2007 were 39.2% and 37.8%, respectively. The increase in the effective rate for 2008 was primarily due to tax expense of $7 million related to items that Cadbury is obligated to indemnify under the Tax Indemnity Agreement as well as additional tax expense of $11 million driven by separation transactions partially offset by a greater impact from foreign operations and increased tax credits.

Results of Operations by Segment

 

The following tables set forth net sales and UOP for our segments for the nine months ended September 30, 2008 and 2007, as well as the adjustments necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP and the elimination of intersegment transactions (dollars in millions).

 

 

 

 

 

 

 

 

 

 

Beverage Concentrates

 

The following table details our Beverage Concentrates segment’s net sales and UOP for the nine months ended September 30, 2008 and 2007 (dollars in millions):

 

 

Net sales for the nine months ended September 30, 2008, decreased $3 million versus the year ago period due to increased discounts primarily paid to customers in the fountain food service channel combined with a 1% decline

in volumes. The decline in volumes is primarily the result of lower sales to third party bottlers as foot traffic in convenience stores decreased. Intersegment and fountain food service sales volumes were both flat year over year.

 

UOP increased $11 million for the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007, driven by savings generated from restructuring initiatives, partially offset by the impact of declining net sales.

 

Bottler case sales declined 2% for the nine months ended September 30, 2008. The “Core 4” brands — 7UP, Sunkist, A&W and Canada Dry — decreased by 3%, driven primarily by 7UP, as the brand cycled the final stages of launch support for 7UP with 100% Natural Flavors and the re-launch of Diet 7UP. Dr Pepper declined 1% driven primarily by continued declines in the “Soda Fountain Classics” line.

 

Finished Goods

 

The following table details our Finished Goods segment’s net sales and UOP for the nine months ended September 30, 2008 and 2007 (dollars in millions):

 

 

Net sales increased $80 million for the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007, due to a 3% increase in sales volumes and price increases Hawaiian Punch, Mott’s and Clamato sales volumes increased 13%, 4% and 3%, respectively. Snapple sales volumes decreased 6% as it cycled aggressive promotional and pricing activity we chose not to repeat in 2008 and the impact of a slow down in consumer spending. The increase in prices was primarily driven by our Motts brand.

 

UOP increased $38 million for the nine months ended September 30, 2008, compared with the year ago period primarily due to the growth in net sales combined with lower marketing costs, as we cycled the introduction of Accelerade, and savings generated from restructuring initiatives. These increases were partially offset by higher fuel costs and higher commodity costs.

 

Bottling Group

 

The following table details our Bottling Group’s segment’s net sales and UOP for the nine months ended September 30, 2008 and 2007 (dollars in millions):

 

 

Net sales decreased $28 million for the nine months ended September 30, 2008, compared with the nine months ended September 30, 2007, reflecting price increases offset by volume declines and the termination of the glaceau brand distribution agreement. The termination of the glaceau brand distribution agreement reduced net sales by $197 million. The sales volume decline reflects a 4% decline in external sales volumes partially offset by an increase in intersegment sales as we increased Bottling Group’s manufacturing of Company owned brands. SeaBev, which was acquired in July 2007, added an incremental $82 million to our net sales during the first six months of 2008.

 

UOP decreased by $83 million primarily due to net sales declines and higher commodity and fuel costs and wage and benefit inflation. The termination of the glaceau brand distribution agreement reduced UOP by $36 million.

 

In a letter dated October 10, 2008, we received formal notification from Hansen Natural Corporation, terminating our agreements to distribute Monster Energy as well as other Hansen’s beverage brands in certain markets in the United States effective November 10, 2008. For the nine months ended September 30, 2008, our Bottling Group generated approximately $170 million and approximately $30 million in revenue and operating profits, respectively, from sales of Hansen brands to third parties in the United States.

 

Mexico and the Caribbean

 

The following table details our Mexico and the Caribbean segment’s net sales and UOP for the nine months ended September 30, 2008 and 2007 (dollars in millions):