UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-33829

Delaware (State or other jurisdiction of incorporation or organization)		98-0517725 (I.R.S. employer identification number)
5301 Legacy Drive, Plano, Texas (Address of principal executive offices)		75024 (Zip code)

(972) 673-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes          þ No          o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes          þ No          o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes          o No          þ

As of May 3, 2010, there were 245,690,524 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

 

 

DR PEPPER SNAPPLE GROUP, INC.

FORM 10-Q

INDEX

			Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)			1
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009			1
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009			2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			39
Part II. Other Information
Item 1. Legal Proceedings			40
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6. Exhibits			41
EX-10.1
EX-10.2
EX-10.3
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

		For the
		Three Months Ended
		March 31,
		2010				2009
Net sales		$	1,248			$	1,260
Cost of sales			496				531
Gross profit			752				729
Selling, general and administrative expenses			531				499
Depreciation and amortization			31				27
Other operating expense (income), net			3				(62	)
Income from operations			187				265
Interest expense			34				55
Interest income			(1	)			(1	)
Other income, net			(3	)			(3	)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries			157				214
Provision for income taxes			68				82
Income before equity in earnings of unconsolidated subsidiaries			89				132
Equity in earnings of unconsolidated subsidiaries, net of tax			—				—
Net income		$	89			$	132
Earnings per common share:
Basic		$	0.35			$	0.52
Diluted		$	0.35			$	0.52
Weighted average common shares outstanding:
Basic			253.3				254.2
Diluted			255.1				254.3
Cash dividends declared per common share:		$	0.15			$	—

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

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,				December 31,
		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	571			$	280
Accounts receivable:
Trade, net			529				540
Other			32				32
Inventories			270				262
Deferred tax assets			59				53
Prepaid expenses and other current assets			169				112
Total current assets			1,630				1,279
Property, plant and equipment, net			1,106				1,109
Investments in unconsolidated subsidiaries			10				9
Goodwill			2,984				2,983
Other intangible assets, net			2,702				2,702
Other non-current assets			543				543
Non-current deferred tax assets			142				151
Total assets		$	9,117			$	8,776
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	798			$	850
Deferred revenue			36				—
Income taxes payable			16				4
Total current liabilities			850				854
Long-term obligations			2,566				2,960
Non-current deferred tax liabilities			1,042				1,038
Non-current deferred revenue			861				—
Other non-current liabilities			736				737
Total liabilities			6,055				5,589
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 15,000,000 shares authorized, no shares issued			—				—
Common stock, $.01 par value, 800,000,000 shares authorized, 248,545,188 and 254,109,047 shares issued and outstanding for 2010 and 2009, respectively			3				3
Additional paid-in capital			2,962				3,156
Retained earnings			138				87
Accumulated other comprehensive loss			(41	)			(59	)
Total stockholders’ equity			3,062				3,187
Total liabilities and stockholders’ equity		$	9,117			$	8,776

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

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2010 and 2009
(Unaudited, in millions)

		For the
		Three Months Ended
		March 31,
		2010				2009
Operating activities:
Net income		$	89			$	132
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense			44				39
Amortization expense			10				10
Amortization of deferred financing costs			1				5
Employee stock-based compensation expense			6				3
Deferred income taxes			9				17
Loss (gain) on disposal of intangible assets and property			3				(62	)
Other, net			3				1
Changes in assets and liabilities:
Trade and other accounts receivable			10				(9	)
Inventories			(7	)			(24	)
Other current assets			(47	)			14
Other non-current assets			(4	)			(8	)
Accounts payable and accrued expenses			(42	)			50
Income taxes payable			16				13
Deferred revenue			36				—
Non-current deferred revenue			861				—
Other non-current liabilities			(1	)			(3	)
Net cash provided by operating activities			987				178
Investing activities:
Purchases of property, plant and equipment			(55	)			(78	)
Purchases of intangible assets			—				(5	)
Proceeds from disposals of intangible assets			—				68
Net cash used in investing activities			(55	)			(15	)
Financing activities:
Repayment of senior unsecured credit facility			(405	)			(155	)
Repurchase of shares of common stock			(202	)			—
Dividends paid			(38	)			—
Other, net			—				(1	)
Net cash used in financing activities			(645	)			(156	)
Cash and cash equivalents — net change from:
Operating, investing and financing activities			287				7
Currency translation			4				(2	)
Cash and cash equivalents at beginning of period			280				214
Cash and cash equivalents at end of period		$	571			$	219
Supplemental cash flow disclosures of non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued expenses		$	25			$	15
Supplemental cash flow disclosures:
Interest paid		$	5			$	11
Income taxes paid			13				20

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

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General

     References in this Quarterly Report on Form 10-Q to “we”, “our”, “us”, “DPS” or “the Company” refer to Dr Pepper Snapple Group, Inc. and all entities included in our unaudited condensed consolidated financial statements. Cadbury plc and Cadbury Schweppes plc are hereafter collectively referred to as “Cadbury” unless otherwise indicated. Kraft Foods Inc. acquired Cadbury on February 2, 2010. Kraft Foods, Inc. and/or its subsidiaries are hereafter collectively referred to as “Kraft”.

     This Quarterly Report on Form 10-Q refers to some of DPS’ owned or licensed trademarks, trade names and service marks, which are referred to as the Company’s brands. All of the product names included in this Quarterly Report on Form 10-Q are either DPS’ registered trademarks or those of the Company’s licensors.

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

     The Company has evaluated subsequent events through the date of issuance of the Unaudited Condensed Consolidated Financial Statements.

Use of Estimates

     The process of preparing DPS’ unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. Actual amounts may differ from these estimates and judgments. The Company has identified the following policies as critical accounting policies:

•

revenue recognition;

•

customer marketing programs and incentives;

•

goodwill and other indefinite lived intangibles;

•

definite lived intangible assets;

•

stock-based compensation;

•

pension and postretirement benefits;

•

risk management programs; and

•

income taxes.

