10-Q 1 dps-10qx33112.htm FORM 10-Q DPS-10Q-3.31.12
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to     

           
Commission file number 001-33829
Delaware
 
98-0517725
(State or other jurisdiction of
 
(I.R.S. employer
incorporation or organization)
 
identification number)
 
 
 
5301 Legacy Drive, Plano, Texas
 
75024
(Address of principal executive offices)
 
(Zip code)
(972) 673-7000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes     R  No     o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes     R   No     o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large Accelerated Filer R
 
Accelerated Filer o
 
Non-Accelerated Filer  o
 
Smaller Reporting Company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes     o   No    R
As of April 23, 2012, there were 211,830,048 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
 



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


ii


DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2012 and 2011
(Unaudited, in millions except per share data)
PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited).

 
For the
 
Three Months Ended
 
March 31,
 
2012
 
2011
Net sales
$
1,362

 
$
1,331

Cost of sales
584

 
547

Gross profit
778

 
784

Selling, general and administrative expenses
553

 
547

Depreciation and amortization
31

 
33

Other operating expenses
2

 
2

Income from operations
192

 
202

Interest expense
32

 
27

Interest income

 
(1
)
Other income, net
(3
)
 
(2
)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
163

 
178

Provision for income taxes
61

 
64

Income before equity in earnings of unconsolidated subsidiaries
102

 
114

Equity in earnings of unconsolidated subsidiaries, net of tax

 

Net income
$
102

 
$
114

Earnings per common share:
 
 
 
Basic
$
0.48

 
$
0.51

Diluted
0.48

 
0.50

Weighted average common shares outstanding:
 
 
 
Basic
212.6

 
223.6

Diluted
213.9

 
226.3

Cash dividends declared per common share
$
0.34

 
$
0.25

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


1



DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2012 and 2011
(Unaudited, in millions)

 
For the
 
Three Months Ended
 
March 31,
 
2012
 
2011
Comprehensive income
$
126

 
$
116


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


2


DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2012 and December 31, 2011
(Unaudited, in millions except share and per share data)
 
March 31,
 
December 31,
 
2012
 
2011
Assets
Current assets:
 
 
 
Cash and cash equivalents
$
192

 
$
701

Accounts receivable:
 
 
 
Trade, net
564

 
585

Other
37

 
50

Inventories
225

 
212

Deferred tax assets
86

 
96

Prepaid expenses and other current assets
157

 
113

Total current assets
1,261

 
1,757

Property, plant and equipment, net
1,149

 
1,152

Investments in unconsolidated subsidiaries
14

 
13

Goodwill
2,983

 
2,980

Other intangible assets, net
2,687

 
2,677

Other non-current assets
558

 
573

Non-current deferred tax assets
132

 
131

Total assets
$
8,784

 
$
9,283

Liabilities and Stockholders' Equity
Current liabilities:
 
 
 
Accounts payable
$
313

 
$
265

Deferred revenue
65

 
65

Current portion of long-term obligations
452

 
452

Income taxes payable
40

 
530

Other current liabilities
542

 
603

Total current liabilities
1,412

 
1,915

Long-term obligations
2,247

 
2,256

Non-current deferred tax liabilities
602

 
586

Non-current deferred revenue
1,434

 
1,449

Other non-current liabilities
829

 
814

Total liabilities
6,524

 
7,020

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, 211,832,813 and 212,130,239 shares issued and outstanding for 2012 and 2011, respectively
2

 
2

Additional paid-in capital
1,575

 
1,631

Retained earnings
769

 
740

Accumulated other comprehensive loss
(86
)
 
(110
)
Total stockholders' equity
2,260

 
2,263

Total liabilities and stockholders' equity
$
8,784

 
$
9,283

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

3


DR PEPPER SNAPPLE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2012 and 2011
(Unaudited, in millions)
 
For the Three Months Ended
 
March 31,
 
2012
 
2011
Operating activities:
 
 
 
Net income
$
102

 
$
114

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation expense
51

 
49

Amortization expense
9

 
9

Amortization of deferred revenue
(16
)
 
(16
)
Employee stock-based compensation expense
8

 
8

Deferred income taxes
28

 
(86
)
Other, net
(16
)
 
(1
)
Changes in assets and liabilities:
 
 
 
Trade accounts receivable
24

 
(24
)
Other accounts receivable
15

 
(2
)
Inventories
(11
)
 
(19
)
Other current and non-current assets
(45
)
 
(71
)
Other current and non-current liabilities
(44
)
 
(49
)
Trade accounts payable
46

 
29

Income taxes payable
(476
)
 
110

Net cash (used in) provided by operating activities
(325
)
 
51

Investing activities:
 
 
 
Purchase of property, plant and equipment
(51
)
 
(54
)
Purchase of intangible assets
(6
)
 

Proceeds from disposals of property, plant and equipment
4

 

Net cash used in investing activities
(53
)
 
(54
)
Financing activities:
 
 
 
Proceeds from senior unsecured notes

 
500

Repurchase of shares of common stock
(85
)
 
(100
)
Dividends paid
(68
)
 
