DPS-10Q-9.30.13
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to     

           
Commission file number 001-33829
Delaware
 
98-0517725
(State or other jurisdiction of
 
(I.R.S. employer
incorporation or organization)
 
identification number)
 
 
 
5301 Legacy Drive, Plano, Texas
 
75024
(Address of principal executive offices)
 
(Zip code)
(972) 673-7000
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes     R  No     o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes     R   No     o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.
Large Accelerated Filer R
 
Accelerated Filer o
 
Non-Accelerated Filer  o
 
Smaller Reporting Company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes     o   No    R
As of October 21, 2013, there were 200,642,994 shares of the registrant's common stock, par value $0.01 per share, outstanding.
 


DR PEPPER SNAPPLE GROUP, INC.
FORM 10-Q
INDEX
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



ii
Table of Contents

DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2013 and 2012
(Unaudited, in millions, except per share data)

PART I - FINANCIAL INFORMATION
ITEM 1.
Financial Statements (Unaudited).
 
For the
 
For the
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
1,543

 
$
1,528

 
$
4,534

 
$
4,511

Cost of sales
650

 
626

 
1,916

 
1,895

Gross profit
893

 
902

 
2,618

 
2,616

Selling, general and administrative expenses
563

 
561

 
1,745

 
1,713

Depreciation and amortization
28

 
29

 
86

 
95

Other operating expense, net
2

 
4

 
5

 
8

Income from operations
300

 
308

 
782

 
800

Interest expense
29

 
31

 
94

 
94

Interest income
—

 
—

 
(1
)
 
(1
)
Other expense (income), net
428

 
(4
)
 
384

 
(8
)
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
(157
)
 
281

 
305

 
715

(Benefit) provision for income taxes
(364
)
 
102

 
(162
)
 
256

Income before equity in earnings of unconsolidated subsidiaries
207

 
179

 
467

 
459

Equity in earnings of unconsolidated subsidiaries, net of tax
—

 
—

 
1

 
—

Net income
$
207

 
$
179

 
$
468

 
$
459

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
1.02

 
$
0.85

 
$
2.29

 
$
2.17

Diluted
1.01

 
0.84

 
2.28

 
2.15

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
203.3

 
210.4

 
204.0

 
211.6

Diluted
204.7

 
212.0

 
205.5

 
213.3

Cash dividends declared per common share
$
0.38

 
$
0.34

 
$
1.14

 
$
1.02

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 2013 and 2012
(Unaudited, in millions)

 
For the
 
For the
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Comprehensive income
$
208

 
$
186

 
$
475

 
$
471


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


2
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DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2013 and December 31, 2012
(Unaudited, in millions, except share and per share data)
 
September 30,
 
December 31,
 
2013
 
2012
Assets
Current assets:
 
 
 
Cash and cash equivalents
$
119

 
$
366

Accounts receivable:
 
 
 
Trade, net
531

 
552

Other
55

 
50

Inventories
196

 
197

Deferred tax assets
60

 
66

Prepaid expenses and other current assets
98

 
104

Total current assets
1,059

 
1,335

Property, plant and equipment, net
1,155

 
1,202

Investments in unconsolidated subsidiaries
14

 
14

Goodwill
2,988

 
2,983

Other intangible assets, net
2,696

 
2,684

Other non-current assets
129

 
580

Non-current deferred tax assets
88

 
130

Total assets
$
8,129

 
$
8,928

Liabilities and Stockholders' Equity
Current liabilities:
 
 
 
Accounts payable
$
271

 
$
283

Deferred revenue
65

 
65

Short-term borrowings and current portion of long-term obligations
1

 
250

Income taxes payable
21

 
45

Other current liabilities
598

 
589

Total current liabilities
956

 
1,232

Long-term obligations
2,521

 
2,554

Non-current deferred tax liabilities
743

 
630

Non-current deferred revenue
1,336

 
1,386

Other non-current liabilities
265

 
846

Total liabilities
5,821

 
6,648

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock, $.01 par value, 15,000,000 shares authorized, no shares issued
—

 
—

Common stock, $.01 par value, 800,000,000 shares authorized, 201,303,899 and 205,292,657 shares issued and outstanding for 2013 and 2012, respectively
2

 
2

Additional paid-in capital
1,116

 
1,308

Prepaid forward repurchase of common stock
(20
)
 
—

Retained earnings
1,313

 
1,080

Accumulated other comprehensive loss
(103
)
 
(110
)
Total stockholders' equity
2,308

 
2,280

Total liabilities and stockholders' equity
$
8,129

 
$
8,928

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2013 and 2012
(Unaudited, in millions)
 
For the
 
Nine Months Ended
 
September 30,
 
2013
 
2012
Operating activities:
 
 
 
Net income
$
468

 
$
459

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
146

 
154

Amortization expense
28

 
28

Amortization of deferred revenue
(49
)
 
(49
)
Employee stock-based compensation expense
28

 
26

Deferred income taxes
147

 
58

Other, net
16

 
(21
)
Changes in assets and liabilities, net of effects of acquisition:
 
 
 
Trade accounts receivable
21

 
42

Other accounts receivable
(6
)
 
(1
)
Inventories
1

 
7

Other current and non-current assets
436

 
(20
)
Other current and non-current liabilities
(601
)
 
32

Trade accounts payable
(1
)
 
33

Income taxes payable
(18
)
 
(466
)
Net cash provided by operating activities
616

 
282

Investing activities:
 
 
 
Acquisition of business
(10
)
 
—

Purchase of property, plant and equipment
(111
)
 
(161
)
Purchase of intangible assets
(5
)
 
(7
)
Proceeds from disposals of property, plant and equipment
1

 
6

Other, net
(3
)
 
—

Net cash used in investing activities
(128
)
 
(162
)
Financing activities:
 
 
 
Repayment of senior unsecured notes
(250
)
 
—

Repurchase of shares of common stock
(243
)
 
(262
)
Cash paid for shares not yet received
(20
)
 
—

Dividends paid
(225
)
 
(213
)
Tax withholdings related to net share settlements of certain stock awards
(13
)
 
—

Proceeds from stock options exercised
13

 
21

Excess tax benefit on stock-based compensation
6

 
16

Deferred financing charges paid
—

 
(1
)
Other, net
—

 
(3
)
Net cash used in financing activities
(732
)
 
(442
)
Cash and cash equivalents — net change from:
 
 
 
Operating, investing and financing activities
(244
)
 
(322
)
Effect of exchange rate changes on cash and cash equivalents
(3
)
 
4

Cash and cash equivalents at beginning of period
366

 
701

Cash and cash equivalents at end of period
$
119

 
$
383

See Note 17 for supplemental cash flow disclosures.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




1.
General
References in this Quarterly Report on Form 10-Q to "DPS" or "the Company" refer to Dr Pepper Snapple Group, Inc. and all entities included in our unaudited condensed consolidated financial statements. Cadbury plc and Cadbury Schweppes plc are hereafter collectively referred to as "Cadbury" unless otherwise indicated. Kraft Foods Inc. acquired Cadbury on February 2, 2010 and on October 1, 2012, Kraft Foods Inc. spun-off its North American grocery business to its shareholders and changed its name to Mondelēz International, Inc. ("Mondelēz").
This Quarterly Report on Form 10-Q refers to some of DPS' owned or licensed trademarks, trade names and service marks, which are referred to as the Company's brands. All of the product names included in this Quarterly Report on Form 10-Q are either DPS' registered trademarks or those of the Company's licensors.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
Use of Estimates
The process of preparing DPS' unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates. The Company has identified the following policies as critical accounting estimates:
•goodwill and other indefinite-lived intangible assets;
•customer marketing programs and incentives;
•revenue recognition;
•pension and postretirement benefits;
•risk management programs; and
•income taxes.
These critical accounting estimates are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2012.
Correction of Prior Period Amounts
Subsequent to the issuance of the Company's 2012 Consolidated Financial Statements, management determined that an error resulted from the Company improperly determining the amount related to purchases of property and equipment included in accounts payable and other current liabilities. As a result, such amounts in the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 have been corrected from the amounts previously reported to properly reflect cash purchases of property and equipment and the net change in operating assets and liabilities.

5
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table reflects the impact of this correction for the nine months ended September 30, 2012 (in millions):
 
For the Nine Months Ended September 30, 2012
 
As previously reported
 
Correction
 
As corrected
Condensed Consolidated Statement of Cash Flows:
 
 
 
 
 
Change in other current and non-current liabilities
$
23

 
$
9

 
$
32

Change in trade accounts payable
24

 
9

 
33

Net cash provided by operating activities
264

 
18

 
282

Purchase of property, plant and equipment
(143
)
 
(18
)
 
(161
)
Net cash used in investing activities
(144
)
 
(18
)
 
(162
)
 
 
 
 
 
 
Note 17 - Supplemental Cash Flow Information:
 
 
 
 
 
Capital expenditures included in accounts payable and other current liabilities
$
60

 
$
(41
)
 
$
19

 
 
 
 
 
 
Note 20 - Guarantor and Non-Guarantor Financial Information:
 
 
 
 
 
Net cash provided by operating activities - Guarantors
$
270

 
$
18

 
$
288

Purchase of property, plant and equipment - Guarantors
(128
)
 
(18
)
 
(146
)
Net cash used in investing activities - Guarantors
(656
)
 
(18
)
 
(674
)

There was no impact on previously reported total cash and cash equivalents, consolidated balance sheets or consolidated statements of operations and comprehensive income.
Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date ("ASU 2013-04"). The amendments in ASU 2013-04 provide guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements from which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. ASU 2013-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not anticipate a material impact to the Company's financial position, results of operations or cash flows as a result of this change.
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The amendments in ASU 2013-11 provide guidance on the financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company will reflect the impact of these amendments beginning with the Company's Quarterly Report on Form 10-Q for the period ending March 31, 2014. The Company does not anticipate a material impact to the Company's financial position, results of operations or cash flows as a result of this change.
Recently Adopted Provisions of U.S. GAAP
In accordance with U.S. GAAP, the following provisions, which had no material impact on the Company's financial position, results of operations or cash flows, were effective as of January 1, 2013:
•The requirement to provide disclosures related to offsetting assets and liabilities, specifically as it relates to offsetting disclosures, wherein an entity must now make separate disclosures regarding the gross assets/liabilities, the offsetting amounts and the net assets/liabilities. Refer to Note 7 for additional information.
•The requirement to present significant amounts reclassified out of Accumulated Other Comprehensive Loss ("AOCL") by the respective line items of net income. Refer to Note 16 for additional information.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



In accordance with U.S. GAAP, the following provision, which had no material impact on the Company's financial position, results of operations or cash flows, was effective as of July 17, 2013:
•The ability to use the Fed Funds Effective Swap Rate as a U.S. benchmark interest rate for hedge accounting purposes under U.S. GAAP.
2.
Acquisition of Dr. Pepper/7-Up Bottling Company of the West
On February 25, 2013, the Company acquired certain assets of Dr. Pepper/7-Up Bottling Company of the West ("DP/7UP West") to strengthen the Company's route to market in the U.S. and support efforts to build and enhance our leading brands. The fair value of the consideration paid for this acquisition was $23 million, consisting of the issuance by the Company of 313,105 shares of common stock to DP/7UP West and the assumption of certain liabilities of DP/7UP West to consummate the transaction. The assumed liabilities of DP/7UP West of $10 million were paid within the nine months ended September 30, 2013. The fair value of the common stock issued was determined using the closing stock price on the acquisition date.
The following table summarizes the preliminary allocation of fair value of the assets acquired and liabilities assumed by major class for the acquisition (in millions):
 
 
Fair Value
 
Useful Life
Property, plant & equipment
 
$
7

 
3 - 40 years
Distribution rights: definite-lived
 
2

 
5 - 15 years
Distribution rights: indefinite-lived
 
10

 
—
Goodwill
 
6

 
—
Current liabilities, net of current assets assumed
 
(2
)
 
—
Total
 
$
23

 
 
The acquisition was accounted for as a business combination, and the identifiable assets acquired and liabilities assumed were recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values was recorded as goodwill.
In connection with this acquisition, the Company recorded goodwill of $6 million, which is not deductible for tax purposes. The Company also recorded $12 million in intangible assets related to distribution rights. DP/7UP West placed 48,603 shares of the Company's common stock in an escrow account to satisfy any working capital adjustments and applicable indemnification claims, pursuant to the terms of the purchase agreement.
The Company has not presented pro forma results of operations for the acquisition because it is not material to the Company's unaudited Condensed Consolidated Financial Statements.
3.
Inventories
Inventories as of September 30, 2013 and December 31, 2012 consisted of the following (in millions):
 
September 30,
 
December 31,
 
2013
 
2012
Raw materials
$
72

 
$
114

Work in process
6

 
5

Finished goods
167

 
151

Inventories at first in first out cost
245

 
270

Reduction to last in first out cost
(49
)
 
(73
)
Inventories
$
196

 
$
197


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Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



4.
Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended September 30, 2013 and the year ended December 31, 2012, by reporting unit, are as follows (in millions):
 
Beverage Concentrates
 
WD Reporting Unit(1)
 
DSD Reporting Unit(1)
 
Latin America Beverages
 
Total
Balance as of January 1, 2012
 
 
 
 
 
 
 
 
 
Goodwill
$
1,732

 
$
1,220

 
$
180

 
$
28

 
$
3,160

Accumulated impairment losses
—

 
—

 
(180
)
 
—

 
(180
)
 
1,732

 
1,220

 
—

 
28

 
2,980

Foreign currency impact
—

 
—

 
—

 
3

 
3

Balance as of December 31, 2012
 
 
 
 
 
 
 
 
 
Goodwill
1,732

 
1,220

 
180

 
31

 
3,163

Accumulated impairment losses
—

 
—

 
(180
)
 
—

 
(180
)
 
1,732

 
1,220

 
—

 
31

 
2,983

Foreign currency impact
—

 
—

 
—

 
(1
)
 
(1
)
Acquisition activity (2)
—

 
—

 
6

 
—

 
6

Balance as of September 30, 2013
 
 
 
 
 
 
 
 
 
Goodwill
1,732

 
1,220

 
186

 
30

 
3,168

Accumulated impairment losses
—

 
—

 
(180
)
 
—

 
(180
)
 
$
1,732

 
$
1,220

 
$
6

 
$
30

 
$
2,988

____________________________
(1)
The Packaged Beverages segment is comprised of two reporting units, the Direct Store Delivery ("DSD") system and the Warehouse Direct ("WD") system.
(2)
The acquisition activity represents the goodwill associated with the purchase of DP/7UP West. See Note 2 for further information related to the acquisition.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The net carrying amounts of intangible assets other than goodwill as of September 30, 2013 and December 31, 2012 are as follows (in millions):
 
September 30, 2013
 
December 31, 2012
 
Gross
 
Accumulated
 
Net
 
Gross
 
Accumulated
 
Net
 
Amount
 
Amortization
 
Amount
 
Amount
 
Amortization
 
Amount
Intangible assets with indefinite lives:
 
 
 
 
 
 
 
 
 
 
 
Brands(1)
$
2,651

 
$
—

 
$
2,651

 
$
2,652

 
$
—

 
$
2,652

Distribution rights(2)
24

 
—

 
24

 
14

 
—

 
14

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Brands
29

 
(26
)
 
3

 
29

 
(25
)
 
4

Distribution rights(2)(3)
12

 
(2
)
 
10

 
5

 
(1
)
 
4

Customer relationships
76

 
(69
)
 
7

 
76

 
(67
)
 