     These accounting estimates and related policies are discussed in greater detail in DPS’ Annual Report on Form 10-K for the year ended December 31, 2009.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Recently Issued Accounting Updates

     In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU No. 2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3 fair value measurements. Portions of ASU No. 2010-06 that relate to the Level 3 activity disclosures are effective for the annual reporting period beginning after December 15, 2010. The Company will provide the required disclosures beginning with the Company’s Annual Report on Form 10-K for the year ending December 31, 2011. Based on the initial evaluation, the Company does not anticipate a material impact to the Company’s financial position, results of operations or cash flows as a result of this change.

Recently Adopted Provisions of U.S. GAAP

     In accordance with U.S. GAAP, the following provisions, which had no material impact on the Company’s financial position, results of operations or cash flows, were effective as of January 1, 2010.

•

The application of certain key provisions of U.S. GAAP related to consolidation of variable interest entities, including guidance for determining whether an entity is a variable interest entity, ongoing assessments of control over such entities, and additional disclosures about an enterprise’s involvement in a variable interest entity.

•

The addition of certain fair value measurement disclosure requirements specific to the different classes of assets and liabilities, valuation techniques and inputs used, as well as transfers between level 1 and level 2. See Note 9 for further information.

2. Inventories

     Inventories as of March 31, 2010, and December 31, 2009, consisted of the following (in millions):

		March 31,				December 31,
		2010				2009
Raw materials		$	97			$	105
Work in process			5				4
Finished goods			209				193
Inventories at FIFO cost			311				302
Reduction to LIFO cost			(41	)			(40	)
Inventories		$	270			$	262

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Goodwill and Other Intangible Assets

     Changes in the carrying amount of goodwill for the three months ended March 31, 2010, and the year ended December 31, 2009, by reporting unit are as follows (in millions):

						WD				DSD				Latin
		Beverage				Reporting				Reporting				America
		Concentrates				Unit(1)				Unit(1)				Beverages				Total
Balance as of December 31, 2008
Goodwill		$	1,733			$	1,220			$	180			$	30			$	3,163
Accumulated impairment losses			—				—				(180	)			—				(180	)
			1,733				1,220				—				30				2,983
Foreign currency impact			(1	)			—				—				1				—
Balance as of December 31, 2009
Goodwill			1,732				1,220				180				31				3,163
Accumulated impairment losses			—				—				(180	)			—				(180	)
			1,732				1,220				—				31				2,983
Foreign currency impact			(1	)			—				—				2				1
Balance as of March 31, 2010
Goodwill			1,731				1,220				180				33				3,164
Accumulated impairment losses			—				—				(180	)			—				(180	)
		$	1,731			$	1,220			$	—			$	33			$	2,984

     The net carrying amounts of intangible assets other than goodwill as of March 31, 2010, and December 31, 2009, are as follows (in millions):

		March 31, 2010												December 31, 2009
		Gross				Accumulated				Net				Gross				Accumulated				Net
		Amount				Amortization				Amount				Amount				Amortization				Amount
Intangible assets with indefinite lives:
Brands(1)		$	2,656			$	—			$	2,656			$	2,652			$	—			$	2,652
Distributor rights			8				—				8				8				—				8
Intangible assets with finite lives:
Brands			29				(23	)			6				29				(22	)			7
Customer relationships			76				(48	)			28				76				(45	)			31
Bottler agreements			21				(17	)			4				21				(17	)			4
Distributor rights			2				(2	)			—				2				(2	)			—
Total		$	2,792			$	(90	)		$	2,702			$	2,788			$	(86	)		$	2,702

     As of March 31, 2010, the weighted average useful lives of intangible assets with finite lives were 10 years, 8 years and 9 years for brands, customer relationships and bottler agreements, respectively. Amortization expense for intangible assets was $4 million for each of the three months ended March 31, 2010 and 2009.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Amortization expense of these intangible assets over the remainder of 2010 and the next four years is expected to be the following (in millions):

		Aggregate
		Amortization
Year		Expense
Remaining nine months for the year ending December 31, 2010		$	13
2011			8
2012			4
2013			4
2014			4

     The Company conducts impairment tests on goodwill and all indefinite lived intangible assets annually, as of December 31, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses present value and other valuation techniques to make this assessment. If the carrying amount of goodwill exceeds its implied fair value or the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. DPS did not identify any circumstances that indicated that the carrying amount of any goodwill or any indefinite lived intangible asset may not be recoverable during the three months ended March 31, 2010.

4. Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses consisted of the following as of March 31, 2010, and December 31, 2009 (in millions):

		March 31,				December 31,
		2010				2009
Trade accounts payable		$	289			$	252
Customer rebates and incentives			157				209
Accrued compensation			67				126
Insurance reserves			73				68
Interest accrual and interest rate swap liability			51				24
Other current liabilities			161				171
Accounts payable and accrued expenses		$	798			$	850

5. Long-term obligations

     The following table summarizes the Company’s long-term obligations as of March 31, 2010, and December 31, 2009 (in millions):

		March 31,				December 31,
		2010				2009
Senior unsecured notes(1)		$	2,553			$	2,542
Revolving credit facility			—				405
Less – current portion			—				—
Subtotal			2,553				2,947
Long-term capital lease obligations			13				13
Long-term obligations		$	2,566			$	2,960

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     2010 Borrowings and Repayments

     On November 20, 2009, the Company’s Board of Directors (the “Board”) authorized the Company to issue up to $1,500 million of debt securities through the Securities and Exchange Commission shelf registration process. At March 31, 2010, $650 million remained authorized to be issued following the issuance described below.

     During the first quarter of 2010, the Company repaid $405 million borrowed from the revolving credit facility (the “Revolver”).

     The following is a description of the Company’s senior unsecured credit facility and the senior unsecured notes. The summaries of the senior unsecured credit facility and the senior unsecured notes are qualified in their entirety by the specific terms and provisions of the senior unsecured credit facility agreement (the “Facility Agreement”) and the indenture governing the senior unsecured notes, respectively, copies of which have previously been filed, as referenced in the exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Senior Unsecured Credit Facility

     The Company’s senior unsecured credit facility originally provided senior unsecured financing of up to $2,700 million, which consisted of:

•

the senior unsecured Term Loan A facility (the “Term Loan A”) in an aggregate principal amount of $2,200 million with a term of five years, which was fully repaid in December 2009 prior to its maturity, and under which no further borrowings may be made; and

•

the Revolver in an aggregate principal amount of $500 million with a maturity in 2013. The balance of principal borrowings under the Revolver was $0 and $405 million as of March 31, 2010 and December 31, 2009, respectively. Up to $75 million of the Revolver is available for the issuance of letters of credit, of which $42 million and $41 million were utilized as of March 31, 2010, and December 31, 2009, respectively. Balances available for additional borrowings and letters of credit were $458 million and $33 million, respectively, as of March 31, 2010.