(56
)
Proceeds from stock options exercised
6

 
2

Excess tax benefit on stock-based compensation
13

 
1

Other, net

 
(4
)
Net cash (used in) provided by financing activities
(134
)
 
343

Cash and cash equivalents — net change from:
 
 
 
Operating, investing and financing activities
(512
)
 
340

Effect of exchange rate changes on cash and cash equivalents
3

 
2

Cash and cash equivalents at beginning of period
701

 
315

Cash and cash equivalents at end of period
$
192

 
$
657

Supplemental cash flow disclosures of non-cash investing and financing activities:
 
 
 
Capital expenditures included in accounts payable
$
41

 
$
39

Dividends declared but not yet paid
73

 
55

Capital lease additions
6

 

Supplemental cash flow disclosures:
 
 
 
Interest paid
$
7

 
$

Income taxes paid
502

 
28

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

4

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, 2011.
Reclassifications
The changes in accounts payable and other current liabilities made as of December 31, 2011 have been reclassified in the Condensed Consolidated Statement of Cash Flows with no impact to total cash provided by (used in) operating, investing or financing activities. Other changes have been made to the Condensed Consolidated Statement of Cash Flows for the first quarter of 2011 to reflect changes in presentation made in the fourth quarter of 2011 with no impact to the total cash provided by (used in) operating, investing or financing activities.
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 estimates:
revenue recognition;
customer marketing programs and incentives;
goodwill and other indefinite lived intangibles assets;
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, 2011.

5

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


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, 2012.
Certain fair value measurement requirements reflected changes in wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.
The requirement to present the total of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company presented the comprehensive income in two separate but consecutive statements within the Condensed Consolidated Financial Statements.
The qualitative option meant to simplify how registrants test goodwill for impairment by assessing certain factors to determine whether it is necessary to perform the two-step goodwill impairment test included in U.S. GAAP.

2.
Inventories
Inventories as of March 31, 2012 and December 31, 2011 consisted of the following (in millions):
 
March 31,
 
December 31,
 
2012
 
2011
Raw materials
$
89

 
$
91

Work in process
6

 
4

Finished goods
184

 
171

Inventories at FIFO cost
279

 
266

Reduction to LIFO cost
(54
)
 
(54
)
Inventories
$
225

 
$
212



6

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


3.
Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended March 31, 2012, and the year ended December 31, 2011, by reporting unit are as follows (in millions):
 
Beverage Concentrates
 
WD Reporting Unit(1)
 
DSD Reporting Unit(1)
 
Latin America Beverages
 
Total
Balance as of December 31, 2010
 
 
 
 
 
 
 
 
 
Goodwill
$
1,732

 
$
1,220

 
$
180

 
$
32

 
$
3,164

Accumulated impairment losses

 

 
(180
)
 

 
(180
)
 
1,732

 
1,220

 

 
32

 
2,984

Foreign currency impact

 

 

 
(4
)
 
(4
)
Balance as of December 31, 2011
 
 
 
 
 
 
 
 
 
Goodwill
1,732

 
1,220

 
180

 
28

 
3,160

Accumulated impairment losses

 

 
(180
)
 

 
(180
)
 
1,732

 
1,220

 

 
28

 
2,980

Foreign currency impact

 

 

 
3

 
3

Balance as of March 31, 2012
 
 
 
 
 
 
 
 
 
Goodwill
1,732

 
1,220

 
180

 
31

 
3,163

Accumulated impairment losses

 

 
(180
)
 

 
(180
)
 
$
1,732

 
$
1,220

 
$

 
$
31

 
$
2,983

____________________________

(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 March 31, 2012 and December 31, 2011, are as follows (in millions):
 
March 31, 2012
 
December 31, 2011
 
Gross
 
Accumulated
 
Net
 
Gross
 
Accumulated
 
Net
 
Amount
 
Amortization
 
Amount
 
Amount
 
Amortization
 
Amount
Intangible assets with indefinite lives:
 
 
 
 
 
 
 
 
 
 
 
Brands(1)
$
2,653

 
$

 
$
2,653

 
$
2,648

 
$

 
$
2,648

   Distribution rights
12

 

 
12

 
8

 

 
8

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Brands
29

 
(24
)
 
5

 
29

 
(24
)
 
5

   Distribution rights
5

 

 
5

 
3

 

 
3

Customer relationships
76

 
(65
)
 
11

 
76

 
(64
)
 
12

Bottler agreements
19

 
(18
)
 
1

 
19

 
(18
)
 
1

Total
$
2,794

 
$
(107
)
 
$
2,687

 
$
2,783

 
$
(106
)
 
$
2,677

____________________________

(1)
In 2012, intangible brands with indefinite lives increased due to a $5 million change in foreign currency translation rates.


7

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


As of March 31, 2012, the weighted average useful life of intangible assets with finite lives was 9 years in total, consisting of 5 years for distribution rights, 10 years for both brands and customer relationships and 15 years for bottler agreements. Amortization expense for intangible assets was $1 million and $4 million for the three months ended March 31, 2012 and 2011, respectively.
Amortization expense of these intangible assets over the remainder of 2012 and the next four years is expected to be the following (in millions):
Year
Aggregate Amortization Expense
April 1, 2012 through December 31, 2012
$
4

2013
5

2014
5

2015
5

2016
2

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. DPS did not identify any circumstances that indicated that the carrying amount of any goodwill or any indefinite lived intangible asset may not be recoverable during the three months ended March 31, 2012.

