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)

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     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 Securities Exchange Act of 1934.

Large Accelerated Filer     þ		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     þ

As of October 25, 2010, there were 227,092,120 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)
				Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009			1
				Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009			2
				Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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			32
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			48
		Item 4.		Controls and Procedures			49
Part II.		Other Information
		Item 1.		Legal Proceedings			50
		Item 1A.		Risk Factors			50
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			50
		Item 6.		Exhibits			51
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
EX-101 DEFINITION LINKBASE DOCUMENT

 ii 

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited).

		For the								For the
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net sales		$	1,457			$	1,434			$	4,224			$	4,175
Cost of sales			600				579				1,689				1,706
Gross profit			857				855				2,535				2,469
Selling, general and administrative expenses			564				547				1,682				1,596
Depreciation and amortization			32				29				95				84
Other operating expense (income), net			1				7				1				(45	)
Income from operations			260				272				757				834
Interest expense			31				51				94				158
Interest income			—				(1	)			(2	)			(3	)
Other income, net			(2	)			(20	)			(7	)			(25	)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries			231				242				672				704
Provision for income taxes			87				92				257				265
Income before equity in earnings of unconsolidated subsidiaries			144				150				415				439
Equity in earnings of unconsolidated subsidiaries, net of tax			—				1				1				2
Net income		$	144			$	151			$	416			$	441
Earnings per common share:
Basic		$	0.61			$	0.59			$	1.70			$	1.73
Diluted			0.60				0.59				1.68				1.73
Weighted average common shares outstanding:
Basic			238.0				254.2				245.1				254.2
Diluted			240.4				255.5				247.3				255.0
Cash dividends declared per common share		$	0.25			$	—			$	0.65			$	—

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

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,				December 31,
		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	224			$	280
Accounts receivable:
Trade, net			527				540
Other			31				32
Inventories			283				262
Deferred tax assets			58				53
Prepaid expenses and other current assets			176				112
Total current assets			1,299				1,279
Property, plant and equipment, net			1,123				1,109
Investments in unconsolidated subsidiaries			11				9
Goodwill			2,984				2,983
Other intangible assets, net			2,693				2,702
Other non-current assets			541				543
Non-current deferred tax assets			139				151
Total assets		$	8,790			$	8,776
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	947			$	850
Deferred revenue			36				—
Income taxes payable			1				4
Total current liabilities			984				854
Long-term obligations			2,571				2,960
Non-current deferred tax liabilities			1,083				1,038
Non-current deferred revenue			843				—
Other non-current liabilities			724				737
Total liabilities			6,205				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, 229,446,161 and 254,109,047 shares issued and outstanding for 2010 and 2009, respectively			2				3
Additional paid-in capital			2,277				3,156
Retained earnings			346				87
Accumulated other comprehensive loss			(40	)			(59	)
Total stockholders’ equity			2,585				3,187
Total liabilities and stockholders’ equity		$	8,790			$	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
		Nine Months Ended
		September 30,
		2010				2009
Operating activities:
Net income		$	416			$	441
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense			137				121
Amortization expense			28				30
Amortization of deferred financing costs			4				14
Amortization of deferred revenue			(21	)			—
Employee stock-based compensation expense			21				13
Deferred income taxes			44				48
Gain on disposal of intangible assets			—				(63	)
Other, net			15				4
Changes in assets and liabilities:
Trade and other accounts receivable			9				—
Inventories			(21	)			(11	)
Other current and non-current assets			(62	)			(8	)
Accounts payable and accrued expenses			73				127
Income taxes payable			2				11
Current and non-current deferred revenue			899				—
Other non-current liabilities			(5	)			(26	)
Net cash provided by operating activities			1,539				701
Investing activities:
Purchases of property, plant and equipment			(170	)			(223	)
Investments in unconsolidated subsidiaries			(1	)			—
Purchases of intangible assets			—				(7	)
Proceeds from disposals of property, plant and equipment			16				5
Proceeds from disposals of intangible assets			—				68
Other, net			4				—
Net cash used in investing activities			(151	)			(157	)
Financing activities:
Repayment of senior unsecured credit facility			(405	)			(480	)
Repurchase of shares of common stock			(910	)			—
Dividends paid			(136	)			—
Other, net			4				(3	)
Net cash used in financing activities			(1,447	)			(483	)
Cash and cash equivalents — net change from:
Operating, investing and financing activities			(59	)			61
Currency translation			3				7
Cash and cash equivalents at beginning of period			280				214
Cash and cash equivalents at end of period		$	224			$	282
Supplemental cash flow disclosures of non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued expenses		$	36			$	15
Non-cash transfer of assets			—				4
Supplemental cash flow disclosures:
Interest paid		$	67			$	87
Income taxes paid			191				162