     Borrowings under the senior unsecured credit facility bear interest at a floating rate per annum based upon the London interbank offered rate for dollars (“LIBOR”) or the alternate base rate (“ABR”), in each case plus an applicable margin which varies based upon the Company’s debt ratings, from 1.00% to 2.50%, in the case of LIBOR loans and 0.00% to 1.50% in the case of ABR loans. The ABR means the greater of (a) JPMorgan Chase Bank’s prime rate and (b) the federal funds effective rate plus one half of 1%. Interest is payable on the last day of the interest period, but not less than quarterly, in the case of any LIBOR loan and on the last day of March, June, September and December of each year in the case of any ABR loan. The average interest rate for the three months ended March 31, 2010 and 2009, was 2.25% and 5.10%, respectively. Interest expense was $2 million and $26 million for the three months ended March 31, 2010 and 2009, respectively. Amortization of deferred financing costs of $1 million and $4 million for the three months ended March 31, 2010 and 2009, respectively, was included in interest expense.

     The Company utilized interest rate swaps to effectively convert variable interest rates to fixed rates. Refer to Note 6 for further information regarding derivatives.

     An unused commitment fee is payable quarterly to the lenders on the unused portion of the commitments in respect of the Revolver equal to 0.15% to 0.50% per annum, depending upon the Company’s debt ratings. Interest expense included $1 million of amortization of deferred financing costs associated with the Revolver for each of the three months ended March 31, 2010 and 2009.

     Principal amounts outstanding under the Revolver are due and payable in full at maturity.

     All obligations under the senior unsecured credit facility are guaranteed by substantially all of the Company’s existing and future direct and indirect domestic subsidiaries.

     The Facility Agreement contains customary negative covenants that, among other things, restrict the Company’s ability to incur debt at subsidiaries that are not guarantors; incur liens; merge or sell, transfer, lease or otherwise dispose of all or substantially all assets; make investments, loans, advances, guarantees and acquisitions; enter into transactions with affiliates; and enter into agreements restricting its ability to incur liens or the ability of subsidiaries to make distributions. These covenants are subject to certain exceptions described in the senior Facility Agreement. In addition, the Facility Agreement requires the Company to comply with a maximum total leverage ratio covenant and a minimum interest coverage ratio covenant. The Facility Agreement also contains certain usual and customary representations and warranties, affirmative covenants and events of default. As of March 31, 2010 and December 31, 2009, the Company was in compliance with all financial covenant requirements.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Senior Unsecured Notes

The 2011 and 2012 Notes

     In December 2009, the Company completed the issuance of $850 million aggregate principal amount of senior unsecured notes consisting of the 2011 and 2012 Notes. The weighted average interest rate of the 2011 and 2012 Notes was 2.0% for the three months ended March 31, 2010. The net proceeds from the sale of the debentures were used for repayment of existing indebtedness under the Term Loan A. Interest on the 2011 and 2012 Notes is payable semi-annually on June 21 and December 21. Interest expense was $2 million for the three months ended March 31, 2010.

     The Company utilizes interest rate swaps designated as fair value hedges, to convert fixed interest rates to variable rates. Refer to Note 6 for further information regarding derivatives.

     The indenture governing the 2011 and 2012 Notes, among other things, limits the Company’s ability to incur indebtedness secured by principal properties, to enter into certain sale and leaseback transactions and to enter into certain mergers or transfers of substantially all of DPS’ assets. The 2011 and 2012 Notes are guaranteed by substantially all of the Company’s existing and future direct and indirect domestic subsidiaries. As of March 31, 2010 and December 31, 2009, the Company was in compliance with all covenant requirements.

The 2013, 2018 and 2038 Notes

     During 2008, the Company completed the issuance of $1,700 million aggregate principal amount of senior unsecured notes consisting of $250 million aggregate principal amount of 6.12% senior notes due May 1, 2013 (the “2013 Notes”), $1,200 million aggregate principal amount of 6.82% senior notes due May 1, 2018 (the “2018 Notes”), and $250 million aggregate principal amount of 7.45% senior notes due May 1, 2038 (the “2038 Notes”). The weighted average interest rate of the 2013, 2018 and 2038 Notes was 6.8% for both three month periods ended March 31, 2010 and 2009. Interest on the senior unsecured notes is payable semi-annually on May 1 and November 1. Interest expense was $29 million for each of the three months ended March 31, 2010 and 2009.

     The indenture governing the senior unsecured notes, among other things, limits the Company’s ability to incur indebtedness secured by principal properties, to enter into certain sale and lease back transactions and to enter into certain mergers or transfers of substantially all of DPS’ assets. The senior unsecured notes are guaranteed by substantially all of the Company’s existing and future direct and indirect domestic subsidiaries. As of March 31, 2010 and December 31, 2009, the Company was in compliance with all covenant requirements.

Capital Lease Obligations

     Long-term capital lease obligations totaled $13 million as of March 31, 2010, and December 31, 2009. Current obligations related to the Company’s capital leases were $3 million as of March 31, 2010, and December 31, 2009, and were included as a component of accounts payable and accrued expenses.

6. Derivatives

     DPS is exposed to market risks arising from adverse changes in:

•

interest rates;

•

foreign exchange rates; and

•

commodity prices, affecting the cost of raw materials and fuels.

     The Company manages these risks through a variety of strategies, including the use of interest rate swaps, foreign exchange forward contracts, commodity futures contracts and supplier pricing agreements. DPS does not hold or issue derivative financial instruments for trading or speculative purposes.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The Company formally designates and accounts for certain interest rate swaps and foreign exchange forward contracts that meet established accounting criteria under U.S. GAAP as either fair value or cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in Accumulated Other Comprehensive Loss (“AOCL”), a component of Stockholders’ Equity in the Unaudited Condensed Consolidated Balance Sheets. When net income is affected by the variability of the underlying transaction, the applicable offsetting amount of the gain or loss from the derivative instruments deferred in AOCL is reclassified to net income and is reported as a component of the Unaudited Condensed Consolidated Statements of Operations. For derivative instruments that are designated and qualify as fair value hedges, the effective change in the fair value of these instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized immediately in current-period earnings. For derivatives that are not designated or are de-designated as hedging instruments, the gain or loss on the instruments is recognized in earnings in the period of change.