9

Bottler agreements
19

 
(18
)
 
1

 
19

 
(18
)
 
1

Total
$
2,811

 
$
(115
)
 
$
2,696

 
$
2,795

 
$
(111
)
 
$
2,684

____________________________
(1)
In 2013, brands with indefinite lives decreased due to a $1 million change in foreign currency translation.
(2)
In 2013, distribution rights included $10 million and $2 million in indefinite-lived and finite-lived distribution rights, respectively, associated with the purchase of DP/7UP West. See Note 2 for further information related to the acquisition.
(3)
In 2013, distribution rights also included the reacquired distribution rights for Snapple and several other non-carbonated beverage brands in parts of the Asia-Pacific region from Mondelēz.
As of September 30, 2013, the weighted average useful life of intangible assets with finite lives was 10 years in total, consisting of 10 years for distribution rights, brands and customer relationships and 14 years for bottler agreements. Amortization expense for intangible assets was $1 million and $4 million for the three and nine months ended September 30, 2013 and 2012, respectively.
Amortization expense of these intangible assets over the remainder of 2013 and the next four years is expected to be the following (in millions):
Year
Aggregate Amortization Expense
October 1, 2013 through December 31, 2013
$
2

2014
6

2015
6

2016
3

2017
—

The Company conducts impairment tests on goodwill and all indefinite-lived intangible assets annually or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. DPS did not identify any circumstances that indicated that the carrying amount of any goodwill or any indefinite-lived intangible asset may not be recoverable as of September 30, 2013.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



5.
Other Current Liabilities
Other current liabilities consisted of the following as of September 30, 2013 and December 31, 2012 (in millions):
 
September 30,
 
December 31,
 
2013
 
2012
Customer rebates and incentives
$
199

 
$
226

Accrued compensation
94

 
105

Insurance liability
54

 
43

Interest accrual and interest rate swap liability
40

 
27

Dividends payable
77

 
70

Other
134

 
118

Total other current liabilities
$
598

 
$
589

6.
Debt
The following table summarizes the Company's long-term obligations as of September 30, 2013 and December 31, 2012 (in millions):
 
September 30,
 
December 31,
 
2013
 
2012
Senior unsecured notes(1)
$
2,465

 
$
2,748

Revolving credit facility
—

 
—

Capital lease obligations
57

 
56

Subtotal
2,522

 
2,804

Less — current portion
(1
)
 
(250
)
Long-term obligations
$
2,521

 
$
2,554

____________________________
(1)
The carrying amount includes the unamortized net discount on debt issuances and adjustments of $6 million and $29 million as of September 30, 2013 and December 31, 2012, respectively, related to the change in the fair value of interest rate swaps designated as fair value hedges or the unamortized value of de-designated fair value hedges. See Note 7 for further information regarding derivatives.

The following table summarizes the Company's short-term borrowings and current portion of long-term obligations as of September 30, 2013 and December 31, 2012 (in millions):
 
September 30,
 
December 31,
 
2013
 
2012
Current portion of long-term obligations(1)
$
1

 
$
250

Short-term borrowings and current portion of long-term obligations
$
1

 
$
250

_________________________
(1)
Capital lease obligations, primarily related to manufacturing facilities, totaled $57 million as of September 30, 2013 and December 31, 2012. Current obligations related to these capital leases were $1 million as of September 30, 2013 and December 31, 2012. The current obligation as of December 31, 2012 was included as a component of other current liabilities. 
As of September 30, 2013, the Company was in compliance with all financial covenant requirements relating to its unsecured credit agreement.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



SENIOR UNSECURED NOTES 
The Company's senior unsecured notes consisted of the following (in millions):
 
 
 
 
 
 
Principal Amount
 
Carrying Amount
 
 
 
 
 
 
September 30,
 
September 30,
 
December 31,
Issuance
 
Maturity Date
 
Rate
 
2013
 
2013
 
2012
2013 Notes(1)
 
May 1, 2013
 
6.12%
 
$
—

 
$
—

 
$
250

2016 Notes
 
January 15, 2016
 
2.90%
 
500

 
500

 
500

2018 Notes
 
May 1, 2018
 
6.82%
 
724

 
724

 
724

2019 Notes
 
January 15, 2019
 
2.60%
 
250

 
249

 
253

2020 Notes
 
January 15, 2020
 
2.00%
 
250

 
243

 
247

2021 Notes
 
November 15, 2021
 
3.20%
 
250

 
244

 
254

2022 Notes
 
November 15, 2022
 
2.70%
 
250

 
249

 
249

2038 Notes
 
May 1, 2038
 
7.45%
 
250

 
256

 
271

 
 
 
 
 
 
$
2,474

 
$
2,465

 
$
2,748

_________________________
(1)
The repayment of the 2013 Notes occurred on May 1, 2013 at maturity.
COMMERCIAL PAPER PROGRAM
On December 10, 2010, the Company entered into a commercial paper program under which the Company may issue unsecured commercial paper notes (the "Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $500 million. The program is supported by the Revolver, which is discussed below. Outstanding Commercial Paper reduces the amount of borrowing capacity available under the Revolver and outstanding amounts under the Revolver reduce the Commercial Paper availability. As of September 30, 2013 and December 31, 2012, the Company had no outstanding Commercial Paper.
UNSECURED CREDIT AGREEMENT
The following table provides amounts utilized and available under the $500 million revolving line of credit (the "Revolver") and each sublimit arrangement type as of September 30, 2013 (in millions):
 
Amount Utilized
 
Balances Available
Revolver
$
—

 
$
498

Letters of credit
2

 
73

Swingline advances
—

 
50

An unused commitment fee is payable quarterly to the lenders on the unused portion of the commitments of the Revolver equal to 0.08% to 0.20% per annum, depending upon the Company's debt ratings. There were no significant unused commitment fees incurred during the three and nine months ended September 30, 2013 and 2012. 
SHELF REGISTRATION STATEMENT
On February 7, 2013, the Company's Board of Directors (the "Board") authorized the Company to issue up to $1,500 million of securities from time to time. Subsequently, the Company filed a "well-known seasoned issuer" shelf registration statement with the Securities and Exchange Commission, effective May 23, 2013, which registers an indeterminable amount of securities for future sales. As of September 30, 2013, the Company had not issued any securities under this shelf registration statement.
INCREMENTAL LETTERS OF CREDIT FACILITIES
In addition to the portion of the Revolver reserved for issuance of letters of credit, the Company has incremental letters of credit facilities. Under these facilities, $90 million is available for the issuance of letters of credit, $58 million of which was utilized as of September 30, 2013 and $32 million of which remains available for use.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



7.
Derivatives
DPS is exposed to market risks arising from adverse changes in:
•interest rates;
•foreign exchange rates; and
•commodity prices affecting the cost of raw materials and fuels.
The Company manages these risks through a variety of strategies, including the use of interest rate contracts, foreign exchange forward contracts, commodity forward and future contracts and supplier pricing agreements. DPS does not hold or issue derivative financial instruments for trading or speculative purposes.
The Company formally designates and accounts for certain interest rate contracts and foreign exchange forward contracts that meet established accounting criteria under U.S. GAAP as either fair value or cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in AOCL, a component of Stockholders' Equity in the unaudited Condensed Consolidated Balance Sheets. When net income is affected by the variability of the underlying transaction, the applicable offsetting amount of the gain or loss from the derivative instrument deferred in AOCL is reclassified to net income and is reported as a component of the unaudited Condensed Consolidated Statements of Income. For derivative instruments that are designated and qualify as fair value hedges, the effective change in the fair value of the instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized immediately in current-period earnings. For derivatives that are not designated or are de-designated as a hedging instrument, the gain or loss on the instrument is recognized in earnings in the period of change.
Certain interest rate contracts qualify for the "shortcut" method of accounting for hedges under U.S. GAAP. Under the shortcut method, the hedges are assumed to be perfectly effective and no ineffectiveness is recorded in earnings. For all other designated hedges, the Company assesses whether the derivative instrument is effective in offsetting the changes in fair value or variability of cash flows at the inception of the derivative contract. DPS measures hedge ineffectiveness on a quarterly basis throughout the designated period. Changes in the fair value of the derivative instrument that do not effectively offset changes in the fair value of the underlying hedged item throughout the designated hedge period are recorded in earnings each period.
If a fair value or cash flow hedge were to cease to qualify for hedge accounting, or were terminated, the derivatives would continue to be carried on the balance sheet at fair value until settled and hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCL would be reclassified to earnings at that time.
INTEREST RATES 
Cash Flow Hedges
During the second and third quarter of 2011, the Company entered into forward starting swap agreements with an aggregate notional value of $300 million in order to fix the rate for a portion of a future seven and ten year unsecured debt issuance in 2012. These forward starting swaps were unwound during the fourth quarter of 2012 in connection with the Company's issuance of the 2020 and 2022 Notes. Upon termination, the Company paid $49 million to the counterparties, which is being amortized to interest expense over the term of the issued debt.
The effective portion of changes in the fair value of the derivative that is designated as a cash flow hedge is being recorded in AOCL and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Ineffectiveness, if any, related to the Company's changes in estimates about the debt issuance related to the forward starting swap would be recognized directly in earnings as a component of interest expense during the period incurred. 
Fair Value Hedges
The Company is exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates and manages these risks through the use of receive-fixed, pay-variable interest rate swaps.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In December 2010, the Company entered into an interest rate swap having a notional amount of $100 million and maturing in May 2038 in order to effectively convert a portion of the 2038 Notes from fixed-rate debt to floating-rate debt and designated it as a fair value hedge. The assessment of hedge effectiveness is made by comparing the cumulative change in the fair value of the hedged item attributable to changes in the benchmark interest rate with the cumulative changes in the fair value of the interest rate swap, with any ineffectiveness recorded in earnings as interest expense during the period incurred. As of September 30, 2013 and December 31, 2012, the impact of the fair value hedge on the 2038 Notes increased the carrying value by $7 million and $22 million, respectively.
In November 2011, the Company entered into four interest rate swaps having an aggregate notional amount of $250 million and durations ranging from seven to ten years in order to convert fixed-rate, long-term debt to floating rate debt. These swaps were entered into upon the issuance of the 2019 and 2021 Notes, and were accounted for as fair value hedges and qualified for the shortcut method of accounting under U.S. GAAP. As of September 30, 2013 and December 31, 2012, the impact of the fair value hedge on the 2019 and 2021 Notes decreased the carrying value by $7 million and increased the carrying value by $8 million, respectively.
In November 2012, the Company entered into five interest rate swaps having an aggregate notional amount of $120 million and maturing in January 2020 in order to effectively convert fixed-rate, long-term debt to floating rate debt. These swaps were entered into upon the issuance of the 2020 Notes, and were accounted for as fair value hedges and qualified for the shortcut method of accounting under U.S. GAAP. As of September 30, 2013 and December 31, 2012, the impact of the fair value hedge on the 2020 Notes decreased the carrying value by $6 million and $1 million, respectively.
FOREIGN EXCHANGE
Cash Flow Hedges
The Company's Canadian business purchases its inventory through transactions denominated and settled in U.S. Dollars, a currency different from the functional currency of the Canadian business. These inventory purchases are subject to exposure from movements in exchange rates. During the nine months ended September 30, 2013 and 2012, the Company utilized foreign exchange forward contracts designated as cash flow hedges to manage the exposures resulting from changes in these foreign currency exchange rates. The intent of these foreign exchange contracts is to provide predictability in the Company's overall cost structure. These foreign exchange contracts, carried at fair value, have maturities between one and 15 months as of September 30, 2013. The Company had outstanding foreign exchange forward contracts with notional amounts of $56 million and $90 million as of September 30, 2013 and December 31, 2012, respectively.
COMMODITIES
Economic Hedges
DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through forward and future contracts. The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure. During the nine months ended September 30, 2013 and 2012, the Company held forward and future contracts that economically hedged certain of its risks. In these cases, a natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in net income throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's operating profit ("SOP"). The total notional values of derivatives related to economic hedges of this type were $223 million and $125 million as of September 30, 2013 and December 31, 2012, respectively.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

FAIR VALUE OF DERIVATIVE INSTRUMENTS
The following table summarizes the location of the fair value of the Company's derivative instruments within the unaudited Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (in millions):
 
Balance Sheet Location
 
September 30,
2013
 
December 31,
2012
Assets:
 
 
 
 
 
Derivative instruments designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Interest rate contracts(1)
Prepaid expenses and other current assets
 
$
13

 
$
11

Foreign exchange forward contracts
Prepaid expenses and other current assets
 
1

 
—

Interest rate contracts
Other non-current assets
 
2

 
24

Foreign exchange forward contracts
Other non-current assets
 
1

 
—

Derivative instruments not designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Commodity contracts
Prepaid expenses and other current assets
 
—

 
3

Commodity contracts
Other non-current assets
 
—

 
2

Total assets
 
 
$
17

 
$
40

Liabilities:
 
 
 
 
 
Derivative instruments designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Interest rate contracts
Other current liabilities
 
$
—

 
$
1

Foreign exchange forward contracts
Other current liabilities
 
—

 
2

Interest rate contracts
Other non-current liabilities
 
18

 
2

Derivative instruments not designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Commodity contracts
Other current liabilities
 
9

 
1

Total liabilities
 
 
$
27

 
$
6

____________________________
(1)
Interest rate contracts as of September 30, 2013 include gross and offsetting amounts of $15 million and $2 million, respectively. Interest rate contracts as of December 31, 2012 include gross and offsetting amounts of $12 million and $1 million, respectively. These contracts are subject to a netting provision included within the counterparty agreements whereby the Company pays interest either quarterly or semi-annually and receives interest payments semi-annually. These payables and receivables are netted as appropriate.