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
(Unaudited)

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”) 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3 fair value measurements. Portions of ASU 2010-06 that relate to the Level 3 activity disclosures are effective for the first interim or annual reporting period beginning after December 15, 2010. The Company will provide the required disclosures beginning with the Company’s Quarterly Report on Form 10-Q for the period ending March 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 September 30, 2010, and December 31, 2009, consisted of the following (in millions):

		September 30,				December 31,
		2010				2009
Raw materials		$	96			$	105
Work in process			4				4
Finished goods			222				193
Inventories at FIFO cost			322				302
Reduction to LIFO cost			(39	)			(40	)
Inventories		$	283			$	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 nine months ended September 30, 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				1
Balance as of September 30, 2010
Goodwill			1,732				1,220				180				32				3,164
Accumulated impairment losses			—				—				(180	)			—				(180	)
		$	1,732			$	1,220			$	—			$	32			$	2,984

(1)

The Packaged Beverages segment is comprised of two reporting units, the Direct Store Delivery (“DSD”) system and the Warehouse Direct (“WD”) system.

     The net carrying amounts of intangible assets other than goodwill as of September 30, 2010, and December 31, 2009, are as follows (in millions):

		September 30, 2010												December 31, 2009
		Gross				Accumulated				Net				Gross				Accumulated				Net
		Amount				Amortization				Amount				Amount				Amortization				Amount
Intangible assets with indefinite lives:
Brands		$	2,654			$	—			$	2,654			$	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				(54	)			22				76				(45	)			31
Bottler agreements			22				(19	)			3				21				(17	)			4
Distributor rights			2				(2	)			—				2				(2	)			—
Total		$	2,791			$	(98	)		$	2,693			$	2,788			$	(86	)		$	2,702

     As of September 30, 2010, the weighted average useful lives of intangible assets with finite lives were 10 years, 9 years and 9 years for brands, customer relationships and bottler agreements, respectively. Amortization expense for intangible assets was $4 million and $12 million for each of the three and nine months ended September 30, 2010 and 2009, respectively.

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
Year		Amortization
		Expense
Remaining three months for the year ending December 31, 2010		$	5
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 nine months ended September 30, 2010.

4.  Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses consisted of the following as of September 30, 2010, and December 31, 2009 (in millions):

		September 30,				December 31,
		2010				2009
Trade accounts payable		$	315			$	252
Customer rebates and incentives			215				209
Accrued compensation			94				126
Insurance reserves			80				68
Interest accrual and interest rate swap liability			54				24
Dividends payable			60				38
Other current liabilities			129				133
Accounts payable and accrued expenses		$	947			$	850

5.  Long-term obligations

     The following table summarizes the Company’s long-term obligations as of September 30, 2010, and December 31, 2009 (in millions):

		September 30,				December 31,
		2010				2009
Senior unsecured notes(1)		$	2,560			$	2,542
Revolving credit facility			—				405
Less – current portion			—				—
Subtotal			2,560				2,947
Long-term capital lease obligations			11				13
Long-term obligations		$	2,571			$	2,960

(1)

The carrying amount includes an adjustment related to the change in the fair value of interest rate swaps designated as fair value hedges on the 1.70% senior notes due in 2011 (the “2011 Notes”) and 2.35% senior notes due in 2012 (the “2012 Notes”), including the impact of de-designations of the fair value hedges associated with the 2012 Notes in March and September 2010. The impact of the adjustment increased the carrying amount $10 million as of September 30, 2010 and decreased the carrying amount $8 million as of December 31, 2009. Refer to Note 6 for further information regarding derivatives.

