UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

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

For the transition period from                    to

 
Commission file number 001-33829

DR PEPPER SNAPPLE GROUP, INC.

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 o      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 o		Accelerated filer o		Non-accelerated filer   þ (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 6, 2009, there were 253,861,753 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			1
Item 1. Financial Statements (Unaudited)			1
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008			1
Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008			2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008			3
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2009 and the Year Ended December 31, 2008			4
Notes to Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4T. Controls and Procedures			40
Part II. Other Information			41
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 5. Other Information
Item 6. Exhibits			41
ii
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

DR PEPPER SNAPPLE GROUP, INC.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements. 

		For the
		Three Months Ended
		March 31,
		2009				2008
Net sales		$	1,260			$	1,295
Cost of sales			531				565
Gross profit			729				730
Selling, general and administrative expenses			499				508
Depreciation and amortization			27				28
Restructuring costs			—				10
Other operating income			(62	)			(2	)
Income from operations			265				186
Interest expense			55				48
Interest income			(1	)			(17	)
Other income			(3	)			—
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries			214				155
Provision for income taxes			82				60
Income before equity in earnings of unconsolidated subsidiaries			132				95
Equity in earnings of unconsolidated subsidiaries, net of tax			—				—
Net income		$	132			$	95
Earnings per common share:
Basic		$	0.52			$	0.38
Diluted		$	0.52			$	0.38
Weighted average common shares outstanding:
Basic			254.2				253.7
Diluted			254.3				253.7

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

DR PEPPER SNAPPLE GROUP, INC.

		March 31,				December 31,
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	219			$	214
Accounts receivable:
Trade (net of allowances of $13 and $13, respectively)			525				532
Other			63				51
Inventories			286				263
Deferred tax assets			87				93
Prepaid and other current assets			71				84
Total current assets			1,251				1,237
Property, plant and equipment, net			1,001				990
Investments in unconsolidated subsidiaries			12				12
Goodwill			2,982				2,983
Other intangible assets, net			2,704				2,712
Other non-current assets			558				564
Non-current deferred tax assets			132				140
Total assets		$	8,640			$	8,638
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	804			$	796
Income taxes payable			17				5
Total current liabilities			821				801
Long-term debt			3,366				3,522
Deferred tax liabilities			992				981
Other non-current liabilities			725				727
Total liabilities			5,904				6,031
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, 253,839,196 and 253,685,733 shares issued and outstanding for 2009 and 2008, respectively			3				3
Additional paid-in capital			3,143				3,140
Accumulated deficit			(298	)			(430	)
Accumulated other comprehensive loss			(112	)			(106	)
Total stockholders’ equity			2,736				2,607
Total liabilities and stockholders’ equity		$	8,640			$	8,638

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

DR PEPPER SNAPPLE GROUP, INC.

		For the
		Three Months Ended
		March 31,
		2009				2008
Operating activities:
Net income		$	132			$	95
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense			39				34
Amortization expense			10				14
Amortization of deferred financing costs			5				—
Gain on disposal of intangible assets and property			(62	)			(2	)
Employee stock-based compensation expense			3				1
Deferred income taxes			17				28
Other, net			1				(1	)
Changes in assets and liabilities:
Trade and other accounts receivable			(9	)			30
Related party receivable			—				(21	)
Inventories			(24	)			(35	)
Other current assets			14				(34	)
Other non-current assets			(8	)			(11	)
Accounts payable and accrued expenses			50				(60	)
Related party payable			—				63
Income taxes payable			13				1
Other non-current liabilities			(3	)			(2	)
Net cash provided by operating activities			178				100
Investing activities:
Purchases of property, plant and equipment			(78	)			(44	)
Purchases of intangible assets			(5	)			—
Proceeds from disposals of property, plant and equipment			—				5
Proceeds from disposals of investments and other assets			68				—
Proceeds from related party notes receivables			—				37
Net cash used in investing activities			(15	)			(2	)
Financing activities:
Proceeds from issuance of related party long-term debt			—				129
Repayment of related party long-term debt			—				(145	)
Repayment of senior unsecured credit facility			(155	)			—
Change in Cadbury’s net investment			—				(50	)
Other, net			(1	)			—
Net cash used in financing activities			(156	)			(66	)
Cash and cash equivalents — net change from:
Operating, investing and financing activities			7				32
Currency translation			(2	)			—
Cash and cash equivalents at beginning of period			214				67
Cash and cash equivalents at end of period		$	219			$	99
Supplemental cash flow disclosures of non-cash investing and financing activities:
Capital expenditures included in accounts payable			15				—
Non-cash transfers of operating assets and liabilities to Cadbury			—				10
Non-cash transfer of pension obligation			—				71
Supplemental cash flow disclosures:
Interest paid		$	11			$	1
Income taxes paid			20				24

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

(Unaudited, in millions)