4.  Other Current Liabilities
Other current liabilities consisted of the following as of March 31, 2012 and December 31, 2011 (in millions):
 
March 31,
 
December 31,
 
2012
 
2011
Customer rebates and incentives
$
195

 
$
225

Accrued compensation
60

 
98

Insurance reserves
37

 
35

Interest accrual and interest rate swap liability
71

 
52

Dividends payable
73

 
68

Other
106

 
125

Total other current liabilities
$
542

 
$
603



8

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


5.  Long-term Obligations
The following table summarizes the Company's long-term debt obligations as of March 31, 2012 and December 31, 2011 (in millions): 
 
March 31,
 
December 31,
 
2012
 
2011
Senior unsecured notes(1)
$
2,688

 
$
2,701

Revolving credit facility

 

Less — current portion(2)
(452
)
 
(452
)
Subtotal
2,236

 
2,249

Long-term capital lease obligations
11

 
7

Long-term obligations
$
2,247

 
$
2,256

____________________________
(1)
The carrying amount includes an adjustment of $15 million and $29 million as of March 31, 2012 and December 31, 2011, respectively, related to the change in the fair value of interest rate swaps designated as fair value hedges or the unamortized value of de-designated fair value hedges.
The adjustment as of March 31, 2012 and December 31, 2011 included the change in the fair value for the fair value hedges on the 2.60% senior notes due January 15, 2019 (the "2019 Notes"), 3.20% senior notes due November 15, 2021 (the "2021 Notes") and 7.45% senior notes due May 1, 2038 (the "2038 Notes") and the unamortized value of the de-designated fair value hedges on the 2.35% senior notes due December 21, 2012 (the "2012 Notes"). See Note 6 for further information regarding derivatives.
(2)
The carrying amount includes an adjustment of $2 million as of March 31, 2012 and December 31, 2011, related to the unamortized value of de-designated fair value hedges on the 2012 Notes. See Note 6 for further information regarding derivatives.
The following is a description of the senior unsecured notes, the senior unsecured credit facility and the commercial paper program. These summaries are qualified in their entirety by the specific terms and provisions of the indentures governing the related debt. 

Senior Unsecured Notes 
The indentures governing the senior unsecured notes, among other things, limit 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 senior unsecured notes are guaranteed by substantially all of the Company's existing and future direct and indirect domestic subsidiaries. As of March 31, 2012, the Company was in compliance with all financial covenant requirements. 
The 2019 and 2021 Notes 
On November 15, 2011, the Company completed the issuance of $500 million aggregate principal amount of senior unsecured notes consisting of $250 million aggregate principal amount of the 2019 Notes and $250 million aggregate principal amount of the 2021 Notes. The discount associated with these Notes was approximately $1 million. The net proceeds from the issuance were used to repay the aggregate principal amount of the 1.70% senior notes due December 21, 2011 at maturity and general corporate purposes.
The 2016 Notes
On January 11, 2011, the Company completed the issuance of $500 million aggregate principal amount of 2.90% senior notes due January 15, 2016 (the "2016 Notes") at a discount of $1 million. The net proceeds from the issuance were used to replace a portion of the cash used to purchase the 6.82% senior notes due May 1, 2018 (the "2018 Notes") tendered pursuant to the tender offer described below.

9

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


The 2012 Notes 
On December 21, 2009, the Company completed the issuance of $450 million of the 2012 Notes.  The net proceeds from the sale of the debentures were used for repayment of existing indebtedness.
The 2013, 2018 and 2038 Notes 
On April 30, 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 the 2018 Notes and $250 million aggregate principal amount of the 2038 Notes.
In December 2010, the Company completed a tender offer for a portion of the 2018 Notes and retired, at a premium, an aggregate principal amount of approximately $476 million. The aggregate principal amount of the outstanding 2018 Notes was $724 million as of March 31, 2012 and December 31, 2011.
Senior Unsecured Credit Facility 
The Company's senior unsecured credit agreement, which was amended and restated on April 11, 2008 (the "senior unsecured credit facility"), provides for the revolving credit facility (the "Revolver") in an aggregate principal amount of $500 million with a maturity in 2013. There were no principal borrowings under the Revolver outstanding as of March 31, 2012 or December 31, 2011. Up to $75 million of the Revolver is available for the issuance of letters of credit, of which $7 million was utilized as of March 31, 2012 and December 31, 2011. Balances available for additional borrowings and letters of credit were $493 million and $68 million, respectively, as of March 31, 2012.
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 0.50%. 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 March 31, 2012 and 2011.
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 no significant unused commitment fees incurred during the three months ended March 31, 2012 and 2011.  
Any principal amounts outstanding under the Revolver are due and payable in full at maturity.
All obligations under the senior unsecured credit facility are guaranteed by substantially all of the Company's existing and future direct and indirect domestic subsidiaries.
The 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 unsecured 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, 2012, the Company was in compliance with all financial covenant requirements. 
Commercial Paper Program
On December 10, 2010, the Company entered into a commercial paper program under which the Company may issue unsecured commercial paper notes (the "Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $500 million. The maturities of the Commercial Paper will vary, but may not exceed 364 days from the date of issue. The Company may issue Commercial Paper from time to time for general corporate purposes, and the program is supported by the Revolver. Outstanding Commercial Paper reduces the amount of borrowing capacity available under the Revolver and outstanding amounts under the Revolver reduce the Commercial Paper availability. As of March 31, 2012 and December 31, 2011, the Company had no outstanding Commercial Paper.