     Certain interest rate swap agreements qualify for the “shortcut” method of accounting for hedges under U.S. GAAP. Under the “shortcut” method, the hedges are assumed to be perfectly effective and no ineffectiveness is recorded in earnings. For all other designated hedges, DPS assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly throughout the designated period. Changes in the fair value of the derivative instruments that do not effectively offset changes in the fair value of the underlying hedged item or the variability in the cash flows of the forecasted transaction throughout the designated hedge period are recorded in earnings each period.

     If fair value or cash flow hedges were to cease to qualify for hedge accounting or were terminated, it would continue to be carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCL are reclassified to earnings at that time.

     Interest Rates

          Cash Flow Hedges

     During 2009, DPS utilized interest rate swaps to manage its exposure to volatility in floating interest rates on borrowings under its Term Loan A. The intent of entering into these interest rate swaps was to provide predictability in the Company’s overall cost structure by effectively converting variable interest rates to fixed rates. During the three months ended March 31, 2009, the Company effectively utilized interest rate swaps with a total notional amount of $1,700 million, entered into during 2008. In February 2009, the Company entered into an interest rate swap effective December 31, 2009, with a duration of twelve months and a $750 million notional amount that amortizes at the rate of $100 million every quarter and designated it as a cash flow hedge. Upon repayment of the Term Loan A in December 2009, the Company de-designated the cash flow hedge. See the Economic Hedge section within this note for further information.

     During the three months ended March 31, 2009, the Company fully settled an interest rate swap with a notional amount of $500 million.

     There were no interest rate swaps in place for the three months ended March 31, 2010, that qualified for hedge accounting as cash flow hedges under U.S. GAAP.

          Fair Value Hedges

     The Company is also exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates and manages these risks through the use of receive-fixed, pay-variable interest rate swaps.

     There were no interest rate swaps in place for the three months ended March 31, 2009, that qualified for hedge accounting as fair value hedges under U.S. GAAP.

     In December 2009, the Company entered into interest rate swaps having an aggregate notional amount of $850 million and durations ranging from two to three years in order to convert fixed-rate, long-term debt to floating rate debt. These swaps were entered into at the inception of the 2011 and 2012 Notes, were originally accounted for as fair value hedges under U.S. GAAP and qualified for the “shortcut method” of accounting for hedges. Effective March 10, 2010, $225 million notional of the interest rate swap linked to the 2012 Notes was restructured to reflect a change in the variable interest rate to be paid by the Company. This change triggered the de-designation of the $225 million notional fair value hedge and the corresponding fair value hedging relationship was discontinued. With the fair value hedge discontinued, the Company ceased adjusting the carrying value of the 2012 Notes corresponding to the $225 million restructured notional

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

amounts. The $1 million adjustment of the carrying value of the 2012 Notes that resulted from de-designation will continue to be carried on the balance sheet and amortized completely over the remaining term of the 2012 Notes. As a result, the Company had fair value hedges having an aggregate notional amount of $625 million as of March 31, 2010.

     As of March 31, 2010, the carrying value of the 2011 and 2012 Notes increased by $4 million, which includes the $1 million adjustment, net of amortization, that resulted from the de-designation discussed above, to reflect the change in fair value of the Company’s interest rate swap agreements. Refer to Note 5 for further information.

          Economic Hedge

     In addition to derivatives instruments that qualify for and are designated as hedging instruments under U.S. GAAP, the Company utilizes interest rate swap instruments that are not designated as cash flow or fair value hedges to manage interest rate risk.

     As discussed above under Cash Flow Hedges, the interest rate swap entered into by the Company and designated as a cash flow hedge under U.S GAAP in February 2009, was subsequently de-designated with the full repayment of the Term Loan A in December 2009. The Company also terminated $345 million of the original notional amount of the interest rate swap in December 2009, leaving the remaining $405 million in notional amount of the interest rate swap that had not been terminated as an economic hedge during the first quarter of 2010. This remaining $405 million in notional amount of the interest rate swap was used to economically hedge the volatility in the floating interest rate associated with borrowings under the Revolver during the quarter. The Company terminated this interest rate swap instrument once the outstanding balance under the Revolver was fully repaid. The gain or loss on the instrument was recognized in earnings during the period the instrument was outstanding.

     As discussed above under Fair Value Hedges, effective March 10, 2010, $225 million notional of the interest rate swap linked to the 2012 Notes was restructured to reflect a change in the variable interest rate to be paid by the Company. This resulted in the de-designation of the $225 million notional fair value hedge and the discontinuance of the corresponding fair value hedging relationship. The $225 million notional restructured interest rate swap was subsequently accounted for as an economic hedge and the gain or loss on the instrument is recognized in earnings.

     Foreign Exchange

     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 three months ended March 31, 2010 and 2009, the Company utilized foreign exchange forward contracts designated as cash flow hedges to manage the operational 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 21 months. As of March 31, 2010, the Company had outstanding foreign exchange forward contracts with notional amounts of $73 million.

     Commodities

     DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production and distribution processes through futures contracts and supplier pricing agreements. The intent of these contracts and agreements is to provide predictability in the Company’s overall cost structure. During the three months ended March 31, 2010 and 2009, the Company entered into futures contracts that economically hedge certain of its risks. In these cases, a natural hedging relationship exists whereby changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in net income throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Operations as the hedged transaction. Gains and losses are recognized as a component of unallocated corporate costs until the Company’s operating segments are affected by the settlement of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment’s operating profit (“SOP”).