																						Accumulated
										Additional												Other
		Common Stock Issued								Paid-In				Retained				Cadbury’s Net				Comprehensive								Comprehensive
		Shares				Amount				Capital				Earnings				Investment				Income (Loss)				Total Equity				Income (Loss)
Balance as of December 31, 2007			—			$	—			$	—			$	—			$	5,001			$	20			$	5,021
Net (loss) income			—				—				—				(430	)			118				—				(312	)		$	(312	)
Contributions from Cadbury			—				—				—				—				259				—				259				—
Distributions to Cadbury			—				—				—				—				(2,242	)			—				(2,242	)			—
Separation from Cadbury on May 7, 2008 and issuance of common stock upon distribution			253.7				3				3,133				—				(3,136	)			—				—				—
Stock-based compensation expense, including tax benefit			—				—				7				—				—				—				7				—
Net change in pension liability, net of tax of $30			—				—				—				—				—				(43	)			(43	)			(43	)
Adoption of SFAS 158, net of tax of $1			—				—				—				—				—				(2	)			(2	)			—
Cash flow hedges, net of tax of $12			—				—				—				—				—				(20	)			(20	)			(20	)
Foreign currency translation adjustment			—				—				—				—				—				(61	)			(61	)			(61	)
Balance as of December 31, 2008			253.7				3				3,140				(430	)			—				(106	)			2,607			$	(436	)
Shares issued under employee stock-based compensation plans & other			0.1				—				—				—				—				—				—				—
Net income			—				—				—				132				—				—				132			$	132
Stock-based compensation expense, net of tax of less than $1			—				—				3				—				—				—				3				—
Cash flow hedges, net of tax of $2			—				—				—				—				—				3				3				3
Foreign currency translation adjustment			—				—				—				—				—				(9	)			(9	)			(9	)
Balance as of March 31, 2009			253.8			$	3			$	3,143			$	(298	)		$	—			$	(112	)		$	2,736			$	126

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

DR PEPPER SNAPPLE GROUP, INC.

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.

     This 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 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, 2008.

     For the periods prior to May 7, 2008, the condensed consolidated financial statements have been prepared on a “carve-out” basis from Cadbury’s consolidated financial statements using historical results of operations, assets and liabilities attributable to Cadbury’s beverage business in the United States, Canada, Mexico and the Caribbean (“the Americas Beverages business”) and including allocations of expenses from Cadbury. The historical Americas Beverages business information is the Company’s predecessor financial information. The Company eliminates from its financial results all intercompany transactions between entities included in the consolidation and the intercompany transactions with its equity method investees.

     The unaudited condensed consolidated financial statements may not be indicative of the Company’s future performance and may not reflect what its consolidated results of operations, financial position and cash flows would have been had the Company operated as an independent company during all of the periods presented.

     Prior to the May 7, 2008, separation, Cadbury provided certain corporate functions to the Company and costs associated with these functions were allocated to the Company. These functions included corporate communications, regulatory, human resources and benefit management, treasury, investor relations, corporate controller, internal audit, Sarbanes Oxley compliance, information technology, corporate and legal compliance, and community affairs. The costs of such services were allocated to the Company based on the most relevant allocation method to the service provided, primarily based on relative percentage of revenue or headcount. Management believes such allocations were reasonable; however, they may not be indicative of the actual expense that would have been incurred had the Company been operating as an independent company for all of the periods presented. The charges for these functions are included primarily in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations.

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

   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;
	•		stock-based compensation;
	•		pension and postretirement benefits;
	•		risk management programs;
	•		income taxes;
	•		goodwill and other indefinite lived intangibles; and
	•		definite lived intangible assets.

     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, 2008.

   Restatement of Net Sales and Cost of Sales related to Intercompany Eliminations

     As detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, subsequent to the issuance of the Company’s 2007 Combined Annual Financial Statements the Company identified an error in the presentation of the previously reported net sales and cost of sales captions on the Statement of Operations. For the three months ended March 31, 2008, the Company’s Condensed Combined Statement of Operations included $12 million of intercompany transactions that should have been eliminated upon consolidation.

     In order to correct the error, the net sales and cost of sales captions have been restated in the Condensed Consolidated Statement of Operations from the amounts previously reported as follows (in millions):

		As Previously Reported								As Restated
		Net Sales				Cost of Sales				Net Sales				Cost of Sales
Three months ended March 31, 2008		$	1,307			$	577			$	1,295			$	565

     These adjustments to the Condensed Consolidated Statements of Operations do not affect the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Changes in Stockholders’ Equity, Condensed Consolidated Statements of Cash Flows, gross profit, income from operations or net income.

   Recently Issued Accounting Standards

     In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. SFAS 107-1 and
APB No. 28-1, Disclosures about the Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1, which requires disclosures about the fair value of financial instruments in interim financial statements as well as in annual financial statements, is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company will provide the required disclosures starting with the quarter ended June 30, 2009.

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

     In December 2008, the FASB issued FSP No.132(R)-1, Employers’ Disclosures about Pensions and Other Postretirement Benefits (“FSP 132R-1”). FSP 132R-1 requires enhanced disclosures about the plan assets of a Company’s defined benefit pension and other postretirement plans intended to provide users of financial statements with a greater understanding of: (1) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (2) the major categories of plan assets; (3) the inputs and valuation techniques used to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and (5) significant concentrations of risk within plan assets. FSP 132R-1 is effective for years ending after December 15, 2009. The Company will provide the required disclosures for all its filings for periods subsequent to the effective date.

   Recently Adopted Accounting Standards

     In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). This standard is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”) and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and the Company has adopted the provisions of FSP 142-3 effective January 1, 2009. The measurement provisions of this standard applied only to intangible assets acquired after the effective date and its adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2009.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities, requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”), and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Company adopted the provisions of SFAS 161 effective January 1, 2009. Refer to Note 12 for further information.