10

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


Capital Lease Obligations 
Long-term capital lease obligations totaled $11 million and $7 million as of March 31, 2012 and December 31, 2011, respectively. Current obligations related to the Company's capital leases were $4 million as of March 31, 2012 and December 31, 2011, and were included as a component of other current liabilities. 
Shelf Registration Statement 
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. Subsequently, the Company filed a "well-known seasoned issuer" shelf registration statement with the Securities and Exchange Commission, effective December 14, 2009, which registers an indeterminable amount of debt securities for future sales. The Company issued senior unsecured notes of $850 million on December 21, 2009 and $500 million on January 11, 2011.
On May 18, 2011, the Board authorized an additional $1,350 million of debt securities. On November 15, 2011, the Company issued senior unsecured notes of $500 million, as described in the section "Senior Unsecured Notes — The 2019 and 2021 Notes" above. As a result, $1,000 million remains available for issuance.
Letters of Credit Facilities     
In June 2010 and July 2011, the Company entered into letter of credit facilities in addition to the portion of the Revolver reserved for issuance of letters of credit. Under these letter of credit facilities, $125 million is available for the issuance of letters of credit, of which $55 million was utilized as of March 31, 2012 and December 31, 2011. The balance available for additional letters of credit was $70 million as of March 31, 2012.

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 contracts, foreign exchange forward contracts, commodity forward contracts and supplier pricing agreements. DPS does not hold or issue derivative financial instruments for trading or speculative purposes.
The Company formally designates and accounts for certain interest rate contracts and foreign exchange forward contracts that meet established accounting criteria under U.S. GAAP as either fair value or cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in 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 instrument 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 the instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized immediately in current-period earnings. For derivatives that are not designated or are de-designated as a hedging instrument, the gain or loss on the instrument is recognized in earnings in the period of change. 
Certain interest rate contracts qualify for the "shortcut" method of accounting for hedges under U.S. GAAP. Under the shortcut method, the hedges are assumed to be perfectly effective and no ineffectiveness is recorded in earnings. For all other designated hedges, the Company assesses whether the derivative instrument is effective in offsetting the changes in fair value or variability of cash flows at the inception of the derivative contract. DPS measures hedge ineffectiveness on a quarterly basis throughout the designated period. Changes in the fair value of the derivative instrument that do not effectively offset changes in the fair value of the underlying hedged item throughout the designated hedge period are recorded in earnings each period. 
If a fair value or cash flow hedge were to cease to qualify for hedge accounting, or were terminated, it would continue to be carried on the balance sheet at fair value until settled and hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCL would be reclassified to earnings at that time. 

11

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


Interest Rates 
Cash Flow Hedges
During the second quarter of 2011, in order to hedge the variability in cash flows from interest rate changes associated with the Company's planned issuances of long-term debt, the Company entered into two forward starting swap agreements with an aggregate notional value of $150 million and one forward starting swap agreement with a notional value of $100 million in order to fix the rate for a portion of a future seven and ten year unsecured debt issuance in 2011, respectively. These forward starting swaps were unwound during the fourth quarter of 2011 in connection with the Company's issuance of the 2019 and 2021 Notes. Upon termination, the Company paid $25 million to the counterparties, which will be amortized to interest expense over the term of the issued debt.
During the second and third quarter of 2011, the Company also entered into forward starting swap agreements with an aggregate notional value of $300 million in order to fix the rate for a portion of a future seven and ten year unsecured debt issuance in 2012. These forward starting swaps are expected to be unwound during 2012.
The effective portion of changes in the fair value of the derivative that is designated as a cash flow hedge is being recorded in AOCL and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Ineffectiveness, if any, related to the Company's changes in estimates about the debt issuance related to the forward starting swap would be recognized directly in earnings as a component of interest expense during the period incurred. During the three months ended March 31, 2012, the Company realized no ineffectiveness as a result of these hedging relationships.
Fair Value Hedges
The Company is exposed to the risk of changes in the fair value of certain fixed-rate debt attributable to changes in interest rates and manages these risks through the use of receive-fixed, pay-variable interest rate swaps.
In December 2009, the Company entered into two 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 and qualified for the shortcut method of accounting under U.S. GAAP.
During 2010, the Company terminated and settled the $450 million notional interest rate swap linked to the 2012 Notes. With the fair value hedge discontinued, the Company ceased adjusting the carrying value of the 2012 Notes corresponding to the notional amounts. The previous adjustments of the carrying value of the 2012 Notes will continue to be carried on the balance sheet and will be amortized over the remaining term of the 2012 Notes. As of March 31, 2012, and December 31, 2011, the unamortized portion was $2 million and was included in the current portion of long-term obligations. Refer to Note 5 for further information.
In December 2010, the Company entered into an interest rate swap having a notional amount of $100 million and maturing in May 2038 in order to effectively convert a portion of the 2038 Notes from fixed-rate debt to floating-rate debt and designated it as a fair value hedge. The assessment of hedge effectiveness is made by comparing the cumulative change in the fair value of the hedged item attributable to changes in the benchmark interest rate with the cumulative changes in the fair value of the interest rate swap, with any ineffectiveness recorded in earnings as interest expense during the period incurred. As of March 31, 2012, and December 31, 2011, the impact of the fair value hedge on the 2038 Notes increased the carrying value by $18 million and $27 million, respectively.
In November 2011, the Company entered into four interest rate swaps having an aggregate notional amount of $250 million and durations ranging from seven to ten years in order to convert fixed-rate, long-term debt to floating rate debt. These swaps were entered into upon the issuance of the 2019 and 2021 Notes, and were accounted for as fair value hedges and qualified for the shortcut method of accounting under U.S. GAAP. As of March 31, 2012, the impact of the fair value hedge on the 2019 and 2021 Notes decreased the carrying value by $4 million. As of December 31, 2011, there was no change in the carrying value of the 2019 and 2021 Notes as a result of the impact of the fair value hedge.
Economic Hedges
In addition to derivative instruments that qualify for and are designated as hedging instruments under U.S. GAAP, the Company utilized various interest rate derivative contracts that were not designated as cash flow or fair value hedges to manage interest rate risk. Gains or losses on these derivative instruments were recognized in earnings during the period the instruments were outstanding.