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     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 March 31, 2010, and December 31, 2009 (in millions):

				March 31,				December 31,
		Balance Sheet Location		2010				2009
Assets:
Derivative instruments designated as hedging instruments under U.S. GAAP:
Interest rate swap contracts		Prepaid expenses and other current assets		$	6			$	6
Foreign exchange forward contracts		Other non-current assets			—				—
Derivative instruments not designated as hedging instruments under U.S. GAAP:
Commodity futures		Prepaid expenses and other current assets			4				1
Interest rate swap contracts		Prepaid expenses and other current assets			3				—
Commodity futures		Other non-current assets			7				9
Total assets				$	20			$	16
Liabilities:
Derivative instruments designated as hedging instruments under U.S. GAAP:
Foreign exchange forward contracts		Accounts payable and accrued expenses		$	2			$	2
Interest rate swap contracts		Other non-current liabilities			3				14
Foreign exchange forward contracts		Other non-current liabilities			—				—
Derivative instruments not designated as hedging instruments under U.S. GAAP:
Interest rate swap contract		Accounts payable and accrued expenses			—				3
Commodity futures		Accounts payable and accrued expenses			2				—
Interest rate swap contract		Other non-current liabilities			2				—
Commodity futures		Other non-current liabilities			1				—
Total liabilities				$	10			$	19

     The following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statement of Operations and Other Comprehensive Income (“OCI”) for the three months ended March 31, 2010 and 2009 (in millions):

		Amount of Gain				Amount of Gain (Loss)				Location of Gain (Loss)
		(Loss) Recognized in				Reclassified from AOCL into				Reclassified from AOCL into
		OCI				Net Income				Net Income
For the three months ended March 31, 2010:
Foreign exchange forward contract		$	(2	)		$	(2	)		Cost of sales
Total		$	(2	)		$	(2	)
For the three months ended March 31, 2009:
Interest rate swap contracts		$	(6	)		$	(11	)		Interest expense
Foreign exchange forward contract			—				—			Cost of sales
Total		$	(6	)		$	(11	)

     There was no hedge ineffectiveness recognized in net income for the three months ended March 31, 2010 and 2009. During the next 12 months, the Company expects to reclassify net losses of $2 million from AOCL into net income.

     The interest rate swap agreements designated as fair value hedges qualify for the “shortcut” method and no ineffectiveness is recorded in earnings for the three months ended March 31, 2010.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2010 and 2009 (in millions):

		Amount of Gain (Loss)				Location of Gain (Loss)
		Recognized in Income				Recognized in Income
For the three months ended March 31, 2010:
Interest rate swap contracts		$	—			Interest expense
Commodity futures			(2	)		Cost of sales
Commodity futures			1			Selling, general and administrative expenses
Total (1)		$	(1	)
For the three months ended March 31, 2009:
Commodity futures		$	(3	)		Cost of sales
Commodity futures			(3	)		Selling, general and administrative expenses
Total (2)		$	(6	)

     Refer to Note 9 for more information on the valuation of derivative instruments. The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, DPS has not experienced credit losses as a result of counterparty nonperformance. The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines, and monitors the market position of the programs at least on a quarterly basis.

7. Other Non-Current Assets and Other Non-Current Liabilities

     The table below details the components of other non-current assets and other non-current liabilities as of March 31, 2010, and December 31, 2009 (in millions):

		March 31,				December 31,
		2010				2009
Other non-current assets:
Long-term receivables from Kraft(1)		$	405			$	402
Deferred financing costs, net			21				23
Customer incentive programs			82				84
Other			35				34
Other non-current assets		$	543			$	543
Other non-current liabilities:
Long-term payables due to Kraft(1)		$	120			$	115
Liabilities for unrecognized tax benefits and other tax related items			543				534
Long-term pension and postretirement liability			46				49
Other			27				39
Other non-current liabilities		$	736			$	737

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8. Income Taxes

     The effective tax rates for the three months ended March 31, 2010 and 2009 were 43.3% and 38.3%, respectively. The increase in the effective tax rate for the three months ended March 31, 2010, was primarily driven by a previous change in the provincial income tax rate for Ontario, Canada, which caused a writedown of a deferred tax asset, partially offset by foreign tax planning benefits. The impact of the change in tax rate increased the provision for income taxes and effective tax rate by $13 million and 8.3%, respectively for the three months ended March 31, 2010.

     The Company’s Canadian deferred tax assets as of March 31, 2010, of which approximately 66% are allocated to Ontario, Canada, included a separation related balance of $138 million that was offset by a liability due to Kraft of $124 million driven by the Tax Indemnity Agreement. Anticipated legislation in Canada could result in a future partial writedown of these tax assets which would be offset to some extent by a partial write down of the liability due to Kraft.

     Under the Tax Indemnity Agreement, Kraft will indemnify DPS for net unrecognized tax benefits and other tax related items of $405 million. This balance increased by $3 million during the three months ended March 31, 2010, and was offset by indemnity income recorded as a component of other income in the unaudited Condensed Consolidated Statement of Operations. In addition, pursuant to the terms of the Tax Indemnity Agreement, if DPS breaches certain covenants or other obligations or DPS is involved in certain change-in-control transactions, Kraft may not be required to indemnify the Company.

9. Fair Value

     Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy for disclosure of fair value measurements is as follows:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 — Valuations with one or more unobservable significant inputs that reflect the reporting entity’s own assumptions.

     The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 (in millions):

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in				Significant Other				Significant
		Active Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		Level 1				Level 2				Level 3
Cash and cash equivalents		$	571			$	—			$	—
Commodity futures			—				11				—
Interest rate swaps			—				9				—
Total assets		$	571			$	20			$	—
Commodity futures		$	—			$	3			$	—
Interest rate swaps			—				5				—
Foreign exchange forward contracts			—				2				—
Total liabilities		$	—			$	10			$	—

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 (in millions):

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in				Significant Other				Significant
		Active Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		Level 1				Level 2				Level 3
Cash and cash equivalents		$	280			$	—			$	—
Commodity futures			—				10				—
Interest rate swaps			—				6				—
Total assets		$	280			$	16			$	—
Interest rate swaps		$	—			$	17			$	—
Foreign exchange forward contracts			—				2				—
Total liabilities		$	—			$	19			$	—

     The fair values of commodity futures contracts, interest rate swap contracts and foreign currency forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity futures contracts are valued using the market approach based on observable market transactions at the reporting date. Interest rate swap contracts are valued using models based on readily observable market parameters for all substantial terms of our contracts. The fair value of foreign currency forward contracts are valued using quoted forward foreign exchange prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.