     In December 2007, the FASB issued SFAS 141(R). SFAS 141(R) changes how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. Some of the changes, such as the accounting for contingent consideration, will introduce more volatility into earnings. SFAS 141(R) applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141(R) was effective for the Company beginning January 1, 2009, and the Company will apply SFAS 141(R) prospectively to all business combinations subsequent to the effective date.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and the deconsolidation of a subsidiary and also establishes disclosure requirements that clearly identify and distinguish between the controlling and noncontrolling interests and requires the separate disclosure of income attributable to the controlling and noncontrolling interests. SFAS 160 was effective for fiscal years beginning after December 15, 2008. The Company adopted the provisions of SFAS 160 on a prospective basis as of January 1, 2009. The adoption of SFAS 160 did not have a material impact on the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2009.

     In September 2006, the FASB issued SFAS 157 which defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157 is effective for the Company January 1, 2008. However, in February 2008, the FASB released FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”), which delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to January 1, 2009. The Company adopted the deferred provisions of SFAS 157 on January 1, 2009. The adoption of the deferred provisions of SFAS 157 for the Company’s non-financial assets and liabilities did not have a material impact on its unaudited condensed consolidated financial statements.

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

2. Inventories

     Inventories as of March 31, 2009, and December 31, 2008, consisted of the following (in millions):

		March 31,				December 31,
		2009				2008
Raw materials		$	113			$	78
Finished goods			225				235
Inventories at FIFO cost			338				313
Reduction to LIFO cost			(52	)			(50	)
Inventories		$	286			$	263

3. Goodwill and Other Intangible Assets

     Changes in the carrying amount of goodwill for the three months ended March 31, 2009, by operating segment are as follows (in millions):

		Beverage				Packaged				Latin America
		Concentrates				Beverages				Beverages				Total
Balance as of December 31, 2008		$	1,733			$	1,220			$	30			$	2,983
Impact of foreign currency			—				—				(1	)			(1	)
Balance as of March 31, 2009		$	1,733			$	1,220			$	29			$	2,982

     The net carrying amounts of intangible assets other than goodwill as of March 31, 2009, and December 31, 2008, are as follows
(in millions):

		March 31, 2009												December 31, 2008
		Gross				Accumulated				Net				Gross				Accumulated				Net
		Amount				Amortization				Amount				Amount				Amortization				Amount
Intangible assets with indefinite lives:
Brands(1)		$	2,644			$	—			$	2,644			$	2,647			$	—			$	2,647
Bottler agreements(2)			—				—				—				4				—				4
Distributor rights(2)			5				—				5				—				—				—
Intangible assets with finite lives:
Brands			29				(22	)			7				29				(21	)			8
Customer relationships			76				(36	)			40				76				(33	)			43
Bottler agreements(3)			22				(14	)			8				24				(14	)			10
Distributor rights			2				(2	)			—				2				(2	)			—
Total		$	2,778			$	(74	)		$	2,704			$	2,782			$	(70	)		$	2,712

     As of March 31, 2009, the weighted average useful lives of intangible assets with finite lives were 10 years, 7 years and 8 years for brands, customer relationships and bottler agreements, respectively. Amortization expense for intangible assets was $4 million and $7 million for the three months ended March 31, 2009 and 2008, respectively.

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

     Amortization expense of these intangible assets over the remainder of 2009 and the next four years is expected to be the following
(in millions):

		Aggregate
		Amortization
Year		Expense
Remaining 9 months for the year ending December 31, 2009		$	14
2010			16
2011			8
2012			4
2013			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. 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. The Company uses present value and other valuation techniques to make this assessment. DPS did not identify any circumstances that indicated that the carrying amount of an asset may not be recoverable during the three months ended March 31, 2009.

4. Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses consisted of the following as of March 31, 2009, and December 31, 2008 (in millions):

		March 31,				December 31,
		2009				2008
Trade accounts payable		$	281			$	234
Customer rebates			155				177
Accrued compensation			105				86
Insurance reserves			54				59
Interest accrual and interest rate swap liability			73				58
Other current liabilities			136				182
Accounts payable and accrued expenses		$	804			$	796

5. Long-term obligations

     The following table summarizes the Company’s long-term debt obligations as of March 31, 2009, and December 31, 2008 (in millions):

		March 31,				December 31,
		2009				2008
Senior unsecured notes		$	1,700			$	1,700
Revolving credit facility			—				—
Senior unsecured term loan A facility			1,650				1,805
Less — current portion			—				—
Subtotal			3,350				3,505
Long-term capital lease obligations			16				17
Long-term debt		$	3,366			$	3,522

     The following is a description of the Company’s senior unsecured credit agreement and revolving credit facility (collectively, the “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 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, 2008.

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

Senior Unsecured Credit Facility

     The Company’s senior unsecured credit agreement provides senior unsecured financing of up to $2.7 billion, consisting of:

	•		A senior unsecured term loan A facility in an aggregate principal amount of $2.2 billion with a maturity in 2013. During the second quarter of 2008, DPS borrowed $2.2 billion under the term loan A facility.
	•		A revolving credit facility in an aggregate principal amount of $500 million with a maturity in 2013. The revolving credit facility was undrawn as of March 31, 2009, and December 31, 2008, except to the extent utilized by letters of credit. Up to $75 million of the revolving credit facility is available for the issuance of letters of credit, of which $33 million and $38 million was utilized as of March 31, 2009, and December 31, 2008, respectively.