12

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


In December 2010, with the expected issuance of long-term fixed rate debt, the Company entered into a treasury lock agreement with a notional value of $200 million and a maturity date of January 2011 to economically hedge the exposure to the possible rise in the benchmark interest rate prior to a future issuance of senior unsecured notes. This treasury lock was cash settled for approximately $1 million coincident with the issuance of the 2016 Notes in January 2011. Refer to Note 5 for details related to issuance of the 2016 Notes.
Foreign Exchange
Cash Flow Hedges
The Company's Canadian business purchases its inventory through transactions denominated and settled in United States ("U.S.") Dollars, a currency different from the functional currency of the Canadian business. These inventory purchases are subject to exposure from movements in exchange rates. During the three months ended March 31, 2012 and 2011, 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 33 months as of March 31, 2012. The Company had outstanding foreign exchange forward contracts with notional amounts of $124 million and $169 million as of March 31, 2012 and 2011, respectively.
Economic Hedges
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. DPS did not have any of these contracts outstanding as of March 31, 2012. The Company had outstanding foreign exchange forward contracts with a notional amount of $9 million as of March 31, 2011.
Commodities
DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process through forward contracts. The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure. During the three months ended March 31, 2012 and 2011, the Company held forward contracts that economically hedged certain of its risks. In these cases, a natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in net income throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Gains and losses are recognized as a component of unallocated corporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's operating profit ("SOP").

13

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, 2012 and December 31, 2011 (in millions):
 
Balance Sheet Location
 
March 31, 2012
 
December 31, 2011
Assets:
 
 
 
 
 
Derivative instruments designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Interest rate contracts
Prepaid expenses and other current assets
 
$
11

 
$
8

Interest rate contracts
Other non-current assets
 
12

 
22

Foreign exchange forward contracts
Other non-current assets
 

 
1

Derivative instruments not designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Commodity contracts
Prepaid expenses and other current assets
 
1

 

Total assets
 
 
$
24

 
$
31

Liabilities:
 
 
 
 
 
Derivative instruments designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Interest rate contracts
Other current liabilities
 
$
25

 
$
30

Foreign exchange forward contracts
Other current liabilities
 
2

 
1

Interest rate contracts
Other non-current liabilities
 
8

 
3

Derivative instruments not designated as hedging instruments under U.S. GAAP:
 
 
 
 
 
Commodity contracts
Other current liabilities
 
7

 
12

Total liabilities
 
 
$
42

 
$
46

The following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2012 and 2011 (in millions):
 
Amount of Gain (Loss) Recognized in Comprehensive Income
 
Amount of Gain (Loss) Reclassified from AOCL into Income
 
Location of Loss Reclassified from AOCL into Income
For the three months ended
March 31, 2012:
 
 
 
 
 
Interest rate contracts
$
5

 
$
(1
)
 
Interest expense
Foreign exchange forward contracts
(2
)
 

 
Cost of sales
Total
$
3

 
$
(1
)
 
 
 
 
 
 
 
 
For the three months ended
March 31, 2011:
 
 
 
 
 
Foreign exchange forward contracts
$
(4
)
 
$

 
Cost of sales
Total
$
(4
)
 
$

 
 
There was no hedge ineffectiveness recognized in earnings for the three months ended March 31, 2012 and 2011 with respect to derivative instruments designated as cash flow hedges. During the next 12 months, the Company expects to reclassify net losses of $4 million from AOCL into net income.