14
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

IMPACT OF CASH FLOW HEDGES
The following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
Amount of Gain (Loss) Recognized in Comprehensive Income
 
Amount of Loss Reclassified from AOCL into Income
 
Location of Loss Reclassified from AOCL into Income
For the three months ended September 30, 2013:
 
 
 
 
 
Interest rate contracts
$
—

 
$
(2
)
 
Interest expense
Foreign exchange forward contracts
(2
)
 
(1
)
 
Cost of sales
Total
$
(2
)
 
$
(3
)
 
 
 
 
 
 
 
 
For the nine months ended September 30, 2013:
 
 
 
 
 
Interest rate contracts
$
—

 
$
(6
)
 
Interest expense
Foreign exchange forward contracts
2

 
(1
)
 
Cost of sales
Total
$
2

 
$
(7
)
 
 
 
 
 
 
 
 
For the three months ended September 30, 2012:
 
 
 
 
 
Interest rate contracts
$
(5
)
 
$
(1
)
 
Interest expense
Foreign exchange forward contracts
(4
)
 
—

 
Cost of sales
Total
$
(9
)
 
$
(1
)
 
 
 
 
 
 
 
 
For the nine months ended September 30, 2012:
 
 
 
 
 
Interest rate contracts
$
(16
)
 
$
(2
)
 
Interest expense
Foreign exchange forward contracts
(4
)
 
(1
)
 
Cost of sales
Total
$
(20
)
 
$
(3
)
 
 
There was no hedge ineffectiveness recognized in earnings for the three and nine months ended September 30, 2013 and 2012 with respect to derivative instruments designated as cash flow hedges. During the next 12 months, the Company expects to reclassify net losses of $6 million from AOCL into net income.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

IMPACT OF FAIR VALUE HEDGES
The following table presents the impact of derivative instruments designated as fair value hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
 
Amount of Gain
 
Location of Gain
 
 
Recognized in Income
 
Recognized in Income
For the three months ended September 30, 2013:
 
 
 
 
Interest rate contracts
 
$
2

 
Interest expense
Total
 
$
2

 
 
 
 
 
 
 
For the nine months ended September 30, 2013:
 
 
 
 
Interest rate contracts
 
$
7

 
Interest expense
Total
 
$
7

 
 
 
 
 
 
 
For the three months ended September 30, 2012:
 
 
 
 
Interest rate contracts(1)
 
$
3

 
Interest expense
Total
 
$
3

 
 
 
 
 
 
 
For the nine months ended September 30, 2012:
 
 
 
 
Interest rate contracts(1)
 
$
8

 
Interest expense
Total
 
$
8

 
 
____________________________
(1)
The gain recognized in interest expense included amortization of the adjustment to the carrying value of the 2012 Notes as a result of the de-designation of those Notes in 2010. For the three and nine months ended September 30, 2012, the amortization of this adjustment was $1 million and $2 million, respectively.
There was no hedge ineffectiveness recognized in earnings with respect to derivative instruments designated as fair value hedges for the three months ended September 30, 2013. For the nine months ended September 30, 2013, $2 million of hedge ineffectiveness was recognized in earnings with respect to derivative instruments designated as fair value hedges. For the three and nine months ended September 30, 2012, there was a $1 million benefit due to hedge ineffectiveness recognized in earnings for the period.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

IMPACT OF ECONOMIC HEDGES
The following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
 
Amount of Gain (Loss)
 
Location of Gain (Loss)
 
 
Recognized in Income
 
Recognized in Income
For the three months ended September 30, 2013:
 
 
 
 
Commodity contracts(1)
 
$
(2
)
 
Cost of sales
Commodity contracts(1)
 
—

 
SG&A expenses
Total
 
$
(2
)
 
 
 
 
 
 
 
For the nine months ended September 30, 2013:
 
 
 
 
Commodity contracts(1)
 
$
(17
)
 
Cost of sales
Commodity contracts(1)
 
—

 
SG&A expenses
Total
 
$
(17
)
 
 
 
 
 
 
 
For the three months ended September 30, 2012:
 
 
 
 
Commodity contracts(1)
 
$
10

 
Cost of sales
Commodity contracts(1)
 
4

 
SG&A expenses
Total
 
$
14

 
 
 
 
 
 
 
For the nine months ended September 30, 2012:
 
 
 
 
Commodity contracts(1)
 
$
3

 
Cost of sales
Commodity contracts(1)
 
3

 
SG&A expenses
Total
 
$
6

 
 
____________________________
(1)
Commodity contracts include both realized and unrealized gains and losses.
Refer to Note 11 for additional information on the valuation of derivative instruments. The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, DPS has not experienced credit losses as a result of counterparty nonperformance. The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programs at least on a quarterly basis.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



8.
Other Non-Current Assets and Other Non-Current Liabilities
The table below details the components of other non-current assets and other non-current liabilities as of September 30, 2013 and December 31, 2012 (in millions):
 
September 30,
 
December 31,
 
2013
 
2012
Other non-current assets:
 
 
 
Long-term receivables from Mondelēz
$
—

 
$
439

Deferred financing costs, net
12

 
13

Customer incentive programs
58

 
63

Marketable securities - trading
19

 
—

Derivative instruments
3

 
26

Other
37

 
39

Total other non-current assets
$
129

 
$
580

Other non-current liabilities:
 
 
 
Long-term payables due to Mondelēz
$
48

 
$
98

Liabilities for unrecognized tax benefits and other tax related items
17

 
574

Long-term pension and post-retirement liability
46

 
55

Insurance liability
88

 
77

Derivative instruments
18

 
2

Other
48

 
40

Total other non-current liabilities
$
265

 
$
846

Refer to Note 10 for additional information on the change in long-term receivables from Mondelēz.
9.
Income Taxes
The effective tax rates for the three months ended September 30, 2013 and 2012 were 231.8% and 36.3%, respectively. The effective tax rates for the nine months ended September 30, 2013 and 2012 were (53.1)% and 35.8%, respectively. The primary reason for the changes in the tax rates was the conclusion of an Internal Revenue Service ("IRS") audit as described below.
Due to the completion of the IRS audit for the Company's 2006-2008 federal income tax returns, DPS recognized an income tax benefit of $463 million primarily related to decreasing its liability for unrecognized tax benefits. Refer to Note 10 for additional information on the indemnity impact related to the conclusion of the IRS audit. This impact changed the Company's effective tax rate by 195.5% and 89.1% for the three and nine months ended September 30, 2013, respectively. Additionally, the gross balance of unrecognized tax benefits decreased $458 million primarily as a result of the completion of the audit.

18
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



10 . Other Expense (Income), Net
The table below details the components of other expense (income), net for the three and nine months ended September 30, 2013 and 2012 is as follows (in millions):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Indemnity expense (income) from Mondelēz
$
430

 
$
(2
)
 
$
387

 
$
(6
)
Other
(2
)
 
(2
)
 
(3
)
 
(2
)
Other expense (income), net
$
428

 
$
(4
)
 
$
384

 
$
(8
)
The Company has historically recorded indemnification income from Mondelēz under the Tax Sharing and Indemnification Agreement ("Tax Indemnity Agreement") as other expense (income), net in the unaudited Condensed Consolidated Statements of Income. During the three months ended September 30, 2013, the IRS concluded an audit which included separation-related items and, as a result, the Company recognized $430 million of other expense, net, as DPS no longer anticipates collecting amounts from Mondelēz. For the nine months ended September 30, 2013, this amount was partially offset by a $38 million non-cash reduction of the Company's long-term liability to Mondelēz as a result of a bill enacted by the Canadian government which reduced amounts amortized for income tax purposes. Refer to Note 9 for additional information on the conclusion of the IRS audit.
11. Fair Value
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy for disclosure of fair value measurements is as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 - Valuations with one or more unobservable significant inputs that reflect the reporting entity's own assumptions.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



RECURRING FAIR VALUE MEASUREMENTS
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 (in millions):
 
Fair Value Measurements at September 30, 2013
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
 
Level 1
 
Level 2
 
Level 3
Interest rate contracts
$
—

 
$
15

 
$
—

Foreign exchange forward contracts
—

 
2

 
—

Marketable securities - trading
19

 
—

 
—

Total assets
$
19

 
$
17

 
$
—

 
 
 
 
 
 
Commodity contracts
$
—

 
$
9

 
$
—

Interest rate contracts
—

 
18

 
—

Total liabilities
$
—

 
$
27

 
$
—

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 (in millions):
 
Fair Value Measurements at December 31, 2012
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
 
Level 1
 
Level 2
 
Level 3
Commodity contracts
$
—

 
$
5

 
$
—

Interest rate contracts
—

 
35

 
—

Total assets
$
—

 
$
40

 
$
—

 
 
 
 
 
 
Commodity contracts
$
—

 
$
1

 
$
—

Interest rate contracts
—

 
3

 
—

Foreign exchange forward contracts
—

 
2

 
—

Total liabilities
$
—

 
$
6

 
$
—


The fair values of investments in trading securities are determined using quoted market prices from daily exchange traded markets based on the closing price as of the balance sheet date and were classified as Level 1. The fair values of commodity forward and future contracts, interest rate swap contracts and foreign currency forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity forward and future contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest rate swap contracts are valued using models based primarily on readily observable market parameters, such as LIBOR forward rates, for all substantial terms of the Company's contracts and credit risk of the counterparties. The fair value of foreign currency forward contracts are valued using quoted forward foreign exchange prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.
As of September 30, 2013 and December 31, 2012, the Company did not have any assets or liabilities measured on a recurring basis without observable market values that would require a high level of judgment to determine fair value (Level 3).

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



There were no transfers of financial instruments between the three levels of fair value hierarchy during the three and nine months ended September 30, 2013.
ESTIMATED FAIR VALUE OF LONG-TERM OBLIGATIONS
The estimated fair values of long-term obligations as of September 30, 2013 and December 31, 2012, are as follows (in millions):
 
September 30, 2013
 
December 31, 2012
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt – 2013 Notes(1)
$
—

 
$
—

 
$
250

 
$
255

Long-term debt – 2016 Notes
500

 
521

 
500

 
528

Long-term debt – 2018 Notes
724

 
868

 
724

 
919

Long-term debt – 2019 Notes(2)
249

 
254

 
253

 
256

Long-term debt – 2020 Notes(2)
243

 
237

 
247

 
245

Long-term debt – 2021 Notes(2)
244

 
245

 
254

 
253

Long-term debt – 2022 Notes(2)
249

 
232

 
249

 
250

Long-term debt – 2038 Notes(2)
256

 
321

 
271

 
366

____________________________
(1)
The repayment of the 2013 Notes occurred on May 1, 2013 at maturity.
(2)
The carrying amount includes the unamortized discounts on the issuance of debt and adjustments related to the change in the fair value of interest rate swaps designated as fair value hedges on the 2019, 2020, 2021 and 2038 Notes. Refer to Note 7 for additional information regarding derivatives. 

Capital leases have been excluded from the calculation of fair value for both 2013 and 2012.
The fair value amounts of long term debt as of September 30, 2013 and December 31, 2012, were based on current market rates available to the Company (Level 2 inputs). The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all debt at such date.
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value amounts for cash and cash equivalents, accounts receivable, net, commercial paper, accounts payable and other current liabilities approximate carrying amounts due to the short maturities of these instruments.
12.
Employee Benefit Plans
The following table sets forth the components of net periodic benefit costs for the Company's pension plans for the three and nine months ended September 30, 2013 and 2012 (in millions):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Service cost
$
1

 
$
—

 
$
2

 
$
2

Interest cost
3

 
3

 
9

 
10

Expected return on assets
(3
)
 
(4
)
 
(11
)
 
(12
)
Recognition of actuarial loss
1

 
1

 
4

 
3

Settlement loss
1

 
—

 
3

 
—

Net periodic benefit costs
$
3

 
$
—

 
$
7

 
$
3


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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Net periodic benefit costs for the U.S. post-retirement medical plans were reduced by $1 million for the nine months ended September 30, 2013. There were no significant net periodic benefit costs incurred for the U.S. post-retirement medical plans during the three months ended September 30, 2013. Net periodic benefit costs for the U.S. post-retirement medical plans were a reduction of $2 million and $3 million for the three and nine months ended September 30, 2012, respectively.
The Company contributed $1 million to its pension plans during the nine months ended September 30, 2013. There were no contributions made during the three months ended September 30, 2013.
During the second quarter of 2013, the Company recognized a withdrawal liability for one of the collective bargaining units under a multiemployer plan. As a result of this action, the Company recognized additional expense of $1 million for the nine months ended September 30, 2013.
13. Stock-Based Compensation
The Company's Omnibus Stock Incentive Plans of 2008 and 2009 (collectively, the "DPS Stock Plans") provide for various long-term incentive awards, including stock options, restricted stock units ("RSUs") and performance share units ("PSUs").
Stock-based compensation expense is recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense for the three and nine months ended September 30, 2013 and 2012 are presented below (in millions):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Total stock-based compensation expense
$
9

 
$
9

 
$
28

 
$
26

Income tax benefit recognized in the income statement
(3
)
 
(2
)
 
(9
)
 
(8
)
Stock-based compensation expense, net of tax
$
6

 
$
7

 
$
19

 
$
18

STOCK OPTIONS
The table below summarizes stock option activity for the nine months ended September 30, 2013:
 
Stock Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2013
2,001,908

 
$
34.07

 
7.95
 
$
20

Granted
580,184

 
43.82

 
 
 
 
Exercised
(438,251
)
 
29.58

 
 
 
8

Forfeited or expired
(49,176
)
 
40.52

 
 
 
 
Outstanding as of September 30, 2013
2,094,665

 
37.56

 
7.90
 
15

Exercisable as of September 30, 2013
877,525

 
33.91

 
6.90
 
10

As of September 30, 2013, there was $6 million of unrecognized compensation cost related to unvested stock options granted under the DPS Stock Plans that is expected to be recognized over a weighted average period of 1.07 years.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

RESTRICTED STOCK UNITS AND PERFORMANCE SHARE UNITS     
The table below summarizes RSU and PSU activity for the nine months ended September 30, 2013. The fair value of restricted stock units is determined based on the number of units granted and the grant date price of common stock.
 
RSUs/PSUs
 
Weighted Average Grant Date Fair Value
 
Weighted Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2013
2,685,116

 
$
35.52

 
1.23
 
$
119

Granted
873,243

 
43.83

 
 
 
 
Vested and released
(836,754
)
 
31.99

 
 
 
 
Forfeited
(127,737
)
 
39.29

 
 
 
 
Outstanding as of September 30, 2013
2,593,868

 
39.27

 
1.39
 
116

As of September 30, 2013, there was $51 million of unrecognized compensation cost related to unvested RSUs and PSUs granted under the DPS Stock Plans that is expected to be recognized over a weighted average period of 1.42 years.
During the nine months ended September 30, 2013, 836,754 shares subject to previously granted RSUs vested. A majority of these vested stock awards were net share settled. The Company withheld 263,069 shares based upon the Company's closing stock price on the vesting date to settle the employees' minimum statutory obligation for the applicable income and other employment taxes. Subsequently, the Company remitted the required funds to the appropriate taxing authorities.
Total payments for the employees' tax obligations to the relevant taxing authorities were $13 million for the nine months ended September 30, 2013 and are reflected as a financing activity within the consolidated statements of cash flows. The payments were used for tax withholdings related to the net share settlements of RSUs, PSUs and dividend equivalent units. The payments had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued on the vesting date and were recorded as a reduction of additional paid-in capital.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



14.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities. The following table presents the basic and diluted EPS and the Company's basic and diluted shares outstanding for the three and nine months ended September 30, 2013 and 2012 (in millions, except per share data):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Basic EPS:
 
 
 
 
 
 
 
Net income
$
207

 
$
179

 
$
468

 
$
459

Weighted average common shares outstanding
203.3

 
210.4

 
204.0

 
211.6

Earnings per common share — basic
$
1.02

 
$
0.85

 
$
2.29

 
$
2.17

Diluted EPS:
 
 
 
 
 
 
 
Net income
$
207

 
$
179

 
$
468

 
$
459

Weighted average common shares outstanding
203.3

 
210.4

 
204.0

 
211.6

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, RSUs, PSUs and dividend equivalent units
1.4

 
1.6

 
1.5

 
1.7

Weighted average common shares outstanding and common stock equivalents
204.7

 
212.0

 
205.5

 
213.3

Earnings per common share — diluted
$
1.01

 
$
0.84

 
$
2.28

 
$
2.15

Stock options, RSUs, PSUs and dividend equivalent units totaling 0.4 million and 0.5 million shares were excluded from the diluted weighted average shares outstanding for the three and nine months ended September 30, 2013 and 2012, respectively, as they were not dilutive. Shares to be repurchased under prepaid forward contracts are still considered issued and outstanding and will not be used to reduce the number of weighted average basic and diluted shares outstanding for the three and nine months ended September 30, 2013.
Under the terms of our RSU agreements, unvested RSU awards contain forfeitable rights to dividends and dividend equivalent units. Because the dividend equivalent units are forfeitable, they are defined as non-participating securities. As of September 30, 2013, there were 127,918 dividend equivalent units, which will vest at the time that the underlying RSU vests.
During 2009, 2010 and 2011, the Board authorized a total aggregate share repurchase plan of $3 billion. The Company repurchased and retired 2.6 million shares of common stock valued at approximately $117 million and 5.4 million shares of common stock valued at approximately $243 million for the three and nine months ended September 30, 2013, respectively. The Company repurchased and retired 2.5 million shares of common stock valued at approximately $110 million and 6.3 million shares of common stock valued at approximately $262 million for the three and nine months ended September 30, 2012, respectively. These amounts were recorded as a reduction of equity, primarily additional paid-in capital. As of September 30, 2013, $730 million remains available for share repurchase under the Board authorization.
15. Commitments and Contingencies