     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 alternate base rate 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, 2009, was 5.1%. Interest expense was $26 million for the three months ended March 31, 2009, including amortization of deferred financing costs of $4 million. 

     The Company utilizes interest rate swaps to convert variable interest rates to fixed rates. During the first quarter of 2009, the Company had swaps with notional amounts of $500 million and $1.2 billion. See Note 12 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 revolving credit facility equal to 0.15% to 0.50% per annum, depending upon the Company’s debt ratings. The Company incurred less than $1 million in unused commitment fees for the three months ended March 31, 2009. Additionally, interest expense included $1 million of amortization of deferred financing costs associated with the revolving credit facility.

     The Company is required to pay annual amortization in equal quarterly installments on the aggregate principal amount of the term loan A equal to: (i) 10%, or $220 million, per year for installments due in the first and second years following the initial date of funding, (ii) 15%, or $330 million, per year for installments due in the third and fourth years following the initial date of funding, and (iii) 50%, or $1.1 billion, for installments due in the fifth year following the initial date of funding. Principal amounts outstanding under the revolving credit facility are due and payable in full at maturity. Through March 31, 2009, the Company has made combined scheduled and optional repayments toward the principal totaling $550 million, including $220 million of scheduled repayments. Of the amount of total repayments, $155 million was made during the three months ended March 31, 2009, in advance of the scheduled amortization.

     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 senior unsecured credit facility 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 credit agreement. In addition, the senior unsecured credit facility requires the Company to comply with a maximum total leverage ratio covenant and a minimum interest coverage ratio covenant, as defined in the senior credit agreement. The senior unsecured credit facility also contains certain usual and customary representations and warranties, affirmative covenants and events of default. As of March 31, 2009 and December 31, 2008, the Company was in compliance with all covenant requirements. 

     No amounts were outstanding under the senior unsecured credit facility during the three months ended March 31, 2008.

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

Senior Unsecured Notes

     The Company had $1.7 billion aggregate principal amount of senior unsecured notes outstanding as of March 31, 2009, consisting of $250 million aggregate principal amount of 6.12% senior notes due 2013, $1.2 billion aggregate principal amount of 6.82% senior notes due 2018, and $250 million aggregate principal amount of 7.45% senior notes due 2038. The weighted average interest cost of the senior notes is 6.8%. Interest on the senior unsecured notes is payable semi-annually on May 1 and November 1 and is subject to increase if either of two rating agencies downgrades the debt rating associated with the notes. Interest expense was $29 million for the three months ended March 31, 2009, including amortization of deferred financing costs of less than $1 million.

     The indenture governing the 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 notes are guaranteed by substantially all of the Company’s existing and future direct and indirect domestic subsidiaries. 

     No amounts were outstanding under the senior unsecured notes during the three months ended March 31, 2008.

   Capital Lease Obligations

     Long-term capital lease obligations totaled $16 million and $17 million as of March 31, 2009, and December 31, 2008, respectively. Current obligations related to the Company’s capital leases were $2 million as of March 31, 2009, and December 31, 2008, and were included as a component of accounts payable and accrued expenses.

6. 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, 2009, and December 31, 2008 (in millions):

		March 31,				December 31,
		2009				2008
Other non-current assets:
Long-term receivables from Cadbury(1)		$	389			$	386
Deferred financing costs, net			61				66
Customer incentive programs			87				83
Other			21				29
Other non-current assets		$	558			$	564
Other non-current liabilities:
Long-term payables due to Cadbury(1)		$	108			$	112
Liabilities for unrecognized tax benefits and other tax related items			522				515
Long-term pension and postretirement liability			68				89
Other			27				11
Other non-current liabilities		$	725			$	727

7. Income Taxes

     The effective tax rates for the three months ended March 31, 2009 and 2008 were 38.3% and 38.7%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2009, was primarily driven by the realization of tax planning benefits, offset by a deferred tax charge driven by a change of state law effective in the period and higher separation related charges indemnified under the Tax Indemnity Agreement entered into with Cadbury at separation.

     The Company’s Canadian deferred tax assets include a separation related balance of $131 million that is offset by a liability due to Cadbury of $105 million driven by the Tax Indemnity Agreement. Anticipated legislation in Canada could result in a future partial write down of the deferred tax asset which would be offset to some extent by a partial write down of the liability due to Cadbury.

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

     Under the Tax Indemnity Agreement, Cadbury has agreed to indemnify DPS for net unrecognized tax benefits and other tax related items of $389 million. This balance increased by $3 million during the current period 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, Cadbury may not be required to indemnify the Company.

8. Restructuring Costs

     The Company implements restructuring programs from time to time that are designed to improve operating effectiveness and lower costs. When the Company implements these programs, it incurs various charges, including severance and other employment related costs.

