DR PEPPER SNAPPLE GROUP ANNUAL REPORT DPS at a Glance NORTH AMERICA’S LEADING FLAVORED BEVERAGE COMPANY More than 50 brands of juices, teas and carbonated soft drinks with a heritage of more than 200 years NINE OF OUR 12 LEADING BRANDS ARE NO. 1 IN THEIR FLAVOR CATEGORIES Named Company of the Year in 2010 by Beverage World magazine CEO LARRY D. YOUNG NAMED 2010 BEVERAGE EXECUTIVE OF THE YEAR BY BEVERAGE INDUSTRY MAGAZINE OUR VISION: Be the Best Beverage Business in the Americas STOCK PRICE PERFORMANCE PRIMARY SOURCES & USES OF CASH VS. S&P 500 TWO-YEAR CUMULATIVE TOTAL ’09–’10 JAN ’10 MAR JUN SEP DEC ’10 $3.4B $3.3B 40% DPS Pepsi/Coke 30% Share Repurchases S&P Licensing Agreements 20% Dividends Net Repayment 10% of Credit Facility Operations & Notes 0% Capital Spending -10% SOURCES USES 2010 FINANCIAL SNAPSHOT (MILLIONS, EXCEPT EARNINGS PER SHARE) CONTENTS 2010 $5,636 NET SALES +2% 2009 $5,531 $ 1, 3 21 SEGMENT +1% Letter to Stockholders 1 OPERATING PROFIT $ 1, 310 Build Our Brands 4 $2.40 DILUTED EARNINGS +22% PER SHARE* $1.97 Grow Per Caps 7 Rapid Continuous Improvement 10 *2010 diluted earnings per share (EPS) excludes a loss on early extinguishment of debt and certain tax-related items, which totaled Innovation Spotlight 23 cents per share. 2009 diluted EPS excludes a net gain on certain 12 distribution agreement changes and tax-related items, which totaled 20 cents per share. See page 13 for a detailed reconciliation of the Stockholder Information 12 7 excluded items and the rationale for the exclusion. LETTER TO STOCKHOLDERS To Our Stockholders: The foundation is set. The portfolio is unrivaled. At Dr Pepper Snapple Group, we are flavored to win. In the three years since our listing on the New York Stock Exchange, we have built a foundation for sustainable growth, and our efforts are consistently paying off. In 2010, we grew U.S. dollar share in carbonated soft drinks (CSDs) for the sixth straight year while delivering solid top- and bottom-line results. We now hold a 40.4 percent dollar share of the non-cola category, up 0.2 points in 2010. Moreover, PRESIDENT & CEO CHAIRMAN OF THE BOARD our healthy cash flow allowed us to pay down LARRY D. YOUNG WAYNE R. SANDERS our debt to targeted levels and return more than $1.3 billion to shareholders in the form of dividends and share repurchases. ‘‘DPS’s strategy We have maintained an unwavering focus on the is unchanged, fundamentals of our business and the needs of our customers. Our wins in 2010 have been a and it’s working. significant step toward achieving our long-term ’’ goals. Here’s just a taste: • 2010 was our first full year of dividends, • Our Victorville, Calif., plant opened with our quarterly dividend increasing on time and under budget, improving 67 percent to 25 cents, and we raised our distribution in the West. share repurchase plan to $2 billion, of which • Mott’s Medleys, a juice that delivers $1.1 billion has already been completed. a total of two fruit and vegetable servings • We closed historic licensing deals with in every 8-oz. glass, was recognized PepsiCo, Inc. and The Coca-Cola Co., as Best New Ready-to-Drink Beverage bringing in one-time payments of more than at the inaugural InterBev Beverage $1.6 billion, creating millions of sampling Innovation Awards. Mott’s also gained occasions and returning 25 million cases market share in Canada with the to our own distribution system. success of Garden Cocktail. • Dr Pepper is now available in virtually all of • Building upon route expansions in 2009, Latin the nearly 14,000 McDonald’s® restaurants in America Beverages grew volume share the United States, and Diet Dr Pepper nearly in every major category except flavored water. quintupled its availability there. • We published our first-ever corporate social • We turned Snapple around with new products, responsibility (CSR) report, “Sustainability packages and distribution, demonstrating our in ACTION,” which established ambitious ability to grow brands profitably through the CSR goals through 2015. strength of our execution. 1 Growing Our Brands Our namesake brands are just two of the highlights Macroeconomic conditions remained a major from our product portfolio in 2010. Mott’s and challenge in 2010. Although consumer Hawaiian Punch were also standouts. Mott’s spending was weak, our brands proved, as grew 3 percent on the continued success of always, to be the fundamental ingredient Mott’s for Tots and the beginning of our westward of our success. We continue to find new ways expansion. Hawaiian Punch grew 6 percent to win, activating unique programs with retail based on strong promotional activity in grocery customers and aligning with our bottlers to and dollar channels. grow profitable volume. Among our Core 4 brands, Canada Dry grew double digits, benefiting from an increase in retail displays