     As of March 31, 2010, and December 31, 2009, we did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (level 3).

     There were no transfers of financial instruments between the three levels of fair value hierarchy during the three months ended March 31, 2010.

     The estimated fair values of other financial liabilities not measured at fair value on a recurring basis at March 31, 2010, and December 31, 2009, are as follows (in millions):

		March 31, 2010								December 31, 2009
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Long term debt – 2011 Notes		$	401			$	400			$	396			$	400
Long term debt – 2012 Notes			452				450				446				451
Long term debt – 2013 Notes			250				277				250				273
Long term debt – 2018 Notes			1,200				1,359				1,200				1,349
Long term debt – 2038 Notes			250				294				250				291
Long term debt – Revolving credit facility			—				—				405				405

     Capital leases have been excluded from the calculation of fair value for both 2010 and 2009.

     The fair value amounts for cash and cash equivalents, accounts receivable, net and accounts payable and accrued expenses approximate carrying amounts due to the short maturities of these instruments. The fair value amounts of long term debt as of March 31, 2010, and December 31, 2009, were estimated based on quoted market prices for traded securities. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all debt at such date.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Employee Benefit Plans

     The following table sets forth the components of pension benefit costs for the three months ended March 31, 2010 and 2009 (in millions):

		For the Three Months
		Ended March 31,
		2010				2009
Service cost		$	—			$	—
Interest cost			4				4
Expected return on assets			(4	)			(3	)
Recognition of actuarial loss			1				1
Net periodic benefit costs		$	1			$	2

     Total net periodic benefit costs for the U.S. postretirement benefit plans were not significant for either of the three month periods ended March 31, 2010 or 2009. The estimated prior service cost, transitional obligation and estimated net loss that will be amortized from AOCL into periodic benefit cost for postretirement plans in 2010 are not significant.

     The Company contributed $3 million to its pension plans during the three months ended March 31, 2010, and expects to contribute an additional $9 million to these plans during the remainder of 2010.

     The Company also contributes to various multi-employer pension plans based on obligations arising from certain of its collective bargaining agreements. The Company recognizes expense in connection with these plans as contributions are funded. Contributions paid into multi-employer defined benefit pension plans for employees under collective bargaining agreements were approximately $1 million for each of the three month periods ended March 31, 2010 and 2009.

11. Stock-Based Compensation

     The Company’s Omnibus Stock Incentive Plans of 2008 and 2009 (collectively, the “DPS Stock Plans”) provide for various long-term incentive awards, including stock options and restricted stock units (“RSUs”).

     The components of stock-based compensation expense for the three months ended March 31, 2010 and 2009 are presented below (in millions). Stock-based compensation expense is recorded in selling, general and administrative expenses in the unaudited Condensed Consolidated Statement of Operations.

		For the Three Months
		Ended March 31,
		2010				2009
Total stock-based compensation expense		$	6			$	3
Income tax benefit recognized in the income statement			(2	)			(1	)
Net stock-based compensation expense		$	4			$	2

     The table below summarizes stock option activity for the three months ended March 31, 2010.

						Weighted				Weighted Average				Aggregate
						Average				Remaining Contractual				Intrinsic Value
		Stock Options				Exercise Price				Term (Years)				(in millions)
Outstanding at December 31, 2009			2,178,211			$	18.97				8.79			$	20
Granted			670,368				31.50
Exercised			(65,868	)			17.08
Forfeited or expired			—				—
Outstanding at March 31, 2010			2,782,711				22.04				8.85				37
Exercisable at March 31, 2010			660,247			$	19.16				8.53			$	11

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     As of March 31, 2010, there was $10 million of unrecognized compensation cost related to the nonvested stock options granted under the DPS Stock Plans that is expected to be recognized over a weighted average period of 2.15 years.

     The table below summarizes RSU activity for the three months ended March 31, 2010.

						Weighted				Weighted Average				Aggregate
						Average Grant				Remaining Contractual				Intrinsic Value
		RSUs				Date Fair Value				Term (Years)				(in millions)
Outstanding at December 31, 2009			2,688,551			$	17.43				1.91			$	76
Granted			873,476				31.50
Dividend equivalent units(1)			13,969				28.87
Vested			(15,392	)			20.14
Forfeited or expired			(13,513	)			16.55
Outstanding at March 31, 2010			3,547,091			$	20.90				2.30			$	125

     As of March 31, 2010, there was $53 million of unrecognized compensation cost related to the nonvested RSUs granted under the DPS Stock Plans that is expected to be recognized over a weighted average period of 2.30 years.

12. Earnings Per Share

     Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities. The following table sets forth the computation of basic EPS utilizing the net income for the respective period and the Company’s basic shares outstanding and presents the computation of diluted EPS (in millions, except per share data):

		For the Three Months
		Ended March 31,
		2010				2009
Basic EPS:
Net income		$	89			$	132
Weighted average common shares outstanding			253.3				254.2
Earnings per common share — basic		$	0.35			$	0.52
Diluted EPS:
Net income		$	89			$	132
Weighted average common shares outstanding			253.3				254.2
Effect of dilutive securities:
Stock options, RSUs, and dividend equivalent units			1.8				0.1
Weighted average common shares outstanding and common stock equivalents			255.1				254.3
Earnings per common share — diluted		$	0.35			$	0.52

     Stock options, RSUs and dividend equivalent units totaling 0.5 million shares were excluded from the diluted weighted average shares outstanding for the three months ended March 31, 2010 as they were not dilutive. Weighted average options and RSUs totaling 2.4 million shares were excluded from the diluted weighted average shares outstanding for the three months ended March 31, 2009 as they were not dilutive. Under the terms of our RSU agreements, unvested RSU awards contain forfeitable rights to dividends and dividend equivalent units. Because the dividend equivalent units are forfeitable, they are defined as non-participating securities.

     On February 24, 2010, the Board approved an increase in the total aggregate share repurchase authorization up to $1 billion. Subsequent to this approval, the Company repurchased and retired 5.8 million shares of common stock valued at approximately $202 million in the three months ended March 31, 2010. These amounts were recorded as a reduction of equity, primarily additional paid-in capital.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. Commitments and Contingencies

Legal Matters

     The Company is occasionally subject to litigation or other legal proceedings as set forth below. The Company does not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on the business or financial condition of the Company, although such matters may have a material adverse effect on the Company’s results of operations or cash flows in a particular period.