     The Company did not incur any restructuring charges during the three months ended March 31, 2009. Restructuring charges incurred during the three months ended March 31, 2008 were as follows (in millions):

Organizational restructuring		$	6
Integration of the Direct Store Delivery business			1
Integration of technology facilities			1
Facility closure			1
Other			1
Total restructuring charges		$	10

     The Company does not expect to incur additional non-recurring charges during the remainder of 2009 with respect to the restructuring programs listed above.

     Restructuring liabilities are included in accounts payable and accrued expenses on the unaudited Condensed Consolidated Balance Sheets. Restructuring liabilities as of March 31, 2009, and December 31, 2008, along with charges to expense, cash payments and non-cash charges for the three months ended March 31, 2009, were as follows (in millions):

		Workforce
		Reduction				External				Closure
		Costs				Consulting				Costs				Other				Total
Balance as of December 31, 2008		$	6			$	—			$	—			$	2			$	8
Charges to expense			—				—				—				—				—
Cash payments			(2	)			—				—				—				(2	)
Non-cash items			—				—				—				—				—
Balance as of March 31, 2009		$	4			$	—			$	—			$	2			$	6

     Organizational Restructuring

     The Company initiated a restructuring program in the fourth quarter of 2007 intended to create a more efficient organization which resulted in the reduction of employees in the Company’s corporate, sales and supply chain functions. The Company did not incur any restructuring charges related to the organizational restructuring during the three months ended March 31, 2009. The table below summarizes the charges for the three months ended March 31, 2008 and the cumulative costs to date by operating segment (in millions). The Company does not expect to incur additional restructuring charges related to the organizational restructuring.

		Cumulative				Costs for the
		Costs through				Three Months Ended
		March 31, 2009				March 31, 2008
Beverage Concentrates		$	34			$	3
Packaged Beverages			19				2
Latin America Beverages			2				—
Corporate			16				1
Total		$	71			$	6

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

   Integration of the Direct Store Delivery Business

     In conjunction with the formation of the Direct Store Delivery (“DSD”) business in 2006, the Company began the standardization of processes within the DSD business and integration of the DSD business with the other operations of the Company. The Company did not incur any restructuring charges related to the integration of the DSD business during the three months ended March 31, 2009. The table below summarizes the charges for the three months ended March 31, 2008 and the cumulative costs to date by operating segment (in millions). The Company does not expect to incur additional restructuring charges related to the integration of the DSD business.

		Cumulative				Costs for the Three
		Costs through				Months Ended
		March 31, 2009				March 31, 2008
Packaged Beverages		$	26			$	1
Beverage Concentrates			17				—
Corporate			6				—
Total		$	49			$	1

   Integration of Technology Facilities

     In 2007, the Company began a program to integrate its technology facilities. The Company did not incur any charges for the integration of technology facilities for the three months ended March 31, 2009, and charges were $1 million for the three months ended March 31, 2008. The Company has incurred $11 million through March 31, 2009, and does not expect to incur additional restructuring charges related to the integration of technology facilities.

   Facility Closure

     The Company closed a facility related to the Packaged Beverages segment’s operations in 2007. No charges were incurred relating to the facility closure for the three months ended March 31, 2009, and charges were $1 million for the three months ended March 31, 2008. The Company does not expect to incur additional restructuring charges related to this facility closure.

9. Employee Benefit Plans

     The following tables set forth the components of pension benefit costs for the three months ended March 31, 2009 and 2008 (in millions):

		For the Three Months
		Ended March 31,
		2009				2008
Service cost		$	—			$	4
Interest cost			4				5
Expected return on assets			(3	)			(5	)
Recognition of actuarial gain/(loss)			1				2
Net periodic benefit costs		$	2			$	6

     Total net periodic benefit costs for the U.S. postretirement benefit plans were less than $1 million for the three months ended March 31, 2009 and 2008. The estimated prior service cost, transitional obligation and estimated net loss that will be amortized from accumulated other comprehensive loss into periodic benefit cost for postretirement plans in 2009 are each less than $1 million. Additionally, contributions paid into multi-employer defined benefit pension plans for employees under collective bargaining agreements were approximately $1 million each for the three months ended March 31, 2009 and 2008.

     The Company contributed $23 million to its pension plans during the three months ended March 31, 2009, and expects to contribute an additional $18 million to these plans during the remainder of 2009.

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

10. Stock-Based Compensation

     The components of stock-based compensation expense for the three months ended March 31, 2009 and 2008 are presented below (in millions). Stock-based compensation expense was recorded in selling, general and administrative expenses in the unaudited Condensed Consolidated Statement of Operations.

		For the Three Months Ended
		March 31,
		2009				2008
Plans sponsored by Cadbury(1)		$	—			$	1
DPS stock options and restricted stock units			3				—
Total stock-based compensation expense			3				1
Income tax benefit recognized in the income statement			(1	)			—
Net stock-based compensation expense		$	2			$	1

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

     The table below summarizes stock option activity for the three months ended March 31, 2009.

						Weighted				Weighted Average				Aggregate Intrinsic
		Stock				Average Exercise				Remaining Contractual				Value
		Options				Price				Term (Years)				(in millions)
Outstanding at December 31, 2008			1,159,619			$	25.30				9.36			$	—
Granted			1,242,494			$	13.48
Exercised			—			$	—
Forfeited or expired			(46,416	)		$	25.36
Outstanding at March 31, 2009			2,355,697			$	19.06				9.54			$	4
Exercisable at March 31, 2009			16,694			$	25.36				9.11			$	—

     As of March 31, 2009, there was $9 million of unrecognized compensation cost related to the nonvested stock options granted under the 2008 Stock Plan that is expected to be recognized over a weighted-average period of 2.45 years.