LEGAL MATTERS
The Company is occasionally subject to litigation or other legal proceedings as set forth below. The Company does not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on the results of operations, financial condition or liquidity of the Company.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Robert M. Ward, et al. v. The American Bottling Company
In March 2009, Robert M. Ward, et al., as plaintiffs, commenced litigation in the U.S. District Court, Central District of California, Western Division alleging age discrimination against Cadbury Schweppes Bottling Group, Inc. (now The American Bottling Company), et al., as defendants. The defendants are subsidiaries of the Company. The complaint related to activities which principally occurred before the Company's spin off from Cadbury in 2008. On December 7, 2011, the jury returned a verdict in favor of the six plaintiffs and awarded damages of approximately $18 million. On June 25, 2012, the Company filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit regarding the judgment and denial of defendants' motions. During the third quarter of 2013, the Company agreed to settlements with five of the six plaintiffs, which reduced the litigation reserve to $12 million as of September 30, 2013.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company operates many manufacturing, bottling and distribution facilities. In these and other aspects of the Company's business, it is subject to a variety of federal, state and local environmental, health and safety laws and regulations. The Company maintains environmental, health and safety policies and a quality, environmental, health and safety program designed to ensure compliance with applicable laws and regulations. However, the nature of the Company's business exposes it to the risk of claims with respect to environmental, health and safety matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims.
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as the Superfund law, as well as similar state laws, generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. In October 2008, DPS was notified by the Environmental Protection Agency that it is a potentially responsible party for study and cleanup costs at a Superfund site in New Jersey. Investigation and remediation costs are yet to be determined, therefore no reasonable estimate exists on which to base a loss accrual. Through September 30, 2013, the Company has paid approximately $550,000 since the notification for DPS' allocation of costs related to the study for this site.
16. Accumulated Other Comprehensive Loss
The following table provides a summary of changes in the balances of each component of AOCL, net of taxes, for the three months ended September 30, 2013 (in millions):
 
Foreign Currency Translation
 
Change in Pension Liability
 
Cash Flow Hedges
 
Accumulated Other Comprehensive Loss
Balance as of July 1, 2013
$
(16
)
 
$
(48
)
 
$
(40
)
 
$
(104
)
OCI before reclassifications
—

 
—

 
(1
)
 
(1
)
Amounts reclassified from AOCL
—

 
1

 
1

 
2

Net current period OCI
—

 
1

 
—

 
1

Balance as of September 30, 2013
$
(16
)
 
$
(47
)
 
$
(40
)
 
$
(103
)

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table provides a summary of changes in the balances of each component of AOCL, net of taxes, for the nine months ended September 30, 2013 and the year ended December 31, 2012 (in millions):
 
Foreign Currency Translation
 
Change in Pension Liability
 
Cash Flow Hedges
 
Accumulated Other Comprehensive Loss
Balance as of January 1, 2012
$
(27
)
 
$
(48
)
 
$
(35
)
 
$
(110
)
Current year OCI
19

 
(8
)
 
(11
)
 
—

Balance as of December 31, 2012
(8
)
 
(56
)
 
(46
)
 
(110
)
OCI before reclassifications
(8
)
 
5

 
3

 
—

Amounts reclassified from AOCL
—

 
4

 
3

 
7

Net current year OCI
(8
)
 
9

 
6

 
7

Balance as of September 30, 2013
$
(16
)
 
$
(47
)
 
$
(40
)
 
$
(103
)
The following table presents the amount of loss reclassified from AOCL into the unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2013 (in millions):
 
 
 
For the
 
For the
 
 
 
Three Months Ended
 
Nine Months Ended
 
Location of Loss Reclassified from AOCL into Income
 
September 30, 2013
 
September 30, 2013
Loss on cash flow hedges:
 
 
 
 
 
Interest rate contracts
Interest expense
 
$
(2
)
 
$
(6
)
Foreign exchange forward contracts
Cost of sales
 
(1
)
 
(1
)
Total
 
 
(3
)
 
(7
)
Income tax expense
 
 
(2
)
 
(4
)
Total
 
 
$
(1
)
 
$
(3
)
 
 
 
 
 
 
Defined benefit pension and postretirement plan items:
 
 
 
 
 
Amortization of prior service costs
Selling, General and Administrative Expenses
 
$
—

 
$
1

Amortization of actuarial gains/(losses), net
Selling, General and Administrative Expenses
 
(1
)
 
(4
)
Settlement loss
Selling, General and Administrative Expenses
 
(1
)
 
(3
)
Total
 
 
(2
)
 
(6
)
Income tax expense
 
 
(1
)
 
(2
)
Total
 
 
$
(1
)
 
$
(4
)
 
 
 
 
 
 
Total Reclassifications
 
 
$
(2
)
 
$
(7
)

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



17.
Supplemental Cash Flow Information
The following table details supplemental cash flow disclosures of non-cash investing and financing activities for the nine months ended September 30, 2013 and 2012 (in millions): 
 
For the Nine Months Ended September 30,
 
2013
 
2012
Supplemental cash flow disclosures of non-cash investing and financing activities:
 
 
 
Dividends declared but not yet paid
$
77

 
$
72

Capital expenditures included in accounts payable and other current liabilities
16

 
19

Stock issued for acquisition of business
13

 
—

Capital lease additions
1

 
49

Supplemental cash flow disclosures:
 
 
 
Interest paid
$
69

 
$
68

Income taxes paid
231

 
650

Refer to Note 1 for additional information on the correction of the prior period amounts.
18. Segments
As of September 30, 2013 and 2012, the Company's operating structure consisted of the following three operating segments:
•The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands.
•The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third party brands, through both DSD and WD.
•The Latin America Beverages segment reflects sales in the Mexico and Caribbean markets from the manufacture and distribution of concentrates, syrup and finished beverages.
Segment results are based on management reports. Net sales and SOP are the significant financial measures used to assess the operating performance of the Company's operating segments.

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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Information about the Company's operations by operating segment for the three and nine months ended September 30, 2013 and 2012 is as follows (in millions):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Segment Results – Net sales

 

 
 
 
 
Beverage Concentrates
$
309

 
$
303

 
$
908

 
$
888

Packaged Beverages
1,114

 
1,120

 
3,280

 
3,314

Latin America Beverages
120

 
105

 
346

 
309

Net sales
$
1,543

 
$
1,528

 
$
4,534

 
$
4,511

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Segment Results – SOP
 
 
 
 
 
 
 
Beverage Concentrates
$
201

 
$
198

 
$
560

 
$
552

Packaged Beverages
159

 
147

 
418

 
408

Latin America Beverages
17

 
14

 
45

 
37

Total SOP
377

 
359

 
1,023

 
997

Unallocated corporate costs
75

 
47

 
236

 
189

Other operating expense, net
2

 
4

 
5

 
8

Income from operations
300

 
308

 
782

 
800

Interest expense, net
29

 
31

 
93

 
93

Other expense (income), net
$
428

 
$
(4
)
 
384

 
(8
)
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
$
(157
)
 
$
281

 
$
305

 
$
715

The Company presents segment information in accordance with U.S. GAAP, which establishes reporting and disclosure standards for an enterprise's operating segments. Operating segments are defined as components of an enterprise that are businesses, for which separate financial information is available, and for which the financial information is regularly reviewed by the Company's leadership team.
19. Restructuring Costs
The Company incurred restructuring costs of $7 million during the three months ended September 30, 2013 related to individually insignificant restructuring activities. These charges were recorded in the selling, general and administrative expense line in our unaudited Condensed Consolidated Statements of Income.
The following table summarizes the balance of accrued expenses related to these restructuring activities and the changes in the accrued amounts (in millions):
 
Workforce Reduction Costs
2013 restructuring costs
$
7

Cash payments
(6
)
Balance as of September 30, 2013
$
1


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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



20. Guarantor and Non-Guarantor Financial Information
The Company's 2016, 2018, 2019, 2020, 2021, 2022 and 2038 Notes (collectively, the "Notes") are fully and unconditionally guaranteed by substantially all of the Company's existing and future direct and indirect domestic subsidiaries (except two immaterial subsidiaries associated with charitable purposes) (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are wholly-owned either directly or indirectly by the Company and jointly and severally guarantee the Company's obligations under the Notes. None of the Company's subsidiaries organized outside of the U.S. or immaterial subsidiaries used for charitable purposes (collectively, the "Non-Guarantors") guarantee the Notes.
The following schedules present the financial information for the three and nine months ended September 30, 2013 and 2012, and as of September 30, 2013 and December 31, 2012, for Dr Pepper Snapple Group, Inc. (the "Parent"), Guarantors and Non-Guarantors. The consolidating schedules are provided in accordance with the reporting requirements for guarantor subsidiaries (in millions).
 
Condensed Consolidating Statements of Income
 
For the Three Months Ended September 30, 2013
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,392

 
$
160

 
$
(9
)
 
$
1,543

Cost of sales
—

 
583

 
76

 
(9
)
 
650

Gross profit
—

 
809

 
84

 
—

 
893

Selling, general and administrative expenses
2

 
505

 
56

 
—

 
563

Depreciation and amortization
—

 
27

 
1

 
—

 
28

Other operating expense, net
—

 
2

 
—

 
—

 
2

Income from operations
(2
)
 
275

 
27

 
—

 
300

Interest expense
27

 
22

 
—

 
(20
)
 
29

Interest income
(19
)
 
—

 
(1
)
 
20

 
—

Other expense (income), net
428

 
(1
)
 
1

 
—

 
428

(Loss) income before (benefit) provision for income taxes and equity in earnings of subsidiaries
(438
)
 
254

 
27

 
—

 
(157
)
(Benefit) provision for income taxes
(3
)
 
(373
)
 
12

 
—

 
(364
)
Income (loss) before equity in earnings of subsidiaries
(435
)
 
627

 
15

 
—

 
207

Equity in earnings of consolidated subsidiaries
642

 
15

 
—

 
(657
)
 
—

Equity in earnings of unconsolidated subsidiaries, net of tax
—

 
—

 
—

 
—

 
—

Net income
$
207

 
$
642

 
$
15

 
$
(657
)
 
$
207




29
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Statements of Income
 
For the Three Months Ended September 30, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,388

 
$
146

 
$
(6
)
 
$
1,528

Cost of sales
—

 
569

 
63

 
(6
)
 
626

Gross profit
—

 
819

 
83

 
—

 
902

Selling, general and administrative expenses
—

 
510

 
51

 
—

 
561

Depreciation and amortization
—

 
27

 
2

 
—

 
29

Other operating expense, net
—

 
4

 
—

 
—

 
4

Income from operations
—

 
278

 
30

 
—

 
308

Interest expense
29

 
24

 
—

 
(22
)
 
31

Interest income
(20
)
 
—

 
(2
)
 
22

 
—

Other (income) expense, net
(2
)
 
(2
)
 
—

 
—

 
(4
)
Income (loss) before provision for income taxes and equity in earnings of subsidiaries
(7
)
 
256

 
32

 
—

 
281

Provision for income taxes
(4
)
 
99

 
7

 
—

 
102

Income (loss) before equity in earnings of subsidiaries
(3
)
 
157

 
25

 
—

 
179

Equity in earnings of consolidated subsidiaries
182

 
25

 
—

 
(207
)
 
—

Equity in earnings of unconsolidated subsidiaries, net of tax
—

 
—

 
—

 
—

 
—

Net income
$
179

 
$
182

 
$
25

 
$
(207
)
 
$
179




30
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Statements of Income
 
For the Nine Months Ended September 30, 2013
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
4,091

 
$
468

 
$
(25
)
 
$
4,534

Cost of sales
—

 
1,720

 
221

 
(25
)
 
1,916

Gross profit
—

 
2,371

 
247

 
—

 
2,618

Selling, general and administrative expenses
2

 
1,575

 
168

 
—

 
1,745

Depreciation and amortization
—

 
80

 
6

 
—

 
86

Other operating expense, net
—

 
5

 
—

 
—

 
5

Income from operations
(2
)
 
711

 
73

 
—

 
782

Interest expense
90

 
66

 
—

 
(62
)
 
94

Interest income
(58
)
 
—

 
(5
)
 
62

 
(1
)
Other expense (income), net
384

 
(4
)
 
4

 
—

 
384

(Loss) income before (benefit) provision for income taxes and equity in earnings of subsidiaries
(418
)
 
649

 
74

 
—

 
305

(Benefit) provision for income taxes
(11
)
 
(224
)
 
73

 
—

 
(162
)
Income (loss) before equity in earnings of subsidiaries
(407
)
 
873

 
1

 
—

 
467

Equity in earnings of consolidated subsidiaries
875

 
2

 
—

 
(877
)
 
—

Equity in earnings of unconsolidated subsidiaries, net of tax
—

 
—

 
1

 
—

 
1

Net income
$
468

 
$
875

 
$
2

 
$
(877
)
 
$
468


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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Statements of Income
 
For the Nine Months Ended September 30, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
4,102

 
$
428

 
$
(19
)
 
$
4,511

Cost of sales
—

 
1,721

 
193

 
(19
)
 
1,895

Gross profit
—

 
2,381

 
235

 
—

 
2,616

Selling, general and administrative expenses
—

 
1,559

 
154

 
—

 
1,713

Depreciation and amortization
—

 
90

 
5

 
—

 
95

Other operating expense, net
—

 
8

 
—

 
—

 
8

Income from operations
—

 
724

 
76

 
—

 
800

Interest expense
92

 
67

 
—

 
(65
)
 
94

Interest income
(61
)
 
—

 
(5
)
 
65

 
(1
)
Other (income) expense, net
(8
)
 
(3
)
 
3

 
—

 
(8
)
Income (loss) before provision for income taxes and equity in earnings of subsidiaries
(23
)
 
660

 
78

 
—

 
715

Provision for income taxes
(11
)
 
253

 
14

 
—

 
256

Income (loss) before equity in earnings of subsidiaries
(12
)
 
407

 
64

 
—

 
459

Equity in earnings of consolidated subsidiaries
471

 
64

 
—

 
(535
)
 
—

Equity in earnings of unconsolidated subsidiaries, net of tax
—

 
—

 
—

 
—

 
—

Net income
$
459

 
$
471

 
$
64

 
$
(535
)
 
$
459


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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Statements of Comprehensive Income
 
For the Three Months Ended September 30, 2013
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income (loss)
$
208

 
$
644

 
$
19

 
$
(663
)
 
$
208


 
Condensed Consolidating Statements of Comprehensive Income
 
For the Three Months Ended September 30, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income (loss)
$
186

 
$
195

 
$
43

 
$
(238
)
 
$
186


 
Condensed Consolidating Statements of Comprehensive Income
 
For the Nine Months Ended September 30, 2013
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income (loss)
$
475

 
$
874

 
$
(13
)
 
$
(861
)
 
$
475


 
Condensed Consolidating Statements of Comprehensive Income
 
For the Nine Months Ended September 30, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income (loss)
$
471

 
$
495

 
$
92

 
$
(587
)
 
