Dr Pepper Snapple Group, Inc. DPS
Q2 2010 Earnings Call Transcript

Operator: Good morning and welcome to Dr Pepper Snapple Group's Second Quarter 2010 Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session. Today's call is being recorded, and includes a slide presentation, which can be accessed at www.drpeppersnapple.com. The call and slides will also be available for replay and download after the call has ended. (Operator Instructions).

It is now my pleasure to introduce Mr. Aly Noormohamed, Senior Vice President, Finance. Sir, you may begin.

Aly Noormohamed - SVP, IR: Thank you, Paula, and good morning, everyone. Before we begin, I would like to direct your attention to the Safe Harbor statements and remind you that this conference call contains forward-looking statements, including statements concerning our future financial and operational performance. These forward-looking statements should also be considered in connection with cautionary statements and disclaimers contained in the Safe Harbor statements in this morning's earnings press release and our SEC filings.

Our actual performance could differ materially from these statements, and we undertake no duty to update these forward-looking statements. During the call, we may reference certain non-GAAP financial measures that reflect the way we evaluate the business, and which we believe provide useful information for investors. Reconciliations of those non-GAAP measures to GAAP can be found in our earnings press release and on the Investor Relations page, at www.drpeppersnapple.com.

This morning's prepared remarks will be made by Larry Young, Dr Pepper Snapple Group's President and CEO and Marty Ellen, our CFO. Following our prepared remarks, we will open the call for your questions.

With that, let me turn the call over to Larry.

Larry D. Young - President and CEO: Thanks Aly, and good morning, everyone. As many of you know, on June 7th, we announced an agreement with the Coca-Cola Company on how we'll handle the distribution of our brands currently licensed to Coca-Cola Enterprises.

I'd like to begin today by highlighting a few key elements of the agreements. Upon completion of their acquisition, DPS will receive a one-time upfront payment of $715 million before taxes, fees and other expenses. Consistent with our Pepsi deal, these agreements will have an initial term of 20 years with 20-year renewal periods and will require Coke to meet certain performance conditions. We will record the upfront payment as deferred revenue and recognize it over a 25-year life. In the U.S., Coke will distribute Dr Pepper across all markets and Canada Dry in North East markets where both these brands are currently being distributed by CCE.

In Canada, distribution remains unchanged. Coke will also include Dr Pepper and Diet Dr Pepper on its revolutionary Freestyle fountain dispenser and will offer Dr Pepper and Diet Dr Pepper in local Fountain accounts currently serviced by CCE.

Additionally, in U.S. territories, where we have our own manufacturing and distribution footprint, we'll repatriate certain brands. In total, this transfer result in the repatriation of approximately 16 million cases back to DPS. Combined with the cases from the Pepsi system, approximately 25 million cases are expected to come back into our system. This adds 8 points of growth to our packaged beverage CSD business and will provide much needed scale and efficiencies in key packaged beverage markets. The consolidation of these brands under PB will also enable us to focus our efforts on growing volume and distribution while driving greater returns on local marketing efforts. We view these agreements with Coke as yet another positive step for our Company and our brands.