Snapple Litigation – Labeling Claims

     Snapple Beverage Corp. has been sued in various jurisdictions generally alleging that Snapple’s labeling of certain of its drinks is misleading and/or deceptive. These cases have been filed as class actions and, generally, seek unspecified damages on behalf of the class, including enjoining Snapple from various labeling practices, disgorging profits, reimbursing of monies paid for product and treble damages. The cases and their status are as follows:

•

In 2007, Snapple Beverage Corp. was sued by Stacy Holk in New Jersey Superior Court, Monmouth County. Subsequent to filing, the Holk case was removed to the United States District Court, District of New Jersey. Snapple filed a motion to dismiss the Holk case on a variety of grounds. In June 2008, the district court granted Snapple’s motion to dismiss. The plaintiff appealed and in August 2009, the appellate court reversed the judgment and remanded to the district court for further proceedings.

•

In 2007, the attorneys in the Holk case also filed a new action in the United States District Court, Southern District of New York on behalf of plaintiffs, Evan Weiner and Timothy McCausland. This case was stayed during the pendency of the Holk motion to dismiss and appeal. This stay is now lifted, the Company filed its answer and the case is proceeding.

•

In April 2009, Snapple Beverage Corp. was sued by Frances Von Koenig in the United States District Court, Eastern District of California. A motion to dismiss has been filed in the Von Koenig case.

•

In August 2009, Guy Cadwell filed suit against Dr Pepper Snapple Group, Inc. in the United States District Court, Southern District of California. This case has been transferred to the United States District Court, Eastern District of California and has been consolidated by that court with the Von Koenig case.

     The Company believes it has meritorious defenses to the claims asserted in each of these cases and will defend itself vigorously. However, there is no assurance that the outcome of these cases will be favorable to the Company.

Nicolas Steele v. Seven Up/RC Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of Southern California, Inc.
California Wage Audit

     In 2007, one of the Company’s subsidiaries, Seven Up/RC Bottling Company Inc., was sued by Robert Jones in the Superior Court in the State of California (Orange County), alleging that its subsidiary failed to provide meal and rest periods and itemized wage statements in accordance with applicable California wage and hour law. The case was filed as a class action. The class, which has not yet been certified, consists of employees who have held delivery driver positions in California in the past three years. The potential class size could be substantially higher due to the number of individuals who have held these positions over the three year period. On behalf of the class, the plaintiffs claim lost wages, waiting time penalties and other penalties for each violation of the statute. The Company believes it has meritorious defenses to the claims asserted and will defend itself vigorously. However, there is no assurance that the outcome of this matter will be in its favor. A case filed by Nicolas Steele, et al. in the same court based on similar facts and causes of action, but involving merchandisers, has been settled for an amount that is not material to the Company.

     The Company has been requested to conduct an audit of its meal and rest periods for all non-exempt employees in California at the direction of the California Department of Labor. At this time, the Company has declined to conduct such an audit until there is judicial clarification of the intent of the statute. The Company cannot predict the outcome of such an audit.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Environmental, Health and Safety Matters

     The Company operates many manufacturing, bottling and distribution facilities. In these and other aspects of the Company’s business, it is subject to a variety of federal, state and local environment, health and safety laws and regulations. The Company maintains environmental, health and safety policies and a quality, environmental, health and safety program designed to ensure compliance with applicable laws and regulations. However, the nature of the Company’s business exposes it to the risk of claims with respect to environmental, health and safety matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims.

     The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also known as the Superfund law, as well as similar state laws, generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault of the legality of the original conduct. In October 2008, DPS was notified by the Environmental Protection Agency that it is a potentially responsible party for study and cleanup costs at a Superfund site in New Jersey. Investigation and remediation costs are yet to be determined, but the Company has reasonably estimated that DPS’ allocation of costs related to the study for this site will not exceed $250,000.

14. Comprehensive Income

     The following table provides a summary of the total comprehensive income, including our proportionate share of equity method investees’ other comprehensive income, for the three months ended March 31, 2010 and 2009 (in millions):

		For the
		Three Months Ended
		March 31,
		2010				2009
Consolidated net income		$	89			$	132
Other comprehensive income:
Net foreign currency translation gain (loss)			17				(9	)
Net change in pension liability			1				—
Cash flow hedge gain			—				3
Total comprehensive income		$	107			$	126

15. Segments

     As of March 31, 2010, the Company’s operating structure consisted of the following three operating segments:

•

The Beverage Concentrates segment reflects sales of the Company’s branded concentrates and syrup to third party bottlers primarily in the United States and Canada. Most of the brands in this segment are carbonated soft drink (“CSD”) brands.

•

The Packaged Beverages segment reflects sales in the United States and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company’s own brands and third party brands, through both DSD and WD.

•

The Latin America Beverages segment reflects sales in the Mexico and Caribbean markets from the manufacture and distribution of both concentrates 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.

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Information about the Company’s operations by operating segment for the three months ended March 31, 2010 and 2009 is as follows (in millions):

		For the
		Three Months Ended
		March 31,
		2010				2009
Segment Results – Net Sales
Beverage Concentrates		$	240			$	243
Packaged Beverages			929				944
Latin America Beverages			79				73
Net sales		$	1,248			$	1,260

		For the
		Three Months Ended
		March 31,
		2010				2009
Segment Results – SOP
Beverage Concentrates		$	146			$	150
Packaged Beverages			114				107
Latin America Beverages			7				9
Total SOP			267				266
Unallocated corporate costs			77				63
Other operating expense (income), net			3				(62	)
Income from operations			187				265
Interest expense, net			33				54
Other income, net			(3	)			(3	)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries		$	157			$	214

16. Agreement with PepsiCo, Inc.

     On February 26, 2010, the Company completed the licensing of certain brands to PepsiCo, Inc. (“PepsiCo”) following PepsiCo’s acquisitions of The Pepsi Bottling Group, Inc. (“PBG”) and PepsiAmericas, Inc. (“PAS”).