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

     The table below summarizes RSU activity for the three months ended March 31, 2009.

						Weighted				Weighted Average				Aggregate
		Restricted				Average Grant				Remaining Contractual				Intrinsic Value
		Stock Units				Date Fair Value				Term (Years)				(in millions)
Outstanding at December 31, 2008			1,028,609			$	24.83				2.35			$	17
Granted			1,844,316			$	13.48
Vested			(39,192	)		$	25.36
Forfeited or expired			(25,588	)		$	24.55
Outstanding at March 31, 2009			2,808,145			$	17.37				2.65			$	47

     As of March 31, 2009, there was $37 million of unrecognized compensation cost related to the nonvested RSUs granted under the 2008 Stock Plan that is expected to be recognized over a weighted-average period of 2.58 years.

11. 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,
		2009				2008
Basic EPS:
Net income		$	132			$	95
Weighted average common shares outstanding(1)			254.2				253.7
Earnings per common share — basic		$	0.52			$	0.38
Diluted EPS:
Net income		$	132			$	95
Weighted average common shares outstanding(1)			254.2				253.7
Effect of dilutive securities:
Stock options and restricted stock units(2)			0.1				—
Weighted average common shares outstanding and common stock equivalents			254.3				253.7
Earnings per common share — diluted		$	0.52			$	0.38

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

12. Derivatives

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

	•		interest rates,
	•		foreign exchange rates, and
	•		commodity prices, affecting the cost of our raw materials.

     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.

     The Company formally designates and accounts for interest rate swaps and foreign exchange forward contracts that meet established accounting criteria under SFAS 133 as cash flow hedges. DPS assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly throughout the designated period. The effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in Accumulated Other Comprehensive Income (“AOCI”), 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 AOCI is reclassified to net income and is reported as a component of the unaudited Condensed Consolidated Statements of Operations. Changes in the fair value of the derivative instruments that do not effectively offset changes in the fair value of the underlying hedged item throughout the designated hedge period (“ineffectiveness”) are recorded in net income each period.

          Interest Rates

     DPS manages its exposure to volatility in floating interest rates on borrowings under its senior unsecured credit facility through the use of interest rate swaps that convert variable interest rates to fixed rates. The intent of entering into interest rate swaps is to provide predictability in the Company’s overall cost structure. During the three months ended March 31, 2009, the Company fully settled an interest rate swap with a notional amount of $500 million and maintained another interest rate swap, with a notional amount of $1.2 billion with a maturity date of December 31, 2009. 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. There were no interest rate swaps in place for the three months ended March 31, 2008, that qualified for hedge accounting under SFAS 133.

   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 and settlements are subject to exposure from movements in exchange rates. The Company uses foreign exchange forward contracts to hedge operational exposures resulting from changes in these foreign currency exchange rates. The intent of the 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 twelve months. As of March 31, 2009, the Company had outstanding foreign exchange forward contracts with notional amounts of $19 million. There were no hedge instruments in place for the three months ended March 31, 2008, that qualified for hedge accounting under SFAS 133.

          Commodities

     DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process through futures contracts and supplier pricing agreements. The intent of contracts and agreements is to provide predictability in the Company’s overall cost structure. The Company enters into futures contracts that economically hedge certain of its risks, although hedge accounting under SFAS 133 may not apply. In these cases, there exists a natural hedging relationship in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying item(s). 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 completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment’s operating profit.

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, 2009, and December 31, 2008 (in millions):

						March 31,				December 31,
		Balance Sheet Location				2009				2008
Assets:
Derivative instruments designated as cash flow hedging instruments under SFAS 133:
Foreign exchange forward contracts (1)		Prepaid and other current assets				$	—			$	—
Total assets						$	—			$	—
Liabilities:
Derivative instruments designated as cash flow hedging instruments under SFAS 133:
Interest rate swap contracts		Accounts payable and accrued expenses				$	24			$	32
Interest rate swap contracts		Other non-current liabilities					3				—
Derivative instruments not designated as hedging instruments under SFAS 133:
Commodity futures		Accounts payable and accrued expenses					7				8
Total liabilities						$	34			$	40

     The following table presents the impact of derivative instruments designated as cash flow hedging instruments under SFAS 133 to the unaudited Condensed Consolidated Statement of Operations and Other Comprehensive Income (“OCI”) for the three months ended March 31, 2009 (in millions):

		Amount of Gain				Amount of (Loss) Reclassified				Location of (Loss) Reclassified
		Recognized in OCI				from AOCI into Net Income				from AOCI into Net Income
Interest rate swap contracts		$	5			$	(11	)		Interest Expense
Foreign exchange forward contracts (1)			—				—			Cost of Sales
Total		$	5			$	(11	)

     Hedge ineffectiveness recognized in net income for the three months ended March 31, 2009, was less than $1 million. During the next twelve months, the Company expects to reclassify net losses of $24 million related to interest rate swaps from AOCI into net income.