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. The Company issued $850 million in 2009, as described in the section “Senior Unsecured Notes — The 2011 and 2012 Notes” below. As a result, $650 million remained authorized to be issued as of September 30, 2010.

     During the nine months ended September 30, 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 indentures 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 September 30, 2010 and December 31, 2009, respectively. Up to $75 million of the Revolver is available for the issuance of letters of credit, of which $14 million and $41 million were utilized as of September 30, 2010, and December 31, 2009, respectively. Balances available for additional borrowings and letters of credit were $486 million and $61 million, respectively, as of September 30, 2010.

     Borrowings under the senior unsecured credit facility bear interest at a floating rate per annum based upon the London Interbank Offered Rate (“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. There were no borrowings during the three months ended September 30, 2010. The average interest rate was 4.88% for the three months ended September 30, 2009. The average interest rate was 2.25% and 4.84% for the nine months ended September 30, 2010 and 2009, respectively. Interest expense was $2 million and $21 million for the three months ended September 30, 2010 and 2009, respectively. Interest expense was $4 million and $69 million for the nine months ended September 30, 2010 and 2009, respectively. Amortization of deferred financing costs of $1 million and $4 million for the three months ended September 30, 2010 and 2009, respectively, was included in interest expense. For the nine months ended September 30, 2010 and 2009, amortization of deferred financing costs of $2 million and $11 million was included in interest expense, respectively.

     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. There were minimal unused commitment fees for the three months ended September 30, 2010. The Company incurred $1 million in unused commitment fees for the three months ended September 30, 2009 and the nine months ended September 30, 2010 and 2009.

     Principal amounts outstanding under the Revolver are due and payable in full at maturity in 2013.

     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.

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

     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; 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 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 September 30, 2010 and December 31, 2009, the Company was in compliance with all financial covenant requirements.

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 2.04% for the three and nine months ended September 30, 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 $1 million for the nine months ended September 30, 2010. There was no interest expense for the three months ended September 30, 2010. As a result of changes in fair value prior to the termination of the economic hedge in September 2010, the Company recorded a gain of $3 million and $6 million, which reduced interest expense for the three and nine months ended September 30, 2010, respectively. Interest expense included $1 million of deferred financing costs associated with the 2011 and 2012 Notes for the nine months ended September 30, 2010. For the three months ended September 30, 2010, there was minimal amortization of deferred financing costs.

     The Company utilizes interest rate swaps designated as fair value and economic 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 September 30, 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 6.81% for each of the three and nine month periods ended September 30, 2010 and 2009. Interest on the senior unsecured notes is payable semi-annually on May 1 and November 1 and is subject to adjustment. Interest expense was $29 million and $30 million for the three months ended September 30, 2010 and 2009, respectively, and $88 million for the nine months ended September 30, 2010 and 2009. Amortization of deferred financing costs of $1 million for the nine months ended September 30, 2010 and 2009 was included in interest expense. For the three months ended September 30, 2010 and 2009, there was minimal amortization of deferred financing costs.

     The indenture governing the 2013, 2018, and 2038 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 September 30, 2010 and December 31, 2009, the Company was in compliance with all covenant requirements.

     Capital Lease Obligations

     Long-term capital lease obligations totaled $11 million and $13 million as of September 30, 2010, and December 31, 2009, respectively. Current obligations related to the Company’s capital leases were $3 million as of September 30, 2010, and December 31, 2009, and were included as a component of accounts payable and accrued expenses.

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

     Letters of Credit Facility

     Effective June 2010, the Company entered into a Letter of Credit Facility in addition to the portion of the Revolver reserved for issuance of letters of credit. Under the Letter of Credit Facility, $65 million is available for the issuance of letters of credit, of which $35 million was utilized as of September 30, 2010. Balances available for additional letters of credit was $30 million as of September 30, 2010.

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.

     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, they 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 for a cash flow hedge, 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. 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. An interest rate swap with a notional amount of $500 million matured in March 2009. As of September 30, 2009, DPS maintained other interest rate swaps with a notional amount of $1.2 billion with a maturity date of December 31, 2009. 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.

     There were no interest rate swaps in place for the nine months ended September 30, 2010, that qualified for hedge accounting as cash flow hedges under U.S. GAAP.