     Under the new licensing agreements, PepsiCo began distributing Dr Pepper, Crush and Schweppes in the U.S. territories where these brands were previously being distributed by PBG and PAS. The same applies to Dr Pepper, Crush, Schweppes, Vernors and Sussex in Canada; and Squirt and Canada Dry in Mexico.

     Under the new agreements, DPS received a one-time nonrefundable cash payment of $900 million. The new agreements have an initial period of twenty years with automatic twenty year renewal periods, and require PepsiCo to meet certain performance conditions. The payment was recorded as deferred revenue, which will be recognized as net sales ratably over the estimated 25-year life of the customer relationship.

     Additionally, in U.S. territories where it has a distribution footprint, DPS has begun selling certain owned and licensed brands, including Sunkist soda, Squirt, Vernors and Hawaiian Punch, that were previously distributed by PBG and PAS.

17. Guarantor and Non-Guarantor Financial Information

     The Company’s 2011, 2012, 2013, 2018 and 2038 Notes (collectively, the “Notes”) are fully and unconditionally guaranteed by substantially all of the Company’s existing and future direct and indirect domestic subsidiaries (except two immaterial subsidiaries associated with the Company’s charitable foundations) (the “Guarantors”), as defined in the indenture governing the Notes. The Guarantors are wholly-owned either directly or indirectly by the Company and jointly and severally guarantee the Company’s obligations under the Notes. None of the Company’s subsidiaries organized outside of the United States guarantee the Notes (collectively, the “Non-Guarantors”).

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The following schedules present the financial information for the three months ended March 31, 2010 and 2009, and as of March 31, 2010 and December 31, 2009, for Dr Pepper Snapple Group, Inc. (the “Parent”), Guarantors and Non-Guarantors. The consolidating schedules are provided in accordance with the reporting requirements for guarantor subsidiaries.

		Condensed Consolidating Statements of Operations
		For the Three Months Ended March 31, 2010
		Parent				Guarantors				Non-Guarantors				Eliminations				Total
		(in millions)
Net sales		$	—			$	1,139			$	109			$	—			$	1,248
Cost of sales			—				447				49				—				496
Gross profit			—				692				60				—				752
Selling, general and administrative expenses			—				486				45				—				531
Depreciation and amortization			—				30				1				—				31
Other operating expense (income), net			—				3				—				—				3
Income from operations			—				173				14				—				187
Interest expense			34				20				—				(20	)			34
Interest income			(19	)			(1	)			(1	)			20				(1	)
Other income, net			(3	)			(4	)			4				—				(3	)
Income before provision for income taxes and equity in earnings of subsidiaries			(12	)			158				11				—				157
Provision for income taxes			(6	)			63				11				—				68
Income before equity in earnings of subsidiaries			(6	)			95				—				—				89
Equity in earnings of consolidated subsidiaries			95				—				—				(95	)			—
Equity in earnings of unconsolidated subsidiaries, net of tax			—				—				—				—				—
Net income		$	89			$	95			$	—			$	(95	)		$	89

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Condensed Consolidating Statements of Operations
		For the Three Months Ended March 31, 2009
		Parent				Guarantors				Non-Guarantors				Eliminations				Total
		(in millions)
Net sales		$	—			$	1,165			$	95			$	—			$	1,260
Cost of sales			—				489				42				—				531
Gross profit			—				676				53				—				729
Selling, general and administrative expenses			—				464				35				—				499
Depreciation and amortization			—				25				2				—				27
Other operating income			—				(57	)			(5	)			—				(62	)
Income from operations			—				244				21				—				265
Interest expense			55				39				—				(39	)			55
Interest income			(39	)			—				(1	)			39				(1	)
Other income, net			(3	)			—				—				—				(3	)
Income before provision for income taxes and equity in earnings of subsidiaries			(13	)			205				22				—				214
Provision for income taxes			(7	)			83				6				—				82
Income before equity in earnings of subsidiaries			(6	)			122				16				—				132
Equity in earnings of consolidated subsidiaries			138				16				—				(154	)			—
Equity in earnings of unconsolidated subsidiaries, net of tax			—				—				—				—				—
Net income		$	132			$	138			$	16			$	(154	)		$	132

DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

		Condensed Consolidating Balance Sheets
		As of March 31, 2010
		Parent				Guarantors				Non-Guarantors				Eliminations				Total
		(in millions)
Current assets:
Cash and cash equivalents		$	—			$	486			$	85			$	—			$	571
Accounts receivable:
Trade, net			—				476				53				—				529
Other			—				23				9				—				32
Related party receivable			10				—				37				(47	)			—
Inventories			—				243				27				—				270
Deferred tax assets			—				54				5				—				59
Prepaid expenses and other current assets			88				50				31				—				169
Total current assets			98				1,332				247				(47	)			1,630
Property, plant and equipment, net			—				1,040				66				—				1,106
Investments in consolidated subsidiaries			3,212				494				—				(3,706	)			—
Investments in unconsolidated subsidiaries			—				—				10				—				10
Goodwill			—				2,961				23				—				2,984
Other intangible assets, net			—				2,620				82				—				2,702
Long-term receivable, related parties			2,788				689				54				(3,531	)			—
Other non-current assets			426				108				9				—				543
Non-current deferred tax assets			—				—				142				—				142
Total assets		$	6,524			$	9,244			$	633			$	(7,284	)		$	9,117
Current liabilities:
Accounts payable and accrued expenses		$	95			$	640			$	63			$	—			$	798
Related party payable			—				47				—				(47	)			—
Deferred revenue			—				34				2				—				36
Income taxes payable			—				16				—				—				16
Total current liabilities			95				737				65				(47	)			850
Long-term obligations to third parties			2,553				13				—				—				2,566
Long-term obligations to related parties			689				2,841				1				(3,531	)			—
Non-current deferred tax liabilities			—				1,024				18				—				1,042
Non-current deferred revenue			—				820				41				—				861
Other non-current liabilities			125				597				14				—				736
Total liabilities			3,462				6,032				139				(3,578	)			6,055
Total equity			3,062				3,212				494				(3,706	)			3,062
Total liabilities and stockholders’ equity		$	6,524			$	9,244			$	633			$	(7,284	)		$	9,117