     The following table presents the impact of derivative instruments not designated as hedging instruments under SFAS 133 to the unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2009 (in millions):

		Amount of (Loss) Recognized in Income				Location of (Loss) Recognized in Income
Commodity futures		$	(3	)		Cost of sales
Commodity futures			(3	)		Selling, general and administrative expenses
Total (1)		$	(6	)

     For more information on the valuation of derivative instruments, see Note 13. 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

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

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.

13. Fair Value

     In accordance with SFAS 157, the Company defines fair value 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. SFAS 157 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, 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
Foreign exchange forward contracts (1)		$	—			$	—			$	—
Total assets		$	—			$	—			$	—
Interest rate swaps		$	—			$	27			$	—
Commodity futures			—				7				—
Total liabilities		$	—			$	34			$	—

14. Commitments and Contingencies

  Legal Matters

     The Company is occasionally subject to litigation or other legal proceedings. Set forth below is a description of the Company’s significant pending legal matters. Although the estimated range of loss, if any, for the pending legal matters described below cannot be estimated at this time, 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 Distributor Litigation

     In 2004, one of the Company’s subsidiaries, Snapple Beverage Corp., and several affiliated entities of Snapple Beverage Corp., including Snapple Distributors Inc., were sued in United States District Court, Southern District of New York, by 57 area route distributors for alleged price discrimination, breach of contract, retaliation, tortious interference and breach of the implied duty of good faith and fair dealings arising out of their respective area route distributor agreements. Each plaintiff sought damages in excess of $225 million. The plaintiffs initially filed the case as a class action but withdrew their class certification motion. They proceeded as individual plaintiffs but the cases were consolidated for discovery and procedural purposes. On September 14, 2007, the court granted the Company’s motion for summary judgment, dismissing the plaintiffs’ federal claims of price discrimination and dismissing, without prejudice, the plaintiffs’ remaining claims under state law. The plaintiffs filed an appeal of the decision and both parties have filed appellate briefs and are awaiting the court’s decision. Also, the plaintiffs may decide to re-file the state law claims in state court.

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

The Company believes it has meritorious defenses with respect to the appeal and will defend itself vigorously. However, there is no assurance that the outcome of the appeal, or any trial, if claims are refiled, will be in the Company’s favor.

     Snapple Litigation — Labeling Claims

     In 2007, Snapple Beverage Corp. was sued by Stacy Holk in New Jersey Superior Court, Monmouth County. The Holk case was filed as a class action. Subsequent to filing, the Holk case was removed to the United States District Court, District of New Jersey. Holk alleges that Snapple’s labeling of certain of its drinks is misleading and/or deceptive and seeks 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. Snapple filed a motion to dismiss the Holk case on a variety of grounds. On June 12, 2008, the district court granted Snapple’s motion to dismiss and the Holk case was dismissed. The plaintiff has filed an appeal of the order dismissing the case which is pending a hearing and decision by the court. In 2007 the attorneys in the Holk case also filed a new action in New York on behalf of plaintiff, Evan Weiner, with substantially the same allegations and seeking the same damages as in the Holk case. The Company has filed a motion to dismiss the Weiner case on a variety of grounds. The Weiner case is currently stayed pending the outcome of the Holk case. In April 2009, Snapple Beverage Corp. was sued by Frances Von Koenig in United States District Court for the Eastern District of California as a class action with similar allegations to the Holk case and seeking similar damages. 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 Nicolas Steele, and in a separate action by Robert Jones, in each case in 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 cases were filed as class actions. The classes, which have not yet been certified, consist of employees who have held a merchandiser or delivery driver position 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 classes, the plaintiffs claim lost wages, waiting time penalties and other penalties for each violation of the statute. In the Steele case, plaintiff’s counsel and the Company have reached an agreement to settle the case that is not material to the Company. This settlement is subject to review and approval by the court. With respect to the Jones case, 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.

     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. However, the Company is not currently named as a party in any judicial or administrative proceeding relating to environmental, health and safety matters which would materially affect its operations.

  Compliance Matters

     The Company is currently undergoing state audits for the years 1981 through 2008, spanning nine states and seven of the Company’s entities within the Packaged Beverages segment. The Company has accrued an estimated liability based on the current facts and circumstances. However, there is no assurance of the outcome of the audits.

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

15. Segments

     The Company presents segment information in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which established reporting and disclosure standards for an enterprise’s operating segments. Operating segments are defined as components of an enterprise that are businesses, for which separate financial information is available, and for which the financial information is regularly reviewed by the company’s chief executive officer.

     Effective January 1, 2009, the Company modified its internal reporting and operating segments to better reflect its business structure and to provide greater clarity and transparency. Accordingly, the operating segments reported within this Quarterly Report on Form 10-Q reflect the changes to the internal reporting structure and operating segments.