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

               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 nine months ended September 30, 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 upon the issuance of the 2011 and 2012 Notes, and 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 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.

     Effective September 21, 2010, the remaining $225 million notional interest rate swap linked to the 2012 Notes was terminated and settled, thus 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 remaining $225 million notional amount. The $4 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 of these changes, the Company had a fair value hedge with a notional amount of $400 million remaining as of September 30, 2010 linked to the 2011 Notes.

     As of September 30, 2010, the carrying value of the 2011 and 2012 Notes increased by $10 million, which includes the $5 million adjustment, net of amortization, that resulted from the de-designation events 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 Hedges

     In addition to derivative 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 $750 million interest rate swap in December 2009, leaving the remaining $405 million 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 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 first quarter. The Company terminated this interest rate swap instrument once the outstanding balance under the Revolver was fully repaid during the first quarter of 2010. The gain or loss on the instrument was recognized in earnings during the period the instrument was outstanding in 2010.

     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 was recognized in earnings during the period the instrument was outstanding in 2010. Effective September 21, 2010, the interest rate swap was terminated and settled.

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

     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, 2010 and 2009, 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 27 months. As of September 30, 2010 and 2009, the Company had outstanding foreign exchange forward contracts with notional amounts of $95 million and $29 million, respectively.

               Economic Hedges

     The Company’s Canadian business has various transactions denominated and settled in U.S. Dollars, a currency different from the functional currency of the Canadian business. These transactions are subject to exposure from movements in exchange rates. During the second quarter of 2010, the Company entered into foreign exchange forward contracts not designated as cash flow hedges to manage foreign currency exposure and economically hedge the exposure from movements in exchange rates. These foreign exchange contracts, carried at fair value, have maturities between 4 and 15 months. As of September 30, 2010, the Company had outstanding foreign exchange forward contracts with notional amounts of $12 million. There were no derivative instruments in place in 2009 to economically hedge the exposure from movements in exchange rates.

     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 nine months ended September 30, 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 September 30, 2010, and December 31, 2009 (in millions):

						September 30,				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
Interest rate swap contracts		Other non-current assets					1				—
Derivative instruments not designated as hedging instruments under U.S. GAAP:
Commodity futures		Prepaid expenses and other current assets					9				1
Commodity futures		Other non-current assets					3				9
Total assets						$	19			$	16
Liabilities:
Derivative instruments designated as hedging instruments under U.S. GAAP:
Foreign exchange forward contracts		Accounts payable and accrued expenses				$	—			$	2
Interest rate swap contracts		Other non-current liabilities					—				14
Derivative instruments not designated as hedging instruments under U.S. GAAP:
Interest rate swap contracts		Accounts payable and accrued expenses					—				3
Commodity futures		Accounts payable and accrued expenses					3				—
Commodity futures		Other non-current liabilities					1				—
Total liabilities						$	4			$	19

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

     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 and nine months ended September 30, 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 September 30, 2010:
Foreign exchange forward contract		$	(2	)		$	—			Cost of sales
Total		$	(2	)		$	—
For the nine months ended September 30, 2010:
Foreign exchange forward contract		$	(1	)		$	3			Cost of sales
Total		$	(1	)		$	3
For the three months ended September 30, 2009:
Interest rate swap contracts		$	(4	)		$	(9	)		Interest expense
Foreign exchange forward contract			(3	)			(1	)		Cost of sales
Total		$	(7	)		$	(10	)
For the nine months ended September 30, 2009:
Interest rate swap contracts		$	(12	)		$	(29	)		Interest expense
Foreign exchange forward contract			(5	)			(1	)		Cost of sales
Total		$	(17	)		$	(30	)

     There was no hedge ineffectiveness recognized in net income for the three and nine months ended September 30, 2010 and 2009 with respect to derivative instruments designated as cash flow hedges.

     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 and nine months ended September 30, 2010. The following table presents the impact of derivative instruments designated as fair value hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2010 (in millions):

		Amount of Gain (Loss)				Location of Gain (Loss)
		Recognized in Net Income on				recognized in Net Income on
		Derivative				Derivative
For the three months ended September 30, 2010:
Interest rate swap contracts		$	2			Interest Expense
Total		$	2
For the nine months ended September 30, 2010:
Interest rate swap contracts		$	5			Interest Expense
Total		$	5

There were no derivative instruments designated as fair value hedges during the first nine months of 2009.