$
471





33
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Balance Sheets
 
As of September 30, 2013
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
44

 
$
75

 
$
—

 
$
119

Accounts receivable:
 
 
 
 
 
 
 
 
 
Trade, net
—

 
472

 
59

 
—

 
531

Other
4

 
39

 
12

 
—

 
55

Related party receivable
12

 
7

 
—

 
(19
)
 
—

Inventories
—

 
169

 
27

 
—

 
196

Deferred tax assets
—

 
57

 
3

 
—

 
60

Prepaid expenses and other current assets
174

 
87

 
3

 
(166
)
 
98

Total current assets
190

 
875

 
179

 
(185
)
 
1,059

Property, plant and equipment, net
—

 
1,067

 
88

 
—

 
1,155

Investments in consolidated subsidiaries
5,256

 
598

 
—

 
(5,854
)
 
—

Investments in unconsolidated subsidiaries
1

 
—

 
13

 
—

 
14

Goodwill
—

 
2,966

 
22

 
—

 
2,988

Other intangible assets, net
—

 
2,618

 
78

 
—

 
2,696

Long-term receivable, related parties
3,057

 
3,579

 
275

 
(6,911
)
 
—

Other non-current assets
34

 
95

 
—

 
—

 
129

Non-current deferred tax assets
24

 
—

 
88

 
(24
)
 
88

Total assets
$
8,562

 
$
11,798

 
$
743

 
$
(12,974
)
 
$
8,129

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
245

 
$
26

 
$
—

 
$
271

Related party payable
—

 
12

 
7

 
(19
)
 
—

Deferred revenue
—

 
63

 
2

 
—

 
65

Short-term borrowings and current portion of long-term obligations
—

 
1

 
—

 
—

 
1

Income taxes payable
—

 
185

 
2

 
(166
)
 
21

Other current liabilities
125

 
428

 
45

 
—

 
598

Total current liabilities
125

 
934

 
82

 
(185
)
 
956

Long-term obligations to third parties
2,465

 
56

 
—

 
—

 
2,521

Long-term obligations to related parties
3,579

 
3,332

 
—

 
(6,911
)
 
—

Non-current deferred tax liabilities
—

 
765

 
2

 
(24
)
 
743

Non-current deferred revenue
—

 
1,294

 
42

 
—

 
1,336

Other non-current liabilities
85

 
161

 
19

 
—

 
265

Total liabilities
6,254

 
6,542

 
145

 
(7,120
)
 
5,821

Total stockholders' equity
2,308

 
5,256

 
598

 
(5,854
)
 
2,308

Total liabilities and stockholders' equity
$
8,562

 
$
11,798

 
$
743

 
$
(12,974
)
 
$
8,129



34
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Balance Sheets
 
As of December 31, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
257

 
$
109

 
$
—

 
$
366

Accounts receivable:
 
 
 
 
 
 
 
 
 
Trade, net
—

 
498

 
54

 
—

 
552

Other
3

 
36

 
11

 
—

 
50

Related party receivable
12

 
8

 
—

 
(20
)
 
—

Inventories
—

 
171

 
26

 
—

 
197

Deferred tax assets
(1
)
 
63

 
4

 
—

 
66

Prepaid and other current assets
162

 
75

 
21

 
(154
)
 
104

Total current assets
176

 
1,108

 
225

 
(174
)
 
1,335

Property, plant and equipment, net
—

 
1,117

 
85

 
—

 
1,202

Investments in consolidated subsidiaries
4,334

 
611

 
—

 
(4,945
)
 
—

Investments in unconsolidated subsidiaries
1

 
—

 
13

 
—

 
14

Goodwill
—

 
2,961

 
22

 
—

 
2,983

Other intangible assets, net
—

 
2,605

 
79

 
—

 
2,684

Long-term receivable, related parties
2,999

 
2,779

 
204

 
(5,982
)
 
—

Other non-current assets
476

 
97

 
7

 
—

 
580

Non-current deferred tax assets
26

 
—

 
130

 
(26
)
 
130

Total assets
$
8,012

 
$
11,278

 
$
765

 
$
(11,127
)
 
$
8,928

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
253

 
$
30

 
$
—

 
$
283

Related party payable
—

 
12

 
10

 
(22
)
 
—

Deferred revenue
—

 
63

 
2

 
—

 
65

Short-term borrowings and current portion of long-term obligations
250

 
—

 
—

 
—

 
250

Income taxes payable
—

 
198

 
1

 
(154
)
 
45

Other current liabilities
105

 
436

 
46

 
2

 
589

Total current liabilities
355

 
962

 
89

 
(174
)
 
1,232

Long-term obligations to third parties
2,498

 
56

 
—

 
—

 
2,554

Long-term obligations to related parties
2,779

 
3,203

 
—

 
(5,982
)
 
—

Non-current deferred tax liabilities
—

 
653

 
3

 
(26
)
 
630

Non-current deferred revenue
—

 
1,342

 
44

 
—

 
1,386

Other non-current liabilities
100

 
728

 
18

 
—

 
846

Total liabilities
5,732

 
6,944

 
154

 
(6,182
)
 
6,648

Total stockholders' equity
2,280

 
4,334

 
611

 
(4,945
)
 
2,280

Total liabilities and stockholders' equity
$
8,012

 
$
11,278

 
$
765

 
$
(11,127
)
 
$
8,928



35
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Statements of Cash Flows
 
For the Nine Months Ended September 30, 2013
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(60
)
 
$
611

 
$
65

 
$
—

 
$
616

Investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of business
—

 
(10
)
 
—

 
—

 
(10
)
Purchase of property, plant and equipment
—

 
(95
)
 
(16
)
 
—

 
(111
)
Purchase of intangible assets
—

 
(5
)
 
—

 
—

 
(5
)
Proceeds from disposals of property, plant and equipment
—

 
1

 
—

 
—

 
1

Issuance of related party notes receivable
—

 
(551
)
 
(80
)
 
631

 
—

Repayment of related party notes receivable
250

 
—

 
—

 
(250
)
 
—

Other, net
(3
)
 
—

 
—

 
—

 
(3
)
Net cash (used in) provided by investing activities
247

 
(660
)
 
(96
)
 
381

 
(128
)
Financing activities:
 

 
 

 
 

 
 

 
 

Proceeds from issuance of related party long-term debt
551

 
80

 
—

 
(631
)
 
—

Repayment of related party long-term debt
—

 
(250
)
 
—

 
250

 
—

Repurchase of shares of common stock
(243
)
 
—

 
—

 
—

 
(243
)
Cash paid for shares not yet received
(20
)
 
—

 
—

 
—

 
(20
)
Repayment of senior unsecured notes
(250
)
 
—

 
—

 
—

 
(250
)
Tax withholdings related to net share settlements of certain stock awards
(13
)
 
—

 
—

 
—

 
(13
)
Dividends paid
(225
)
 
—

 
—

 
—

 
(225
)
Proceeds from stock options exercised
13

 
—

 
—

 
—

 
13

Excess tax benefit on stock-based compensation
—

 
6

 
—

 
—

 
6

Net cash (used in) provided by financing activities
(187
)
 
(164
)
 
—

 
(381
)
 
(732
)
Cash and cash equivalents — net change from:
 

 
 

 
 

 
 

 
 

Operating, investing and financing activities
—

 
(213
)
 
(31
)
 
—

 
(244
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(3
)
 
—

 
(3
)
Cash and cash equivalents at beginning of period
—

 
257

 
109

 
—

 
366

Cash and cash equivalents at end of period
$
—

 
$
44

 
$
75

 
$
—

 
$
119



36
Table of Contents
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Condensed Consolidating Statements of Cash Flows
 
For the Nine Months Ended September 30, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(92
)
 
$
288

 
$
86

 
$
—

 
$
282

Investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
—

 
(146
)
 
(15
)
 
—

 
(161
)
Return of capital
—

 
21

 
(21
)
 
—

 
—

Purchase of intangible assets
—

 
(7
)
 
—

 
—

 
(7
)
Proceeds from disposals of property, plant and equipment
—

 
6

 
—

 
—

 
6

Issuance of related party notes receivable
—

 
(548
)
 
(25
)
 
573

 
—

Net cash (used in) provided by investing activities
—

 
(674
)
 
(61
)
 
573

 
(162
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of related party long-term debt
548

 
25

 
—

 
(573
)
 
—

Repurchase of shares of common stock
(262
)
 
—

 
—

 
—

 
(262
)
Dividends paid
(213
)
 
—

 
—

 
—

 
(213
)
Proceeds from stock options exercised
21

 
—

 
—

 
—

 
21

Excess tax benefit on stock-based compensation
—

 
16

 
—

 
—

 
16

Deferred financing charges paid
(1
)
 
—

 
—

 
—

 
(1
)
Other, net
(1
)
 
(2
)
 
—

 
—

 
(3
)
Net cash (used in) provided by financing activities
92

 
39

 
—

 
(573
)
 
(442
)
Cash and cash equivalents — net change from:
 
 
 
 
 
 
 
 
 
Operating, investing and financing activities
—

 
(347
)
 
25

 
—

 
(322
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
4

 
—

 
4

Cash and cash equivalents at beginning of period
—

 
641

 
60

 
—

 
701

Cash and cash equivalents at end of period
$
—

 
$
294

 
$
89

 
$
—

 
$
383





37
Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
You should read the following discussion in conjunction with our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2012.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, labor matters and availability of raw materials. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" or the negative of these terms or similar expressions in this Quarterly Report on Form 10-Q. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this Quarterly Report on Form 10-Q, except to the extent required by applicable securities laws.
This Quarterly Report on Form 10-Q contains the names of some of our owned or licensed trademarks, trade names and service marks, which we refer to as our brands. All of the product names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those of our licensors.
Cadbury plc and Cadbury Schweppes plc are hereafter collectively referred to as "Cadbury", unless otherwise indicated. Kraft Foods Inc. acquired Cadbury on February 2, 2010.
On October 1, 2012, Kraft Foods, Inc. spun-off its North American grocery business to its shareholders and changed its name to Mondelēz International, Inc. ("Mondelēz").
OVERVIEW
We are a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the United States ("U.S."), Canada and Mexico with a diverse portfolio of flavored carbonated soft drinks ("CSDs") and non-carbonated beverages ("NCBs"), including ready-to-drink teas, juices, juice drinks and mixers. Our brand portfolio includes popular CSD brands such as Dr Pepper, Sunkist soda, 7UP, A&W, Canada Dry, Crush, Squirt, Peñafiel and Schweppes, and NCB brands such as Snapple, Mott's, Hawaiian Punch, Clamato, Rose's and Mr & Mrs T mixers. Our largest brand, Dr Pepper, is a leading flavored CSD in the U.S. according to The Nielsen Company. We have some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. 
We operate as an integrated brand owner, manufacturer and distributor through our three segments. We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our Direct Store Delivery ("DSD") system and our Warehouse Direct ("WD") delivery system. Our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage.
The beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and religious festivals as well as weather fluctuations.

38
Table of Contents

BEVERAGE CONCENTRATES
Our Beverage Concentrates segment is principally a brand ownership business. In this segment we manufacture and sell beverage concentrates in the U.S. and Canada. Most of the brands in this segment are CSD brands. Key brands include Dr Pepper, Canada Dry, Crush, Schweppes, 7UP, Sunkist soda, A&W, Sun Drop, RC Cola, Diet Rite, Squirt, Welch's, Country Time, Vernors and the concentrate form of Hawaiian Punch.
Almost all of our beverage concentrates are manufactured at our plant in St. Louis, Missouri.
The beverage concentrates are shipped to third party bottlers, as well as to our own manufacturing systems, who combine them with carbonation, water, sweeteners and other ingredients, package it in PET containers, glass bottles and aluminum cans, and sell it as a finished beverage to retailers. Beverage concentrates are also manufactured into syrup, which is shipped to fountain customers, such as fast food restaurants, who mix the syrup with water and carbonation to create a finished beverage at the point of sale to consumers. Dr Pepper represents most of our fountain channel volume. Concentrate prices historically have been reviewed and adjusted at least on an annual basis.
Our Beverage Concentrates brands are sold by bottlers, including our own Packaged Beverages segment, through all major retail channels including supermarkets, fountains, mass merchandisers, club stores, vending machines, convenience stores, gas stations, small groceries, drug chains and dollar stores.
PACKAGED BEVERAGES
Our Packaged Beverages segment is principally a brand ownership, manufacturing and distribution business. In this segment, we primarily manufacture and distribute packaged beverages and other products, including our brands, third party owned brands and certain private label beverages, in the U.S. and Canada. Key NCB brands in this segment include Snapple, Hawaiian Punch, Mott's, Yoo-Hoo, Clamato, Deja Blue, AriZona, FIJI, Mistic, Nantucket Nectars, ReaLemon, Mr and Mrs T mixers, Rose's and Country Time. Key CSD brands in this segment include 7UP, Dr Pepper, A&W, Sunkist soda, Canada Dry, Squirt, RC Cola, Sun Drop, Diet Rite, IBC and Vernors. Additionally, we distribute third party brands such as Big Red, AriZona tea, FIJI mineral water, Neuro beverages, Vita Coco coconut water and Hydrive energy drinks. We also derive a portion of our sales from bottling beverages and other products for private label owners or others for a fee. Although the majority of our Packaged Beverages' net sales relate to our brands, we also provide a route-to-market for third party brand owners seeking effective distribution for their new and emerging brands. These brands give us exposure in certain markets to fast growing segments of the beverage industry with minimal capital investment. 
Our Packaged Beverages' products are manufactured in multiple facilities across the U.S. and are sold or distributed to retailers and their warehouses by our own distribution network or by third party distributors. The raw materials used to manufacture our products include aluminum cans and ends, glass bottles, PET bottles and caps, paper products, sweeteners, juices, water and other ingredients.
We sell our Packaged Beverages' products both through our DSD system, supported by a fleet of approximately 6,000 trucks and 12,000 employees, including sales representatives, merchandisers, drivers and warehouse workers, as well as through our WD system, both of which include the sales to all major retail channels, including supermarkets, fountain, mass merchandisers, club stores, vending machines, convenience stores, gas stations, small groceries, drug chains and dollar stores.
LATIN AMERICA BEVERAGES
Our Latin America Beverages segment is a brand ownership, manufacturing and distribution business. This segment participates mainly in the carbonated mineral water, flavored CSD, bottled water and vegetable juice categories, with particular strength in carbonated mineral water and grapefruit flavored CSDs. Key brands include Peñafiel, Squirt, Clamato and Aguafiel.
In Mexico, we manufacture and distribute our products through our bottling operations and third party bottlers and distributors. In the Caribbean, we distribute our products through third party bottlers and distributors. In Mexico, we also participate in a joint venture to manufacture Aguafiel brand water with Acqua Minerale San Benedetto. We provide expertise in the Mexican beverage market and Acqua Minerale San Benedetto provides expertise in water production and new packaging technologies.
We sell our finished beverages through all major Mexican retail channels, including the "mom and pop" stores, supermarkets, hypermarkets, and on premise channels.
VOLUME
In evaluating our performance, we consider different volume measures depending on whether we sell beverage concentrates or finished beverages.