     The Company’s operating structure consisted of the following three operating segments as of March 31, 2009:

	•		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 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 warehouse direct delivery systems.
	•		The Latin America Beverages segment reflects sales in the Mexico and Caribbean markets from the manufacture and distribution of both concentrates and finished beverages.
	The Company has made the following changes to its financial segment information:
	•		Intersegment sales. All intersegment sales are made at cost and intersegment eliminations are reported as part of the segment results.
	•		Allocations of certain trade and marketing costs. Trade and marketing expenditures are allocated to the Beverage Concentrates and Packaged Beverages segments based on brand volume.
	•		Allocations of overhead and selling costs. Certain overhead costs, which are managed at a corporate level, such as information technology, back-office shared services, finance, research and development and human resources, are no longer allocated to the segments. These costs are now reported as unallocated corporate costs. Additionally, the Company has changed its allocation methodology for certain combined selling activities.
	•		Other adjustments previously excluded from the segment profitability measures. Certain items, such as LIFO inventory adjustments, the impact of foreign exchange, and other income and expense items that previously were included in the “other” line item within adjustments are reported as a component of segment operating profit (loss) (“SOP”).

     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, 2009 and 2008 is as follows
(in millions):

		For the
		Three Months Ended
		March 31,
		2009				2008
Segment Results — Net Sales
Beverage Concentrates		$	243			$	222
Packaged Beverages			944				978
Latin America Beverages			73				95
Net sales as reported		$	1,260			$	1,295
Segment Results — SOP
Beverage Concentrates		$	150			$	126
Packaged Beverages			107				101
Latin America Beverages			9				17
Total segment operating profit			266				244
Unallocated corporate costs			63				50
Restructuring costs			—				10
Other operating income			(62	)			(2	)
Income from operations			265				186
Interest expense, net			(54	)			(31	)
Other income			3				—
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries as reported		$	214			$	155

16. Related Party Transactions

  Allocated Expenses

     Prior to the Company’s separation from Cadbury, Cadbury allocated certain costs to the Company, including costs for certain corporate functions provided for the Company by Cadbury. These allocations were based on the most relevant allocation method for the services provided. To the extent expenses were paid by Cadbury on behalf of the Company, they were allocated based upon the direct costs incurred. Where specific identification of expenses was not practicable, the costs of such services were allocated based upon the most relevant allocation method to the services provided, primarily either as a percentage of net sales or headcount of the Company. The Company was allocated $6 million of costs for the three months ended March 31, 2008. Post separation, there were no expenses allocated to DPS from Cadbury.

  Cash Management

     Prior to separation, the Company’s cash was available for use and was regularly swept by Cadbury operations in the United States at Cadbury’s discretion. Cadbury also funded the Company’s operating and investing activities as needed. Following the separation, the Company has funded its liquidity needs from cash flow from operations.

  Interest Expense and Interest Income

     The Company recorded interest expense of $49 million for the three months ended March 31, 2008, related to interest bearing related party debt with other wholly-owned subsidiaries of Cadbury that were unrelated to the Company’s business.

     The Company recorded $15 million of interest income for the three months ended March 31, 2008, related to a note receivable balance with wholly-owned subsidiaries of Cadbury.

     Upon the Company’s separation from Cadbury, the Company settled outstanding receivable, debt and payable balances with Cadbury except for amounts due under the Separation and Distribution Agreement, Transition Services Agreement, Tax Indemnity Agreement, and Employee Matters Agreement.

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

17. Guarantor and Non-Guarantor Financial Information

     The Company’s 6.12% senior notes due 2013, 6.82% senior notes due 2018 and 7.45% senior notes due 2038 (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. 

     The following schedules present the guarantor and non-guarantor information for the three months ended March 31, 2009 and 2008, and as of March 31, 2009, and December 31, 2008. The consolidating schedules are provided in accordance with the reporting requirements for guarantor subsidiaries.

     On May 7, 2008, Cadbury transferred its Americas Beverages business to Dr Pepper Snapple Group, Inc., which became an independent publicly-traded company. Prior to the transfer, Dr Pepper Snapple Group, Inc. did not have any operations. Accordingly, activity for Dr Pepper Snapple Group, Inc. (the “parent”) is reflected in the consolidating statements from May 7, 2008 forward.

		Condensed Consolidating Statements of Operations
		For the Three Months Ended March 31, 2009
		Parent				Guarantor				Non-Guarantor				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			(3	)			—				—				—				(3	)
(Loss) income before provision for income taxes and equity in earnings of subsidiaries			(13	)			205				22				—				214
Provision for income taxes			(7	)			83				6				—				82
(Loss) 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 (loss) income		$	132			$	138			$	16			$	(154	)		$	132

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

		Condensed Consolidating Statements of Operations
		For the Three Months Ended March  31, 2008
		Parent				Guarantor				Non-Guarantor				Eliminations				Total
										(in millions)
Net sales		$	—			$	1,168			$	131			$	(4	)		$	1,295
Cost of sales			—				513				56				(4	)			565
Gross profit			—				655				75				—				730
Selling, general and administrative expenses			—				462				46				—				508
Depreciation and amortization			—				26				2				—				28
Restructuring costs			—				10				—				—				10
Other operating (income) expense			—				—				(2	)			—				(2	)
Income from operations			—				157				29				—				186
Interest expense			—				48				—				—				48
Interest income			—				(13	)			(4	)			—				(17	)
Income before provision for income taxes and equity in earnings of subsidiaries			—				122				33				—				155
Provision for income taxes			—				49				11				—				60
Income before equity in earnings of subsidiaries			—				73				22				—				95
Equity in earnings of consolidated subsidiaries			—				3				—				(3	)			—
Equity in earnings of unconsolidated subsidiaries, net of tax			—				—				—				—				—
Net income		$	—			$	76			$	22			$	(3	)		$	95