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 and nine months ended September 30, 2010 and 2009 (in millions):

		Amount of Gain (Loss)				Location of Gain (Loss)
		Recognized in Income				Recognized in Income
For the three months ended September 30, 2010:
Interest rate swap contracts		$	3			Interest expense
Commodity futures			3			Cost of sales
Commodity futures			1			Selling, general and administrative expenses
Total		$	7
For the nine months ended September 30, 2010:
Interest rate swap contracts		$	6			Interest expense
Foreign exchange forward contracts			1			Cost of sales
Commodity futures			(4	)		Cost of sales
Commodity futures			1			Selling, general and administrative expenses
Total		$	4
For the three months ended September 30, 2009:
Commodity futures		$	3			Cost of sales
Commodity futures			(1	)		Selling, general and administrative expenses
Total		$	2
For the nine months ended September 30, 2009:
Commodity futures		$	1			Cost of sales
Commodity futures			—			Selling, general and administrative expenses
Total		$	1

     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.

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

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 September 30, 2010, and December 31, 2009 (in millions):

		September 30,				December 31,
		2010				2009
Other non-current assets:
Long-term receivables from Kraft(1)		$	411			$	402
Deferred financing costs, net			19				23
Customer incentive programs			81				84
Other			30				34
Other non-current assets		$	541			$	543
Other non-current liabilities:
Long-term payables due to Kraft(1)		$	111			$	115
Liabilities for unrecognized tax benefits and other tax related items			550				534
Long-term pension and postretirement liability			35				49
Other			28				39
Other non-current liabilities		$	724			$	737

8.  Income Taxes

     The effective tax rates for the three months ended September 30, 2010 and 2009 were 37.7% and 38.0%, respectively. The decrease in the effective tax rate for the three months ended September 30, 2010, was primarily driven by separation related costs in the prior period that did not recur.

     The effective tax rates for the nine months ended September 30, 2010 and 2009 were 38.2% and 37.6%, respectively. The increase in the effective tax rate for the nine months ended September 30, 2010, was primarily driven by a previous change in the provincial income tax rate for Ontario, Canada. The impact of the change in tax rate increased the provision for income taxes and effective tax rate by $13 million and 1.9%, respectively. The impact of the Canadian provincial tax rate change was partially offset by other items including separation related costs in the prior period that did not recur.

     The Company’s Canadian deferred tax assets as of September 30, 2010 included a separation related balance of $131 million that was offset by a liability due to Kraft of $115 million driven by the Tax Indemnity Agreement. Anticipated legislation in Canada could result in a future partial write-down 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 $411 million. This balance increased by $9 million during the nine months ended September 30, 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.

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

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 September 30, 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
Commodity futures		$	—			$	12			$	—
Interest rate swaps			—				7				—
Total assets		$	—			$	19			$	—
Commodity futures		$	—			$	4			$	—
Total liabilities		$	—			$	4			$	—

     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			$	—

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

     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 September 30, 2010, and December 31, 2009, the Company 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 and nine months ended September 30, 2010.

     The estimated fair values of other financial liabilities not measured at fair value on a recurring basis as of September 30, 2010, and December 31, 2009, are as follows (in millions):

		September 30, 2010								December 31, 2009
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Long term debt – 2011 Notes		$	405			$	404			$	396			$	400
Long term debt – 2012 Notes			455				463				446				451
Long term debt – 2013 Notes			250				280				250				273
Long term debt – 2018 Notes			1,200				1,501				1,200				1,349
Long term debt – 2038 Notes			250				333				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 September 30, 2010, and December 31, 2009, were 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.

10.  Employee Benefit Plans

     The following table sets forth the components of pension benefit costs for the three and nine months ended September 30, 2010 and 2009 (in millions):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Service cost		$	—			$	—			$	1			$	—
Interest cost			3				4				10				12
Expected return on assets			(3	)			(3	)			(11	)			(9	)
Recognition of actuarial loss			1				1				3				3
Settlement loss			1				—				4				—
Net periodic benefit costs		$	2			$	2			$	7			$	6

     The estimated prior service cost and transition asset that will be amortized from AOCL into periodic benefit cost for defined pension benefit plans in 2010 are not significant.