14

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


The following table presents the impact of derivative instruments designated as fair value hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 (in millions):
 
 
Amount of Gain
 
Location of Gain
 
 
Recognized in Income
 
Recognized in Income
For the three months ended
March 31, 2012:
 
 
 
 
Interest rate contracts
 
$
2

 
Interest expense
Total
 
$
2

 
 
 
 
 
 
 
For the three months ended
March 31, 2011:
 
 
 
 
Interest rate contracts
 
$
3

 
Interest expense
Total
 
$
3

 
 
There was no hedge ineffectiveness recognized in earnings for the three months ended March 31, 2012 and 2011 with respect to derivative instruments designated as fair value hedges.
The following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 (in millions):
 
 
Amount of Gain
 
Location of Gain
 
 
Recognized in Income
 
Recognized in Income
For the three months ended
March 31, 2012:
 
 
 
 
Commodity contracts
 
$
2

 
Cost of sales
Commodity contracts
 
2

 
Selling, general and administrative expenses
Total
 
$
4

 
 
 
 
 
 
 
For the three months ended
March 31, 2011:
 
 
 
 
Commodity contracts
 
2

 
Cost of sales
Commodity contracts
 
3

 
Selling, general and administrative expenses
Total
 
$
5

 
 

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.


15

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 March 31, 2012 and December 31, 2011 (in millions):
 
March 31,
 
December 31,
 
2012
 
2011
Other non-current assets:
 
 
 
Long-term receivables from Kraft
$
432

 
$
430

Deferred financing costs, net
14

 
15

Customer incentive programs
77

 
82

Derivative instruments
12

 
23

Other
23

 
23

Total other non-current assets
$
558

 
$
573

Other non-current liabilities:
 
 
 
Long-term payables due to Kraft
$
104

 
$
102

Liabilities for unrecognized tax benefits and other tax related items
571

 
567

Long-term pension and postretirement liability
44

 
44

Insurance reserves
56

 
54

Other
54

 
47

Total other non-current liabilities
$
829

 
$
814


8.
Income Taxes
The effective tax rates for the three months ended March 31, 2012 and 2011 were 37.4% and 36.0%, respectively. The prior year effective tax rate included certain non-recurring state and federal income tax benefits related to the PepsiCo, Inc. ("PepsiCo") and The Coca-Cola Company ("Coca-Cola") licensing agreements executed in 2010. The impact of these benefits decreased the March 31, 2011 provision for income taxes and the effective tax rate by $3 million and 1.7%, respectively.
The Company made tax payments of $508 million related to the licensing agreements with PepsiCo and Coca-Cola during the first quarter of 2012.
The Company's Canadian deferred tax assets as of March 31, 2012, included a separation related balance of $119 million that was offset by a liability due to Kraft of $111 million driven by the Tax Sharing and Indemnification Agreement ("Tax Indemnity Agreement"). Anticipated legislation in Canada could result in a future partial write-down of 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 $432 million. This balance increased by $2 million during the three months ended March 31, 2012, and was offset by indemnity income recorded as a component of other income in the unaudited Condensed Consolidated Statements of Income. In addition, pursuant to the terms of the Tax Indemnity Agreement, if DPS breaches certain covenants or other obligations or is involved in certain change-in-control transactions, Kraft may not be required to indemnify the Company.

16

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


9.
Fair Value of Financial Instruments
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy for disclosure of fair value measurements is as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 - Valuations with one or more unobservable significant inputs that reflect the reporting entity's own assumptions.
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 (in millions):
 
Fair Value Measurements at Reporting Date Using
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
 
Level 1
 
Level 2
 
Level 3
Commodity contracts
$

 
$
1

 
$

Interest rate contracts

 
23

 

Total assets
$

 
$
24

 
$

 
 
 
 
 
 
Commodity contracts
$

 
$
7

 
$

Interest rate contracts

 
33

 

Foreign exchange forward contracts

 
2

 

Total liabilities
$

 
$
42

 
$


17

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


The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 (in millions):
 
Fair Value Measurements at Reporting Date Using
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
 
Level 1
 
Level 2
 
Level 3
Interest rate contracts
$

 
$
30

 
$

Foreign exchange forward contracts

 
1

 

Total assets
$

 
$
31

 
$

 
 
 
 
 
 
Commodity contracts
$

 
$
12

 
$

Interest rate contracts

 
33

 

Foreign exchange forward contracts

 
1

 

Total liabilities
$

 
$
46

 
$

The fair values of commodity forward contracts, interest rate swap contracts and foreign currency forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity forward 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 the Company's contracts and credit risk of the counterparties. The fair value of foreign currency forward contracts are valued using quoted forward foreign exchange prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.
As of March 31, 2012 and December 31, 2011, 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 months ended March 31, 2012.
The estimated fair values of other financial liabilities not measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, are as follows (in millions):
 
March 31, 2012
 
December 31, 2011
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long term debt – 2012 Notes(1)
$
452

 
$
455

 
$
452

 
$
457

Long term debt – 2013 Notes
250

 
263

 
250

 
267

Long term debt – 2016 Notes
500

 
517

 
500

 
521

Long term debt – 2018 Notes
724

 
894

 
724

 
882

Long term debt – 2019 Notes(1)
249

 
245

 
250

 
249

Long term debt – 2021 Notes(1)
246

 
247

 
249

 
250

Long term debt – 2038 Notes(1)
267

 
360

 
276

 
353

____________________________
(1)
The carrying amount includes adjustments related to the change in the fair value of interest rate swaps designated as fair value hedges on the 2012, 2019, 2021 and 2038 Notes. See Note 6 for further information regarding derivatives. 