39
Table of Contents

Beverage Concentrates Sales Volume
In our Beverage Concentrates segment, we measure our sales volume in two ways: (1) "concentrate case sales" and (2) "bottler case sales." The unit of measurement for both concentrate case sales and bottler case sales equals 288 fluid ounces of finished beverage, the equivalent of 24 twelve ounce servings.
Concentrate case sales represent units of measurement for concentrates sold by us to our bottlers and distributors. A concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage. It does not include any other component of the finished beverage other than concentrate. Our net sales in our concentrate businesses are based on our sales of concentrate cases.
Although net sales in our concentrate businesses are based on concentrate case sales, we believe that bottler case sales are also a significant measure of our performance because they measure sales of packaged beverages into retail channels.
Packaged Beverages Sales Volume
In our Packaged Beverages segment, we measure volume as case sales to customers. A case sale represents a unit of measurement equal to 288 fluid ounces of packaged beverage sold by us. Case sales include both our owned brands and certain brands licensed to and/or distributed by us.
Volume in Bottler Case Sales
In addition to sales volume, we measure volume in bottler case sales ("volume (BCS)") as sales of packaged beverages, in equivalent 288 fluid ounce cases, sold by us and our bottling partners to retailers and independent distributors. Our contract manufacturing sales are not included or reported as part of volume (BCS).
Bottler case sales and concentrates and packaged beverage sales volumes 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.
EXECUTIVE SUMMARY - FINANCIAL OVERVIEW AND RECENT DEVELOPMENTS
•
Net sales totaled $1,543 million for the three months ended September 30, 2013, an increase of $15 million, or 1%, from the three months ended September 30, 2012.
•
Net income for the three months ended September 30, 2013 was $207 million, compared to $179 million for the three months ended September 30, 2012, an increase of $28 million, or 16%.
•
Diluted earnings per share was $1.01 for the three months ended September 30, 2013 and $0.84 for the year ago period, a increase of $0.17, or approximately 20%.
•
Earnings for the three months ended September 30, 2013 included a $33 million non-cash increase in net income associated with the conclusion of an Internal Revenue Service ("IRS") audit, which increased diluted earnings per share by $0.16 during the three months ended September 30, 2013.
•
During the third quarter of 2013, our Board of Directors (our "Board") declared a dividend of $0.38 per share, which was paid on October 4, 2013, to shareholders of record on September 16, 2013.
•
During the three and nine months ended September 30, 2013, we repurchased 2.6 million shares and 5.4 million shares, respectively, of our common stock valued at approximately $117 million and $243 million, respectively.
RESULTS OF OPERATIONS
We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
References in the financial tables to percentage changes that are not meaningful are denoted by "NM."

40
Table of Contents

 Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012
Consolidated Operations
The following table sets forth our unaudited consolidated results of operations for the three months ended September 30, 2013 and 2012 (dollars in millions):
 
For the Three Months Ended September 30,
 
 
 
2013
 
2012
 
Percentage
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Change
Net sales
$
1,543

 
100.0
 %
 
$
1,528

 
100.0
 %
 
1
 %
Cost of sales
650

 
42.1

 
626

 
41.0

 
 
Gross profit
893

 
57.9

 
902

 
59.0

 
(1
)
Selling, general and administrative expenses
563

 
36.5

 
561

 
36.7

 
 
Depreciation and amortization
28

 
1.9

 
29

 
1.9

 
 
Other operating expense, net
2

 
0.1

 
4

 
0.3

 
 
Income from operations
300

 
19.4

 
308

 
20.1

 
(3
)
Interest expense
29

 
1.9

 
31

 
2.0

 
 
Interest income
—

 
—

 
—

 
—

 
 
Other expense (income), net
428

 
27.7

 
(4
)
 
(0.3
)
 
 
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
(157
)
 
(10.2
)
 
281

 
18.4

 
(156
)
(Benefit) provision for income taxes
(364
)
 
(23.6
)
 
102

 
6.7

 
 
Income before equity in earnings of unconsolidated subsidiaries
207

 
13.4

 
179

 
11.7

 
 
Equity in earnings of unconsolidated subsidiaries, net of tax
—

 
—

 
—

 
—

 
 
Net income
$
207

 
13.4
 %
 
$
179

 
11.7
 %
 
16
 %
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.02

 
NM

 
$
0.85

 
NM

 
20
 %
Diluted
1.01

 
NM

 
0.84

 
NM

 
20
 %
Volume (BCS). Volume (BCS) was flat for the three months ended September 30, 2013, compared with the three months ended September 30, 2012. In the U.S. and Canada, volume declined 1% and in Mexico and the Caribbean, volume increased 6% compared with the year ago period. CSD volume was flat while NCB volume decreased 1%.
In CSDs, Dr Pepper volume decreased 1% as a result of continued category headwinds. Canada Dry, 7UP, A&W and Sunkist soda (our "Core 4 brands"), which includes the impact of the launch of our Core 4 TEN products, were flat as a result of an 8% increase in Canada Dry offset by a 4% decrease in 7UP, a 5% decline in Sunkist soda, and an 1% decline in A&W. Crush decreased 8% while Squirt declined 2%. RC Cola, which includes the impact of the launch of the RC TEN product, decreased 3% while Sun Drop declined double-digits. Other brands declined 2%. These decreases were partially offset by a 16% increase in Penafiel as a result of product innovation and a 8% increase in Schweppes driven by distribution gains in our seltzer water.
Decreases in NCBs were driven by a 6% decrease in Hawaiian Punch as a result of lower promotional activity and declines within the category and an 8% decline in other brands. This decline was partially offset by an increase of 4% in Snapple as a result of package and product innovation, a 10% increase in Clamato as a result of product innovation, a 4% increase in our water category and an 1% increase in Mott's.

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Net Sales. Net sales increased $15 million, or approximately 1%, for the three months ended September 30, 2013 compared with the three months ended September 30, 2012. The increase was primarily attributable to favorable product mix and net pricing increases, which was partially offset by lower sales volume.
Gross Profit. Gross profit decreased $9 million for the three months ended September 30, 2013 compared with the three months ended September 30, 2012. Gross margin of 57.9% for the three months ended September 30, 2013, was lower than the 59.0% gross margin for the three months ended September 30, 2012. Significant factors resulting in the lower gross margin include the $15 million unfavorable comparison for the mark-to-market activity on commodity derivative contracts, increases in our commodity costs, led by sweeteners, and unfavorable mix due to a higher mix of finished goods rather than concentrates as well as package and product mix. These factors were partially offset by the $14 million favorable comparison in our last in first out ("LIFO") inventory provision and ongoing productivity improvements. The change in our LIFO inventory provision for the three months ended September 30, 2013 was a $7 million reduction in the provision versus a $7 million increase in the provision for the three months ended September 30, 2012. The mark-to-market activity on commodity derivative contracts for the three months ended September 30, 2013 as there were no unrealized gains or losses versus $15 million in unrealized gains in the year ago period.
Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses increased $2 million for the three months ended September 30, 2013 compared with the prior period. The increase was primarily the result of $7 million in workforce reduction costs related to certain restructuring activities during the three months ended September 30, 2013 and unrealized losses for the mark-to-market activity on commodity derivative contracts, partially offset by a $6 million decrease to the legal provision associated with litigation against The American Bottling Group as a result of settlement agreements with certain plaintiffs ("ABC litigation") and lower logistics costs.
Income from Operations. Income from operations decreased $8 million to $300 million for the three months ended September 30, 2013, compared with the year ago period, driven primarily by the decrease in gross profit and the increase in SG&A expenses.
Other Expense, Net and (Benefit) Provision for Income Taxes. We have historically recorded indemnification income from Mondelēz under the Tax Indemnity Agreement as other expense (income), net in the unaudited Condensed Consolidated Statements of Income. Due to the completion of the IRS audit for our 2006-2008 federal income tax returns in August 2013, we recognized an income tax benefit of $463 million primarily related to decreasing our liability for unrecognized tax benefits and $430 million of other expense, net, as we no longer anticipate collecting amounts from Mondelēz .
The following table excludes these amounts discussed above from our other expense (income), net, (loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries and (benefit) provision for income taxes lines within our unaudited Condensed Consolidated Statements of Income. We have presented this table as we believe the effects of those items on these lines and on our effective tax rate for the three months ended September 30, 2013 are not meaningful as reported.
 
For the Three Months Ended September 30, 2013
 
 
(in millions)
As reported
 
Completion of the IRS audit in August 2013
 
As reported excluding tax and indemnity items
 
For the Three Months Ended September 30, 2012
Other expense (income), net
$
428

 
$
(430
)
 
$
(2
)
 
$
(4
)
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
(157
)
 
430

 
273

 
281

(Benefit) provision for income taxes
(364
)
 
463

 
99

 
102

 
 
 
 
 
 
 
 
Effective tax rate
231.8
%
 
 
 
36.3
%
 
36.3
%



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Results of Operations by Segment
We report our business in three segments: Beverage Concentrates, Packaged Beverages and Latin America Beverages. The key financial measures management uses to assess the performance of our segments are net sales and segment operating profit ("SOP"). The following tables set forth net sales and SOP for our segments for the three months ended September 30, 2013 and 2012, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") (in millions):
 
For the Three Months Ended September 30,
 
2013
 
2012
Segment Results — Net sales
 
 
 
Beverage Concentrates
$
309

 
$
303

Packaged Beverages
1,114

 
1,120

Latin America Beverages
120

 
105

Net sales
$
1,543

 
$
1,528

 
 
 
 
 
For the Three Months Ended September 30,
 
2013
 
2012
Segment Results — SOP
 
 
 
Beverage Concentrates
$
201

 
$
198

Packaged Beverages
159

 
147

Latin America Beverages
17

 
14

Total SOP
377

 
359

Unallocated corporate costs
75

 
47

Other operating expense, net
2

 
4

Income from operations
300

 
308

Interest expense, net
29

 
31

Other expense (income), net
428

 
(4
)
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
$
(157
)
 
$
281

BEVERAGE CONCENTRATES
The following table details our Beverage Concentrates segment's net sales and SOP for the three months ended September 30, 2013 and 2012 (in millions):
 
For the Three Months Ended September 30,
 
 
 
2013
 
2012
 
Change
Net sales
$
309

 
$
303

 
$
6

SOP
201

 
198

 
3

Net Sales. Net sales increased $6 million for the three months ended September 30, 2013, compared with the three months ended September 30, 2012. The increase was primarily due to an increase in concentrate prices and favorable product mix, which were partially offset by a 2% decline in concentrate case sales.
SOP. SOP increased $3 million, or approximately 2%, for the three months ended September 30, 2013, compared with the three months ended September 30, 2012, primarily driven by the benefit of higher net sales partially offset by $3 million of higher marketing investments.

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Volume (BCS). Volume (BCS) decreased 1% for the three months ended September 30, 2013, compared with the three months ended September 30, 2012, primarily driven by an 8% decline in Crush and an 1% decline in Dr Pepper as a result of continued category headwinds. Other drivers of the decline include 4% decreases in Sun Drop and Squirt. These declines were partially offset by Schweppes and our Core 4 brands. Schweppes had an 8% increase driven by distribution gains in our seltzer water. Our Core 4 brands, which included the impact of the launch of our Core 4 TEN products, increased 1% compared to the prior year as a result of a mid single-digit increase in Canada Dry partially offset by a low single-digit decrease in 7UP and a mid single-digit decrease in Sunkist soda. RC Cola, which includes the impact of the launch of the RC TEN product, was flat for the three months ended September 30, 2013.
PACKAGED BEVERAGES
The following table details our Packaged Beverages segment's net sales and SOP for the three months ended September 30, 2013 and 2012 (in millions):
 
For the Three Months Ended September 30,
 
 
 
2013
 
2012
 
Change
Net sales
$
1,114

 
$
1,120

 
$
(6
)
SOP
159

 
147

 
12

Volume. Total sales volume declined 2% for the three months ended September 30, 2013, compared with the three months ended September 30, 2012. Lower NCB and CSD volumes each decreased our total segment sales volume by 1%. Contract manufacturing was flat for the three months ended September 30, 2013, compared with the three months ended September 30, 2012.
Within CSDs, volume decreased 1% for the three months ended September 30, 2013, compared with the three months ended September 30, 2012, as a result of continued category headwinds. Sun Drop declined by double-digits. Dr Pepper volumes decreased 1% for the three months ended September 30, 2013, while Squirt declined 3%. Our other brands decreased 6%. These declines were partially offset by our Core 4 brands and RC Cola. Volume for our Core 4 brands, which includes the impact of the launch of our Core 4 TEN products, increased 1% driven by a 10% increase in Canada Dry and an 1% increase in A&W, partially offset by a 5% decrease in Sunkist soda and an 1% decrease in 7UP. RC Cola increased 2% due primarily to the launch of the RC TEN product.
Within NCBs, volume decreased 3%, driven primarily by a 9% decline in Hawaiian Punch as a result of lower promotional activity and declines within the category. Other brands decreased 9%, led by distribution losses in AriZona. These declines were partially offset by a 7% increase in our water category, a 1% increase in Snapple due to package and product innovation and a 3% increase in Clamato. Mott's was flat for the three months ended September 30, 2013 compared with the three months ended September 30, 2012.
Net Sales. Net sales decreased $6 million for the three months ended September 30, 2013, compared with the three months ended September 30, 2012. Net sales decreased due to lower sales volumes and higher discounts, which were partially offset by favorable mix and net pricing increases led by Mott's.
SOP. SOP increased $12 million for the three months ended September 30, 2013, compared with the three months ended September 30, 2012. The primary factors driving the increase in SOP included a $14 million favorable comparison in our LIFO inventory provision, a $6 million decrease to the legal provision associated with the ABC litigation, favorable costs associated with our risk management programs, and ongoing productivity improvements. These factors were partially offset by the gross margin impact of lower net sales and increased commodity costs, led by sweeteners.
LATIN AMERICA BEVERAGES
The following table details our Latin America Beverages segment's net sales and SOP for the three months ended September 30, 2013 and 2012 (in millions):
 
For the Three Months Ended September 30,
 
 
 
2013
 
2012
 
Change
Net sales
$
120

 
$
105

 
$
15

SOP
17

 
14

 
3


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Volume. Sales volume increased 6% for the three months ended September 30, 2013, as compared with the three months ended September 30, 2012. The increase in volume was driven by a 16% increase in Peñafiel and a double-digit increase in Clamato as a result of product innovation. Dr Pepper and our other brands also increased by double-digits. These increases in sales volume were partially offset by double-digit declines in 7UP and Crush, and a 1% decrease in Squirt as a result of higher pricing and inventory reductions by third party bottlers.
Net Sales. Net sales increased $15 million for the three months ended September 30, 2013, compared with the three months ended September 30, 2012. Net sales increased as a result of favorable product mix, increased sales volumes and $2 million of favorable foreign currency translation.
SOP. SOP increased $3 million, or 21%, for the three months ended September 30, 2013, compared with the three months ended September 30, 2012, driven by the gross margin benefit of higher net sales and ongoing productivity improvements. These items were partially offset by increases in people costs, other manufacturing costs, marketing investments and commodity costs, led by PET and sweeteners.
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
Consolidated Operations
The following table sets forth our unaudited consolidated results of operations for the nine months ended September 30, 2013 and 2012 (dollars in millions, except per share data):
 
For the Nine Months Ended September 30,
 
 
 
2013
 
2012
 
Percentage
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Change
Net sales
$
4,534

 
100.0
 %
 
$
4,511

 
100.0
 %
 
1
 %
Cost of sales
1,916

 
42.3

 
1,895

 
42.0

 
 
Gross profit
2,618

 
57.7

 
2,616

 
58.0

 
—

Selling, general and administrative expenses
1,745

 
38.5

 
1,713

 
38.0

 
 
Depreciation and amortization
86

 
1.9

 
95

 
2.1

 
 
Other operating expense, net
5

 
0.1

 
8

 
0.2

 
 
Income from operations
782

 
17.2

 
800

 
17.7

 
(2
)
Interest expense
94

 
2.1

 
94

 
2.1

 
 
Interest income
(1
)
 
—

 
(1
)
 
—

 
 
Other expense (income), net
384

 
8.4

 
(8
)
 
(0.2
)
 
 
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
305

 
6.7

 
715

 
15.8

 
(57
)
(Benefit) provision for income taxes
(162
)
 
(3.6
)
 
256

 
5.7

 
 
Income before equity in earnings of unconsolidated subsidiaries
467

 
10.3

 
459

 
10.1

 
 
Equity in earnings of unconsolidated subsidiaries, net of tax
1

 
—

 
—

 
—

 
 
Net income
$
468

 
10.3
 %
 
$
459

 
10.1
 %
 
2
 %
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
2.29

 
NM

 
$
2.17

 
NM

 
6
 %
Diluted
$
2.28

 
NM

 
$
2.15

 
NM

 
6
 %
Volume (BCS). Volume (BCS) decreased 2% for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. In the U.S. and Canada, volume declined 3%, and in Mexico and the Caribbean, volume increased 3%, compared with the year ago period. CSD volume and NCB volume both declined 2%.