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

     There were no significant net periodic benefit costs for the U.S. postretirement benefit plans for either of the three month periods ended September 30, 2010 or 2009. Total net periodic benefit costs for the U.S. postretirement benefit plans were $1 million for each of the nine month periods ended September 30, 2010 and 2009. The estimated prior service cost, transition obligation and estimated net loss that will be amortized from AOCL into periodic benefit cost for postretirement plans in 2010 are not significant.

     During 2010, the total amount of lump sum payments made to participants of certain U.S. defined pension plans exceeded the estimated annual interest and service costs for 2010. As a result, non-cash settlement charges of $1 million and $4 million were recognized for the three and nine month periods ended September 30, 2010, respectively.

     The Company contributed $5 million and $11 million to its pension plans during the three and nine months ended September 30, 2010, respectively, and expects to contribute an additional $1 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 and $2 million for the three month period ended September 30, 2010 and 2009, respectively. Multi-employer contributions were approximately $3 million and $4 million for the nine month periods ended September 30, 2010 and 2009, respectively. Additionally, during the third quarter of 2009, a trustee-approved mass withdrawal under one multi-employer plan was triggered, which resulted in additional expense of approximately $3 million for the three and nine months ended September 30, 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 and nine months ended September 30, 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								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Total stock-based compensation expense		$	8			$	5			$	21			$	13
Income tax benefit recognized in the income statement			(3	)			(2	)			(8	)			(5	)
Net stock-based compensation expense		$	5			$	3			$	13			$	8

     The table below summarizes stock option activity for the nine months ended September 30, 2010:

						Weighted					Weighted Average			Aggregate
						Average					Remaining Contractual			Intrinsic Value
		Stock Options				Exercise Price					Term (Years)			(in millions)
Outstanding as of December 31, 2009			2,178,211			$	18.97				8.79			$	20
Granted			855,403				32.36
Exercised			(241,719	)			20.38
Forfeited or expired			(102,920	)			18.86
Outstanding as of September 30, 2010			2,688,975				23.11				8.46				33
Exercisable as of September 30, 2010			859,517				21.20				7.89				12

     As of September 30, 2010, there was $8 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 2.17 years.

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

     The table below summarizes RSU activity for the nine months ended September 30, 2010:

						Weighted				Weighted Average				Aggregate
						Average Grant				Remaining Contractual				Intrinsic Value
		RSUs				Date Fair Value				Term (Years)				(in millions)
Outstanding as of December 31, 2009			2,688,551			$	17.43			1.91				$	76
Granted			983,222				31.95
Vested			(53,072	)			20.55
Forfeited			(135,273	)			19.65
Outstanding as of September 30, 2010			3,483,428				21.40			1.55					124

Under the terms of the Company’s RSU agreements, individual RSU holders are entitled to dividend equivalent units in the event of a dividend declaration. Under the agreements, unvested RSU awards, as well as the associated dividend equivalents, are forfeitable. As of September 30, 2010, there were 54,409 dividend equivalent units outstanding, which will vest at the time that the underlying RSU vests.

     As of September 30, 2010, there was $42 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 2.06 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								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Basic EPS:
Net income		$	144			$	151			$	416			$	441
Weighted average common shares outstanding			238.0				254.2				245.1				254.2
Earnings per common share — basic		$	0.61			$	0.59			$	1.70			$	1.73
Diluted EPS:
Net income		$	144			$	151			$	416			$	441
Weighted average common shares outstanding			238.0				254.2				245.1				254.2
Effect of dilutive securities:
Stock options, RSUs, and dividend equivalent units			2.4				1.3				2.2				0.8
Weighted average common shares outstanding and common stock equivalents			240.4				255.5				247.3				255.0
Earnings per common share — diluted		$	0.60			$	0.59			$	1.68			$	1.73

     Stock options, RSUs and dividend equivalent units totaling 0.2 million shares were excluded from the diluted weighted average shares outstanding for the three months ended September 30, 2010, and 0.6 million shares were excluded from the diluted weighted average shares outstanding for the nine months ended September 30, 2010, as they were not dilutive. Weighted average options and RSUs totaling 1.1 million shares were excluded from the diluted weighted average shares outstanding for the three and nine months ended September 30, 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.