The estimated fair value is based on Level 2 inputs. Capital leases have been excluded from the calculation of fair value for both 2012 and 2011.

18

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


The fair value amounts for cash and cash equivalents, accounts receivable, net, accounts payable and other current liabilities approximate carrying amounts due to the short maturities of these instruments. The fair value amounts of long term debt as of March 31, 2012 and December 31, 2011, were based on current market rates available to the Company. 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 periodic benefit costs for the three months ended March 31, 2012 and 2011 (in millions):
 
For the Three Months Ended March 31,
 
2012
 
2011
Service cost
$
1

 
$

Interest cost
4

 
4

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

 
1

Net periodic benefit costs
$
2

 
$
1

The estimated prior service cost for the defined benefit plans that will be amortized from AOCL into periodic benefit cost during the remainder of 2012 was approximately $1 million.
The Company contributed $1 million to its pension plans during the three months ended March 31, 2012 and 2011.
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 made. Contributions paid into multi-employer defined benefit pension plans for employees under collective bargaining agreements were $1 million for the three months ended March 31, 2012 and 2011.

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, restricted stock units ("RSUs") and performance share units ("PSUs").
Stock-based compensation expense is recorded in selling, general and administrative expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense for the three months ended March 31, 2012 and 2011 are presented below (in millions):
 
For the Three Months Ended March 31,
 
2012
 
2011
Total stock-based compensation expense
$
8

 
$
8

Income tax benefit recognized in the income statement
(2
)
 
(3
)
Net stock-based compensation expense
$
6

 
$
5





19

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


Stock Options     

The table below summarizes stock option activity for the three months ended March 31, 2012:
 
Stock Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2011
2,317,342

 
$
28.25

 
8.04

 
$
26

Granted
670,574

 
37.80

 
 
 
 
Exercised
(358,181
)
 
16.74

 
 
 
8

Forfeited or expired

 

 
 
 
 
Outstanding as of March 31, 2012
2,629,735

 
32.25

 
8.44

 
21

Exercisable as of March 31, 2012
1,130,649

 
26.92

 
7.52

 
15


As of March 31, 2012, there was $10 million of unrecognized compensation cost related to the nonvested stock options granted under the DPS Stock Plans that is expected to be recognized over a weighted average period of 1.56 years.
Restricted Stock Units and Performance Share Units     
The table below summarizes RSU and PSU activity for the three months ended March 31, 2012:
 
RSUs/PSUs
 
Weighted Average Grant Date Fair Value
 
Weighted Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2011
3,321,255

 
$
25.41

 
1.02

 
$
131

Granted
984,183

 
37.80

 
 
 
 
Vested and released
(1,476,363
)
 
14.89

 
 
 
 
Forfeited
(14,416
)
 
32.39

 
 
 
 
Outstanding as of March 31, 2012
2,814,659

 
35.23

 
1.96

 
113


As of March 31, 2012, there was $68 million of unrecognized compensation cost related to the nonvested RSUs and PSUs granted under the DPS Stock Plans that is expected to be recognized over a weighted average period of 1.89 years.


20

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


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 presents the basic and diluted EPS and the Company's basic and diluted shares outstanding (in millions, except per share data):
 
For the Three Months Ended March 31,
 
2012
 
2011
Basic EPS:
 
 
 
Net income
$
102

 
$
114

Weighted average common shares outstanding
212.6

 
223.6

Earnings per common share — basic
$
0.48

 
$
0.51

Diluted EPS:
 
 
 
Net income
$
102

 
$
114

Weighted average common shares outstanding
212.6

 
223.6

Effect of dilutive securities:
 
 
 
Stock options, RSUs, PSUs and dividend equivalent units
1.3

 
2.7

Weighted average common shares outstanding and common stock equivalents
213.9

 
226.3

Earnings per common share — diluted
$
0.48

 
$
0.50

Stock options, RSUs, PSUs and dividend equivalent units totaling 0.1 million shares and 0.4 million shares were excluded from the diluted weighted average shares outstanding for the three months ended March 31, 2012 and 2011, respectively, 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. As of March 31, 2012, there were 80,590 dividend equivalent units which will vest at the time that the underlying RSU vests.
During 2010 and 2011, the Board authorized a total aggregate share repurchase plan of $2 billion. For the three months ended March 31, 2012 and 2011, the Company repurchased and retired 2.2 million and 2.7 million shares of common stock valued at approximately $85 million and $100 million, respectively. These amounts were recorded as a reduction of equity, primarily additional paid-in capital.