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In CSDs, Dr Pepper volume declined 3% as a result of continued category headwinds. Our Core 4 brands, which included the impact of the launch of our Core 4 TEN products, were flat compared to the year ago period. This result was driven by a 8% increase in Canada Dry, which was offset by a 7% decrease in Sunkist soda, a 4% decline in 7UP and an 1% decrease in A&W. Crush, Squirt and RC Cola declined 8%, 4% and 3%, respectively. Sun Drop declined double-digits. Other brands declined 3%, led by AriZona. These decreases were partially offset by growth of 10% in Peñafiel as a result of product innovation and a 7% increase in Schweppes reflecting distribution gains in our seltzer water and growth in the ginger ale category.
In NCBs, decreases were driven by a 9% decrease in Hawaiian Punch as a result of lower promotional activity and declines within the category and a 9% decline in other brands. The decline was partially offset by a 4% increase in Mott's due to distribution gains in our juice and sauce categories and a 2% increase in Snapple as a result of package and product innovation. Our water category increased 3%, led by Aguafiel. Clamato increased 6%.
Net Sales. Net sales increased $23 million, or approximately 1%, for the nine months ended September 30, 2013 compared with the nine months ended September 30, 2012. The increase was attributable to favorable mix, net pricing increases and favorable foreign currency translation, partially offset by lower branded sales volumes.
Gross Profit. Gross profit increased $2 million for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. Gross margin of 57.7% for the nine months ended September 30, 2013 was slightly lower than the 58.0% gross margin for the nine months ended September 30, 2012. Significant factors resulting in the lower gross margin include increases in our commodity costs, led by apples and sweeteners, the $26 million unfavorable comparison for the mark-to-market activity on commodity derivative contracts and unfavorable mix due to a higher mix of finished goods rather than concentrates as well as package and product mix. These factors were partially offset by the $32 million favorable comparison in our LIFO inventory provision and increases in our net price realization. The change in our LIFO inventory provision for the nine months ended September 30, 2013 was a $24 million reduction in the provision versus an $8 million increase in the provision for the nine months ended September 30, 2012. The mark-to-market activity on commodity derivative contracts for the nine months ended September 30, 2013 was $11 million in unrealized losses versus $15 million in unrealized gains in the year ago period.
Selling, General and Administrative Expenses. SG&A expenses increased $32 million for the nine months ended September 30, 2013 compared with the prior period. The increase was primarily the result of increased marketing investments, higher labor and benefit costs and $7 million in workforce reduction costs, partially offset by lower logistics costs.
Income from Operations. Income from operations decreased $18 million to $782 million for the nine months ended September 30, 2013, principally due to the increase in SG&A expenses partially offset by the decline in depreciation and amortization driven by the favorable comparison to the $8 million depreciation adjustment recorded in the prior year and the increase in our gross profit.
Other Expense, Net and (Benefit) Provision for Income Taxes. We have historically recorded indemnification income from Mondelēz under the Tax Indemnity Agreement as other expense (income), net in the unaudited Condensed Consolidated Statements of Income. Due to the completion of the IRS audit for our 2006-2008 federal income tax returns in August 2013, we recognized an income tax benefit of $463 million primarily related to decreasing our liability for unrecognized tax benefits and $430 million of other expense, net, as we no longer anticipate collecting amounts from Mondelēz . In June 2013, a bill was enacted by the Canadian government, which reduced amounts amortized for income tax purposes. We recognized $38 million of indemnity income due to the reduction of our long-term liability to Mondelēz and $50 million of income tax expense for the reduction of our tax assets.

46
Table of Contents

The following table excludes these amounts discussed above from our other expense (income), net, (loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries and (benefit) provision for income taxes lines within our unaudited Condensed Consolidated Statements of Income. We have presented this table as we believe the effect of those items on these lines and on our effective tax rate for the nine months ended September 30, 2013 are not meaningful as reported.
 
For the Nine Months Ended September 30, 2013
 
 
(in millions)
As reported
 
Completion of the IRS audit in August 2013
 
Enactment of the Canadian bill in June 2013
 
As reported excluding tax and indemnity items
 
For the Nine Months Ended September 30, 2012
Other expense (income), net
$
384

 
$
(430
)
 
$
38

 
$
(8
)
 
$
(8
)
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries
305

 
430

 
(38
)
 
697

 
715

(Benefit) provision for income taxes
(162
)
 
463

 
(50
)
 
251

 
256

 
 
 
 
 
 
 
 
 
 
Effective tax rate
(53.1
)%
 
 
 
 
 
36.0
%
 
35.8
%



47
Table of Contents

Results of Operations by Segment
The following tables set forth net sales and SOP for our segments for the nine months ended September 30, 2013 and 2012, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP (in millions):
 
For the Nine Months Ended
 
September 30,
 
2013
 
2012
Segment Results — Net sales
 
 
 
Beverage Concentrates
$
908

 
$
888

Packaged Beverages
3,280

 
3,314

Latin America Beverages
346

 
309

Net sales
$
4,534

 
$
4,511

 
 
 
 
 
For the Nine Months Ended
 
September 30,
 
2013
 
2012
Segment Results — SOP
 
 
 
Beverage Concentrates
$
560

 
$
552

Packaged Beverages
418

 
408

Latin America Beverages
45

 
37

Total SOP
1,023

 
997

Unallocated corporate costs
236

 
189

Other operating expense, net
5

 
8

Income from operations
782

 
800

Interest expense, net
93

 
93

Other expense (income), net
384

 
(8
)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
$
305

 
$
715

BEVERAGE CONCENTRATES
The following table details our Beverage Concentrates segment's net sales and SOP for the nine months ended September 30, 2013 and 2012 (in millions):
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2013
 
2012
 
Change
Net sales
$
908

 
$
888

 
$
20

SOP
560

 
552

 
8

Net Sales. Net sales increased $20 million for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. The increase was due to an increase in concentrate prices, favorable product mix and lower discounts, which were partially offset by a 3% decline in concentrate case sales.
SOP. SOP increased $8 million, or approximately 1%, for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012, primarily due to the benefit of higher net sales, partially offset by $12 million of higher marketing investments and a higher transfer pricing allocation.

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Volume (BCS). Volume (BCS) decreased 2% for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012, primarily driven by a 3% decline in Dr Pepper and a 8% decrease in Crush as a result of continued category headwinds. Other drivers of the decline include a 6% decline in Sun Drop, a 9% decrease in RC Cola and a 7% decline in Squirt. These declines were partially offset by Schweppes and our Core 4 brands. Schweppes had a 7% increase reflecting distribution gains in our seltzer water and growth in the ginger ale category. Our Core 4 brands, which included the impact of the launch of our Core 4 TEN products, increased 1% compared to the prior year as a result of a 6% increase in Canada Dry, partially offset by a 7% decline in Sunkist soda, a 2% decrease in 7UP and an 1% decline in A&W.
PACKAGED BEVERAGES
The following table details our Packaged Beverages segment's net sales and SOP for the nine months ended September 30, 2013 and 2012 (in millions):
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2013
 
2012
 
Change
Net sales
$
3,280

 
$
3,314

 
$
(34
)
SOP
418

 
408

 
10

Volume. Total sales volume decreased 4% for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. Lower NCB volumes, contract manufacturing and CSD volumes decreased our total segment sales volume by 2%, 1% and 1%, respectively.
Within CSDs, volume declined 2% for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012, as a result of continued category headwinds. Sun Drop declined by double-digits. Dr Pepper volumes decreased 3% for the nine months ended September 30, 2013, while Squirt declined 2%. Our other brands decreased 6% for the nine months ended September 30, 2013. These declines were partially offset by a 5% increase in RC Cola due primarily to the launch of the RC TEN product. Volume for our Core 4 brands, which includes the impact of the launch of our Core 4 TEN products, was flat driven by a double-digit increase in Canada Dry offset by a 7% decline in Sunkist soda and a 2% decrease in 7UP. A&W was flat for the nine months ended September 30, 2013.
Within NCBs, volume decreased 4%, driven primarily by a 10% decline in Hawaiian Punch as a result of lower promotional activity and declines within the category. Our other brands decreased 9%, led by distribution losses in AriZona. These decreases were partially offset by a 4% increase in Mott's as a result of distribution gains in our juice and sauce categories, a 1% increase in our water category and a 2% increase in Clamato. Snapple was flat for the period.
Net Sales. Net sales decreased $34 million for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. Net sales decreased due to a decline in our sales volumes and higher discounts, which were partially offset by favorable mix and net pricing increases led by Mott's.
SOP. SOP increased $10 million for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. The primary factors driving the increase in SOP included a $32 million favorable comparison in our LIFO inventory provision, ongoing productivity improvements, the favorable comparison to the $8 million depreciation adjustment recorded in the prior year, lower logistics costs and a $6 million favorable adjustment to the legal provision associated with the ABC litigation. These factors were partially offset by the gross margin impact of lower net sales and increased commodity costs, led by apples and sweeteners.

49
Table of Contents

LATIN AMERICA BEVERAGES
The following table details our Latin America Beverages segment's net sales and SOP for the nine months ended September 30, 2013 and 2012 (in millions):
 
For the Nine Months Ended September 30,
 
 
 
2013
 
2012
 
Change
Net sales
$
346

 
$
309

 
$
37

SOP
45

 
37

 
8

Volume. Sales volume increased 3% for the nine months ended September 30, 2013, as compared with the nine months ended September 30, 2012. The increase in volume was led by a 10% increase in Peñafiel as a result of package and product innovation and an 8% increase in Aguafiel due to increased promotional activity. Clamato increased 8% while Dr Pepper increased by double-digits. Our other brands increased by 6%. These increases in sales volume were partially offset by a 4% decline in Squirt as a result of higher pricing and inventory reductions by third party bottlers, a double-digit decline in 7UP and a 4% decrease in Crush.
Net Sales. Net sales increased $37 million for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012. Net sales increased as a result of favorable product mix, $12 million of favorable foreign currency translation and increased sales volumes.
SOP. SOP increased $8 million, or approximately 22%, for the nine months ended September 30, 2013, compared with the nine months ended September 30, 2012, primarily due to the gross margin impact of favorable product mix and increased sales volumes and $5 million of favorable foreign currency effects, partially offset by increases in other manufacturing costs, people costs, marketing investments and commodity costs, which were led by sweeteners.
CRITICAL ACCOUNTING ESTIMATES
The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective or complex estimates and assessments. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary.
We have identified the items described below as our critical accounting estimates:
•
goodwill and other indefinite-lived intangible assets;
•
customer marketing programs and incentives;
•
revenue recognition;
•
pension and post-retirement benefits;
•
risk management programs; and
•
income taxes.
These critical accounting estimates are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2012.
LIQUIDITY AND CAPITAL RESOURCES
Trends and Uncertainties Affecting Liquidity
Customer and consumer demand for the Company's products may be impacted by various risk factors discussed under "Risk Factors" in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2012, including recession or other economic downturn in the U.S., Canada, Mexico or the Caribbean, which could result in a reduction in our sales volume. Similarly, disruptions in financial and credit markets may impact the Company's ability to manage normal commercial relationships with its customers, suppliers and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors to timely supply materials.

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Table of Contents

We believe that the following trends and uncertainties may also impact liquidity:
•
continued capital expenditures to upgrade our existing plants and fleet of distribution trucks, replace and expand our cold drink equipment and make investments in IT systems;
•
continued payment of dividends;
•
seasonality of our operating cash flows could impact short-term liquidity;
•
our continued repurchases of our outstanding common stock pursuant to our repurchase programs;
•
acquisitions of regional bottling companies, distributors and distribution rights to further extend our geographic coverage or access to new products; and
•
our ability to issue unsecured commercial paper notes ("Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $500 million.
Financing Arrangements
The following descriptions represent our available financing arrangements as of September 30, 2013. As of September 30, 2013, we were in compliance with all covenant requirements for our senior unsecured notes, unsecured credit agreement and commercial paper program.
Commercial Paper Program
On December 10, 2010, we entered into a commercial paper program under which we may issue Commercial Paper on a private placement basis up to a maximum aggregate amount outstanding at any time of $500 million. The maturities of the Commercial Paper will vary, but may not exceed 364 days from the date of issuance. We may issue Commercial Paper from time to time for general corporate purposes as Commercial Paper is now a more significant part of our overall cash management strategy. The program is supported by the Revolver (as defined below). Outstanding Commercial Paper reduces the amount of borrowing capacity available under the Revolver and outstanding amounts under the Revolver reduce the Commercial Paper availability. As of September 30, 2013 and December 31, 2012, we had no outstanding Commercial Paper.
Unsecured Credit Agreement 
On September 25, 2012, the Company entered into a new five-year unsecured credit agreement (the "Credit Agreement"), which provides for a $500 million revolving line of credit (the "Revolver"). Borrowings under the Revolver bear interest at a floating rate per annum based upon the alternate base rate ("ABR") or the Eurodollar rate, in each case plus an applicable margin which varies based upon the Company's debt ratings. Rates range from 0.000% to 0.300% for ABR loans and from 0.795% to 1.300% for Eurodollar loans. The ABR is defined as the greater of (a) JPMorgan Chase Bank's prime rate, (b) the federal funds effective rate plus 0.500% and (c) the adjusted LIBOR for a one month interest period. The adjusted LIBOR is the London interbank offered rate for dollars adjusted for a statutory reserve rate set by the Board of Governors of the U.S. Federal Reserve System.
Additionally, the Revolver is available for the issuance of letters of credit and swingline advances not to exceed $75 million and $50 million, respectively. Swingline advances will accrue interest at a rate equal to the ABR plus the applicable margin. Letters of credit and swingline advances will reduce, on a dollar for dollar basis, the amount available under the Revolver.
The following table provides amounts utilized and available under the Revolver and each sublimit arrangement type as of September 30, 2013 (in millions):
 
Amount Utilized
 
Balances Available
Revolver
$
—

 
$
498

Letters of credit
2

 
73

Swingline advances
—

 
50

The Credit Agreement further provides that the Company may request at any time, subject to the satisfaction of certain conditions, that the aggregate commitments under the facility be increased by a total amount not to exceed $250 million.