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

     On February 24, 2010, the Board authorized an increase in the total aggregate share repurchase authorization from $200 million up to $1 billion. Subsequent to this approval, the Company repurchased and retired 9.6 million shares of common stock valued at approximately $353 million and 25.2 million shares of common stock valued at approximately $910 million in the three and nine months ended September 30, 2010, respectively. These amounts were recorded as a reduction of equity, primarily additional paid-in capital.

     On July 12, 2010, the Board authorized the repurchase of an additional $1 billion of our outstanding common stock over the next three years, which additional authorization may be used to repurchase shares of the Company’s common stock after the funds authorized on February 24, 2010 have been utilized.

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 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. Discovery and class certification proceedings are complete. In August 2010, the District Court stayed the case for six months pending a referral to the U.S. Food and Drug Administration (“FDA”) by the District Court in a similar, but unrelated, case pending in New Jersey federal court. In September 2010, the FDA declined the referral in the unrelated New Jersey case. Snapple has moved to re-open the case and decide class certification.
	•		In 2007, the attorneys in the Holk case also filed an action in the United States District Court, Southern District of New York on behalf of plaintiffs, Evan Weiner and Timothy McCausland. Discovery and class certification proceedings are complete. This District Court did not stay this case pending the referral to the FDA in the unrelated New Jersey case. In August 2010, the District Court denied the plaintiffs’ motion to certify the case as a class action. The plaintiffs’ time to appeal the denial of class certification has expired. Snapple has filed a motion for summary judgment on the plaintiffs’ remaining individual claims.
	•		In 2009, Snapple Beverage Corp. was sued by Frances Von Koenig in the United States District Court, Eastern District of California. A similar suit filed by Guy Caldwell in 2009 against DPS in the United States District Court, Eastern District of California, was consolidated with the Van Koenig case. In May 2010, Snapple’s motion to dismiss was denied in part and granted in part with leave to amend. Plaintiffs filed an amended complaint. Snapple has filed a further motion to dismiss. In August 2010, the District Court stayed the case for six months pending a referral to the FDA by the District Court in a similar, but unrelated, case pending in New Jersey federal court. In September 2010, the FDA declined the referral in the unrelated New Jersey case. Either party can now move to re-open the case for the court to decide the motion to dismiss.

       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.

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

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 parties have reached a tentative settlement in the case, pursuant to which the Company would pay $4.25 million, which amount was accrued as of June 30, 2010. The settlement is subject to the satisfaction of the following conditions: (i) court approval and (ii) execution of an acceptable settlement agreement.

     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.

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 is approximately $350,000.

14.  Comprehensive Income

       The following table provides a summary of the total comprehensive income, including the Company’s proportionate share of equity method investees’ other comprehensive income, for the three and nine months ended September 30, 2010 and 2009 (in millions):

		For the								For the
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Consolidated net income		$	144			$	151			$	416			$	441
Other comprehensive income:
Net foreign currency translation			9				1				11				13
Net change in pension liability			9				—				6				2
Net change in cash flow hedges			(2	)			2				2				8
Total comprehensive income		$	160			$	154			$	435			$	464

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

     A rollforward of the amounts included in AOCL, net of taxes, is shown below for the nine months ended September 30, 2010 and the year ended December 31, 2009 (in millions):

														Accumulated
		Foreign												Other
		Currency				Change in				Cash Flow				Comprehensive
		Translation				Pension Liability				Hedges				Loss
Balance at December 31, 2008		$	(34	)		$	(52	)		$	(20	)		$	(106	)
Changes in fair value			22				7				(20	)			9
Reclassification to earnings			—				—				38				38
Balance at December 31, 2009		$	(12	)		$	(45	)		$	(2	)		$	(59	)
Changes in fair value			11				6				(1	)			16
Reclassification to earnings			—				—				3				3
Balance at September 30, 2010		$	(1	)		$	(39	)		$	—			$	(40	)