and a rise in brand equity measures fueled by advertising and on-pack messaging. This growth was more than offset by decreases in Sunkist soda, 7UP and A&W volumes, resulting in a 1 percent decline in our Core 4 portfolio. Crush grew high double digits in its second year as a national brand, increasing on all brand equity measures and becoming the fastest-growing Our brands are the fundamental ingredient of our success. CSD on the market. Growing Shareholder Value It was a historic year for Dr Pepper as the brand Our strong cash flow has enabled us to reinvest celebrated the 125th anniversary of its debut at heavily in the business to drive growth and Morrison’s Old Corner Drugstore in Waco, Texas. efficiencies, forming the foundation to increase The brand’s proud fountain tradition continued shareholder value. We focus our efforts on in 2010 as our fountain foodservice volume grew three key areas: 5 percent based in large part on increased • Build our brands Dr Pepper availability. All told, Dr Pepper bottler We direct most of our sales and marketing case sales volume increased 3 percent last year. resources to three main categories: flavored It was also a great year for Snapple, with volume CSDs, teas and juices. In the next section up 10 percent. Diet Snapple Trop A Rocka, of this report, Jim Trebilcock, our head of created as a limited-time offering with the help of Marketing, and David Thomas, our head “The Celebrity Apprentice,” became a permanent of Research & Development, share how member of our lineup. With the introduction our portfolio strategy and commercial of consumer-preferred six packs, we gained innovation are aligned to create products distribution in grocery. And value teas and juice and programs that resonate with shoppers drinks in 16-oz. cans further expanded our reach. and excite our customers. 2 DR PEPPER SNAPPLE GROUP 2010 ANNUAL REPORT BUILDING SHAREHOLDER Managers throughout the company have used VALUE OVER TIME these and other tools to become better coaches to their teams, and our employees are engaged and equipped with the knowledge, tools and processes to succeed. The success we continue to enjoy is driven by the teamwork of employees across the INVEST FOR OPTIMIZE GROWTH RETURN ON company, and we value our people’s contributions. Build Our Brands CAPITAL BUILD THE Grow Per Caps 2011 O u t l o o k FOUNDATION Rapid Continuous Improvement As our nation and industry continue to emerge from tough economic times, we are building on 2007–2010 2011–2015 2015+ our strengths and putting our customers first. • Grow per caps DPS’s strategy is unchanged, and it’s working. Increasing per-capita consumption of our Our portfolio of leading brands and our distribution brands remains DPS’s most significant growth flexibility will continue to provide us opportunities opportunity as Jim Johnston and Rodger for long-term, profitable growth. Flavored CSDs Collins, leaders of our Beverage Concentrates are expected to outperform colas again in 2011, and Packaged Beverages teams, respectively, and our brands will help us capitalize on this trend. explain on page 7. Whether we’re adding new Our operations continue to improve, providing us points of distribution or increasing single-serve with the efficiencies and cost savings to reinvest occasions, we have the plans in place to grow in our business and to expand distribution and in the years ahead. availability with this strong foundation in place. We remain confident in our ability to deliver solid • Rapid Continuous Improvement (RCI) STOCKHOLDERS financial results in 2011 and beyond and to extend Today’s excellence is tomorrow’s average, our focus on returning excess cash to shareholders. LETTER TO so we are arming ourselves with the right mindset and the right tools to drive Sincerely, operational excellence and serve our customers better. Marty Ellen, appointed chief financial officer in April of last year, has a particular passion for RCI, as you’ll Wayne R. Sanders CHAIRMAN OF THE BOARD read on page 10. Growing Our People Leveraging the power of our fully integrated business requires the mobilization of all our people. Larry D. Young To build and sustain this focus, we have aligned PRESIDENT & CHIEF EXECUTIVE OFFICER our priorities through Call to ACTION initiatives March 1, 2011 and provided in-depth training through our online university known as DPS Campus. 3 Jim Trebilcock and David Thomas: BUILD OUR BRANDS Jim Trebilcock was appointed executive vice president of Marketing in 2008 after holding numerous brand leadership positions during his two decades with the company. David Thomas joined DPS in 2006 as senior vice president of Research & Development and was promoted to executive vice president earlier this year. In this Q&A, they discuss how innovation and marketing join forces for great results.