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The Credit Agreement's representations, warranties, covenants and events of default are generally customary for investment grade credit and includes a covenant that requires the Company to maintain a ratio of consolidated total debt (as defined in the Credit Agreement) to annualized consolidated EBITDA (as defined in the Credit Agreement) of no more than 3.00 to 1.00, tested quarterly. Upon the occurrence of an event of default, among other things, amounts outstanding under the Credit Agreement may be accelerated and the commitments may be terminated. The Company's obligations under the Credit Agreement are guaranteed by certain of the Company's direct and indirect domestic subsidiaries on the terms set forth in the Credit Agreement. The Credit Agreement has a maturity date of September 25, 2017; however, the Company, with the consent of lenders holding more than 50% of the total commitments under the Credit Agreement and subject to the satisfaction of certain conditions, may extend the maturity date for up to two additional one-year terms.
An unused commitment fee is payable quarterly to the lenders on the unused portion of the commitments available under the Revolver equal to 0.08% to 0.20% per annum, depending upon the Company's debt ratings.
Shelf Registration Statement
On February 7, 2013, the Company's Board of Directors (the "Board") authorized the Company to issue up to $1,500 million of securities from time to time. Subsequently, the Company filed a "well-known seasoned issuer" shelf registration statement with the Securities and Exchange Commission, effective May 23, 2013, which registers an indeterminable amount of securities for future sales. As of September 30, 2013, the Company had not issued any securities under this shelf registration statement.
Letters of Credit Facilities
The Company currently has letters of credit facilities available in addition to the portion of the Revolver reserved for issuance of letters of credit. Under these incremental letters of credit facilities, $90 million is available for the issuance of letters of credit, $58 million of which was utilized as of September 30, 2013 and $32 million of which remains available for use.
Debt Ratings
As of September 30, 2013, our debt ratings were Baa1 with a stable outlook from Moody's and BBB with a positive outlook from Standard & Poor's ("S&P"). Our commercial paper ratings were P-2/A-2 from Moody's and S&P.
These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.
Cash Management
We fund our liquidity needs from cash flow from operations, cash on hand or amounts available under our financing arrangements, as Commercial Paper is now a more significant part of our overall cash management strategy.
Capital Expenditures
Cash paid for capital expenditures was $111 million for the nine months ended September 30, 2013. Capital expenditures primarily related to machinery and equipment, plant improvements, IT investments, expansion and replacement of existing cold drink equipment and our distribution fleet. In 2013, we expect to incur annual capital expenditures, net of proceeds from disposals, in an amount equal to approximately 3.00% of our net sales, which we expect to fund through cash provided by operating activities.
Acquisitions
On February 25, 2013, the Company acquired certain assets of Dr. Pepper/7-UP Bottling Company of the West ("DP/7UP West") to strengthen the Company's route to market in the U.S. and support efforts to build and enhance our leading brands. The fair value of the consideration paid for this acquisition was $23 million consisting of the issuance by us of 313,105 shares of common stock to DP/7UP West and the assumption of certain liabilities of DP/7UP West to consummate the transaction.
During the first quarter of 2013, the Company also reacquired the distribution rights for Snapple and several other NCB brands in parts of Asia-Pacific from Mondelēz.
We may continue to make future acquisitions, such as the acquisitions of regional bottling companies, distributors and distribution rights to further extend our geographic coverage. Any acquisitions may require additional funding for future capital expenditures and possibly restructuring expenses.

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Liquidity
Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months. To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.
The following table summarizes our cash activity for the nine months ended September 30, 2013 and 2012 (in millions):
 
For the Nine Months Ended
 
September 30,
 
2013
 
2012
 
 
 
(as adjusted)

Net cash provided by operating activities
$
616

 
$
282

Net cash used in investing activities
(128
)
 
(162
)
Net cash used in financing activities
(732
)
 
(442
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities increased $334 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to the favorable comparison of the 2012 tax payments of $531 million resulting from the licensing agreements with PepsiCo and Coca-Cola, partially offset by increased income taxes paid in 2013 and unfavorable working capital comparisons to the prior year.
NET CASH USED IN INVESTING ACTIVITIES
Cash used in investing activities for the nine months ended September 30, 2013, consisted primarily of purchases of property and equipment of $111 million and cash paid to liquidate the liabilities assumed and expenses incurred in connection with the acquisition of DP/7UP West of $10 million. Cash used in investing activities for the nine months ended September 30, 2012, consisted primarily of purchases of property and equipment of $161 million. Purchases of property and equipment have decreased over the prior period in line with our focus on maintaining our purchases in an amount equal to approximately 3.00% of our net sales.
NET CASH USED IN FINANCING ACTIVITIES
Net cash used in financing activities increased $290 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to the $250 million repayment of the 2013 Notes during the nine months ended September 30, 2013 and a $40 million increase in payments to shareholders. Payments to shareholders were stock repurchases of $243 million and dividend payments of $225 million for the nine months ended September 30, 2013, versus stock repurchases of $262 million and dividend payments of $213 million in the prior period.
Cash and Cash Equivalents
As a result of the above items, cash and cash equivalents decreased $247 million since December 31, 2012 to $119 million as of September 30, 2013.
Our cash balances are used to fund working capital requirements, scheduled debt and interest payments, capital expenditures, income tax obligations, dividend payments and repurchases of our common stock. Cash available in our foreign operations may not be immediately available for these purposes. Foreign cash balances constituted approximately 63% of our total cash position as of September 30, 2013, as compared to 23% in the prior year, as we repaid the 2013 Notes using commercial paper introducing short term borrowing arrangements as part of our overall cash management strategy during the nine months ended September 30, 2013.
Dividends
Our Board declared dividends aggregating of $1.14 and $1.02 per share on outstanding common stock during the nine months ended September 30, 2013 and 2012, respectively.

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Common Stock Repurchases
As previously disclosed, the Board has authorized the Company to purchase an aggregate amount of up to $3,000 million of the Company's outstanding common stock. For the nine months ended September 30, 2013 and 2012, the Company repurchased and retired 5.4 million and 6.3 million shares of common stock, respectively, valued at approximately $243 million and $262 million, respectively. Refer to Part II, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding these repurchases.
Contractual Commitments and Obligations
We enter into various contractual obligations that impact, or could impact, our liquidity. Based on our current and anticipated level of operations, we believe that our proceeds from operating cash flows will be sufficient to meet our anticipated obligations. To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.
The following table summarizes our contractual obligations and contingencies as of September 30, 2013 (in millions):
 
 
 
Payments Due in Year
 
Total
 
2013
 
2014
 
2015
 
2016
 
2017
 
After 2017
Senior unsecured notes(1)
$
2,474

 
$
—

 
$
—

 
$
—

 
$
500

 
$
—

 
$
1,974

Capital leases(2)
205

 
2

 
11

 
11

 
11

 
11

 
159

Purchase obligations(3)
727

 
239

 
360

 
90

 
17

 
15

 
6

Payable to Mondelēz
55

 
—

 
7

 
7

 
7

 
7

 
27

Total
$
3,461

 
$
241

 
$
378

 
$
108


$
535

 
$
33

 
$
2,166

____________________________
(1)
Amounts represent payment for the senior unsecured notes issued by us. Please refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
(2)
Amounts represent our contractual payment obligations for our lease arrangements classified as a capital lease.
(3)
Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital obligations and long-term contractual obligations.
Through September 30, 2013, there have been no other material changes to the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.
OFF-BALANCE SHEET ARRANGEMENTS
We currently participate in four multiemployer pension plans. We recognized an expense of $1 million and $5 million related to contributions to our multiemployer pension plans for the three and nine months ended September 30, 2013. In the event that we withdraw from participation in one of these plans, then applicable law could require us to incur a withdrawal liability to the plan, and we would have to reflect that as an expense in our condensed consolidated statements of income and as a liability on our condensed consolidated balance sheets. During the second quarter of 2013, the Company recognized a withdrawal liability for one of the collective bargaining units under a multiemployer plan. As a result of this action, the Company recognized additional expense of $1 million for the nine months ended September 30, 2013. There were no significant expenses recognized during the three months ended September 30, 2013.
There are no other off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our results of operations, financial condition, liquidity, capital expenditures or capital resources other than letters of credit outstanding. Refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information regarding outstanding letters of credit.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the Notes to our Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading or used to hedge another derivative instrument.
Foreign Exchange Risk
The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have some exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As of September 30, 2013, the impact to our income from operations of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $16 million on an annual basis.
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of September 30, 2013, we had derivative contracts outstanding with a notional value of $56 million maturing at various dates through December 15, 2014.
Interest Rate Risk
We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable rate debt. At September 30, 2013, the carrying value of our debt, excluding capital leases, was $2,465 million, $470 million of which is designated as fair value hedges and exposed to variability in interest rates.
The following table is an estimate of the impact to the fair value hedges that could result from hypothetical interest rate changes during the term of the financial instruments, based on debt levels as of September 30, 2013:
Sensitivity Analysis
 
 
 
 
Change in Fair Value
Hypothetical Change in Interest Rates
 
Annual Impact to Interest Expense
 
Other Current and Non-current Assets
 
Other Non-current Liabilities
 
Total Debt
1-percent decrease(1)
 
$
—

 
$50 million increase
 
—

 
$50 million increase
1-percent increase
 
$5 million increase

 
$32 million decrease
 
$36 million increase

 
$68 million decrease
____________________________
(1)
We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of designated fair value hedges on certain debt instruments. See Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information. Our weighted average LIBOR rate as of September 30, 2013 was 0.32%. As LIBOR has not historically fallen below 0.25%, our estimate of the annual impact to interest expense reflects this assumption if our hypothetical change in the interest rate fell below the historical threshold.
Commodity Risks
We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of PET, diesel fuel, corn (for high fructose corn syrup), aluminum, sucrose, apple juice concentrate, apple and natural gas (for use in processing and packaging).
We utilize commodities forward and future contracts and supplier pricing agreements to hedge the risk of adverse movements in commodity prices for limited time periods for certain commodities. The fair market value of these contracts as of September 30, 2013 was a net liability of $9 million.
As of September 30, 2013, the impact of a 10% change (up or down) in market prices for these commodities where the risk of adverse movements has not been hedged is estimated to be an increase or decrease of approximately $2 million to our income from operations for the remainder of 2013.


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ITEM 4. CONTROLS AND PROCEDURES 
Based on evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, as of September 30, 2013, our disclosure controls and procedures are effective to (i) provide reasonable assurance that information required to be disclosed in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms, and (ii) ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


Item 1.
Legal Proceedings.
Information regarding legal proceedings is incorporated by reference from Note 15 of the Notes to our Unaudited Condensed Consolidated Financial Statements.

Item 1A.    Risk Factors.
There have been no material changes that we are aware of from the risk factors set forth in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds.
We repurchased approximately 2.6 million shares of our common stock, valued at approximately $117 million, in the third quarter of 2013. Our share repurchase activity, on a monthly basis, for the quarter ended September 30, 2013 was as follows (in thousands, except per share data):
Period
 
Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plans or Programs
July 1, 2013 – July 31, 2013
 
265

 
$
46.27

 
265

 
$
833,486

August 1, 2013 – August 31, 2013
 
234

 
45.73

 
234

 
822,772

September 1, 2013 – September 30, 2013
 
2,054

 
45.40

 
2,054

 
729,545

For the quarter ended September 30, 2013
 
2,553

 
45.52

 
2,553

 
 
____________________________
(1)
As previously disclosed, the Board has authorized us to purchase an aggregate amount of up to $3,000 million of our outstanding common stock. This column discloses the number of shares purchased pursuant to these programs during the indicated time periods. As of September 30, 2013, there was a remaining balance of $730 million authorized for repurchase that had not been utilized.


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Item 6.        Exhibits.
2.1
Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc, dated as of May 1, 2008 (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (filed on May 5, 2008) and incorporated herein by reference).
3.1
Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
3.2
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 17, 2012 (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (filed July 26, 2012) and incorporated herein by reference).
3.3
Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc. effective as of May 17, 2012 (filed as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q (filed July 26, 2012) and incorporated herein by reference).
4.1
Indenture, dated April 30, 2008, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A. (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.2
Form of 6.12% Senior Notes due 2013 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.3
Form of 6.82% Senior Notes due 2018 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.4
Form of 7.45% Senior Notes due 2038 (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.5
Registration Rights Agreement, dated April 30, 2008, between Dr Pepper Snapple Group, Inc., J.P. Morgan Securities Inc., Banc of America Securities LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, UBS Securities LLC, BNP Paribas Securities Corp., Mitsubishi UFJ Securities International plc, Scotia Capital (USA) Inc., SunTrust Robinson Humphrey, Inc., Wachovia Capital Markets, LLC and TD Securities (USA) LLC (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.6
Registration Rights Agreement Joinder, dated May 7, 2008, by the subsidiary guarantors named therein (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
4.7
Supplemental Indenture, dated May 7, 2008, among Dr Pepper Snapple Group, Inc., the subsidiary guarantors named therein and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
4.8
Second Supplemental Indenture dated March 17, 2009, to be effective as of December 31, 2008, among Splash Transport, Inc., as a subsidiary guarantor, Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K (filed on March 26, 2009) and incorporated herein by reference).
4.9
Third Supplemental Indenture, dated October 19, 2009, among 234DP Aviation, LLC, as a subsidiary guarantor; Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q (filed November 5, 2009) and incorporated herein by reference).
4.10
Indenture, dated as of December 15, 2009, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
4.11
First Supplemental Indenture, dated as of December 21, 2009, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
4.12
2.35% Senior Notes due 2012 (in global form), dated December 21, 2009, in the principal amount of $450 million(filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
4.13
Second Supplemental Indenture, dated as of January 11, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on January 11, 2011) and incorporated herein by reference).
4.14
2.90% Senior Note due 2016 (in global form), dated January 11, 2011, in the principal amount of $500 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on January 11, 2011) and incorporated herein by reference).
4.15
Third Supplemental Indenture, dated as of November 15, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).

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4.16
2.60% Senior Note due 2019 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
4.17
3.20% Senior Note due 2021 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
4.18
Fourth Supplemental Indenture, dated as of November 20, 2012, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
4.19
2.00% Senior Note due 2020 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).

4.20
2.70% Senior Note due 2022 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
10.1 †
Agreement dated July 22, 2013, among The American Bottling Company, Mott's LLP and CROWN Cork & Seal USA, Inc.
10.2*
First Amendment to Omnibus Stock Incentive Plan of 2009 approved by the Board of Directors and the Compensation Committee of the Board of Directors of Dr Pepper Snapple Group, Inc. on September 18, 2013 and filed herewith.
10.3*
Non-Employee Director Deferral Plan approved by the Board of Directors and the Compensation Committee of the Board of Directors of Dr Pepper Snapple Group, Inc. on September 18, 2013 and filed herewith.
12.1*
Computation of Ratio of Earnings to Fixed Charges.
31.1*
Certification of Chief Executive Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
31.2*
Certification of Chief Financial Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
32.1**
Certification of Chief Executive Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2**
Certification of Chief Financial Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101*
The following financial information from Dr Pepper Snapple Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012, (iii) Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements.

* Filed herewith.
† Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities and Exchange Act of 1934 as amended.
** Furnished herewith.

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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
Dr Pepper Snapple Group, Inc.
 
 
 
 
 
 
 
By:
/s/ Martin M. Ellen
 
 
 
 
 
 
Name:
 
Martin M. Ellen
 
 
Title:
 
Executive Vice President and Chief Financial
 
 
 
 
Officer of Dr Pepper Snapple Group, Inc.
 
Date: October 24, 2013
 
 
 
 



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