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.
Robert M. Ward, et al. v. The American Bottling Company
In March 2009, Robert M. Ward, et al., as plaintiffs, commenced litigation in the United States District Court, Central District of California, Western Division alleging age discrimination against Cadbury Schweppes Bottling Group, Inc. (now The American Bottling Company), et al., as defendants. The defendants are subsidiaries of the Company. The complaint related to activities which principally occurred before the Company's spin off from Cadbury in 2008. On December 7, 2011, the jury returned a verdict in favor of the six plaintiffs and awarded damages of approximately $18 million, which amount was accrued as of March 31, 2012. The Company plans to appeal this decision.

21

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


Robert Jones v. Seven Up/RC Bottling Company of Southern California, Inc.

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 reached a settlement in the case during 2011, pursuant to which the Company denied any liability or wrongdoing and reserved all rights, but agreed to a compromise to end litigation. The Company paid approximately $5 million during the first quarter of 2012, which satisfied the terms and conditions of the settlement agreement.     
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, also known as the Superfund law, as well as similar state laws, generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. In October 2008, DPS was notified by the Environmental Protection Agency that it is a potentially responsible party for study and cleanup costs at a Superfund site in New Jersey. Investigation and remediation costs are yet to be determined, but through March 31, 2012, the Company paid approximately $425,000 since the notification for DPS' allocation of costs related to the study for this site.

14.
Accumulated Other Comprehensive Loss
The following table provides a summary of changes in the balances of each component of AOCL, net of taxes, for the three months ended March 31, 2012 and the year ended December 31, 2011 (in millions):
 
Foreign Currency Translation
 
Change in Pension Liability
 
Cash Flow Hedges
 
Accumulated Other Comprehensive Loss
Balance at December 31, 2010
$
7

 
$
(31
)
 
$
(4
)
 
$
(28
)
Current period other comprehensive income
(34
)
 
(17
)
 
(31
)
 
(82
)
Balance as of December 31, 2011
(27
)
 
(48
)
 
(35
)
 
(110
)
Current period other comprehensive income
21

 

 
3

 
24

Balance as of March 31, 2012
$
(6
)
 
$
(48
)
 
$
(32
)
 
$
(86
)

15.
Segments
As of March 31, 2012, the Company's operating structure consisted of the following three operating segments:
The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands.
The Packaged Beverages segment reflects sales in the United States and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third party brands, through both DSD and WD.
The Latin America Beverages segment reflects sales in the Mexico and Caribbean markets from the manufacture and distribution of concentrates, syrup and finished beverages.
Segment results are based on management reports. Net sales and SOP are the significant financial measures used to assess the operating performance of the Company's operating segments.

22

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, 2012 and 2011 is as follows (in millions):
 
For the Three Months Ended March 31,
 
2012
 
2011
Segment Results – Net sales

 

Beverage Concentrates
$
254

 
$
255

Packaged Beverages
1,017

 
985

Latin America Beverages
91

 
91

Net sales
$
1,362

 
$
1,331

 
For the Three Months Ended March 31,
 
2012
 
2011
Segment Results – SOP
 
 
 
Beverage Concentrates
$
140

 
$
155

Packaged Beverages
111

 
109

Latin America Beverages
8

 
7

Total SOP
259

 
271

Unallocated corporate costs
65

 
67

Other operating expenses
2

 
2

Income from operations
192

 
202

Interest expense, net
32

 
26

Other income, net
(3
)
 
(2
)
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
$
163

 
$
178


16.
Guarantor and Non-Guarantor Financial Information
The Company's 2012, 2013, 2016, 2018, 2019, 2021 and 2038 Notes (collectively, the "Notes") are fully and unconditionally guaranteed by substantially all of the Company's existing and future direct and indirect domestic subsidiaries (except two immaterial subsidiaries associated with the Company's charitable foundations) (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are wholly-owned either directly or indirectly by the Company and jointly and severally guarantee the Company's obligations under the Notes. None of the Company's subsidiaries organized outside of the U.S. (collectively, the "Non-Guarantors") guarantee the Notes.
The following schedules present the financial information for the three months ended March 31, 2012 and 2011, and as of March 31, 2012 and December 31, 2011, for Dr Pepper Snapple Group, Inc. (the "Parent"), Guarantors and Non-Guarantors. The consolidating schedules are provided in accordance with the reporting requirements for guarantor subsidiaries (in millions).


23

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


 
Condensed Consolidating Statements of Operations
 
For the Three Months Ended March 31, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$

 
$
1,243

 
$
121

 
$
(2
)
 
$
1,362

Cost of sales

 
533

 
53

 
(2
)
 
584

Gross profit

 
710

 
68

 

 
778

Selling, general and administrative expenses

 
506

 
47

 

 
553

Depreciation and amortization

 
29

 
2

 

 
31

Other operating expenses

 
2

 

 

 
2

Income from operations

 
173

 
19

 

 
192

Interest expense
32

 
22

 

 
(22
)
 
32

Interest income
(20
)
 

 
(2
)
 
22

 

Other (income) expense, net
(3
)
 
(4
)
 
4

 

 
(3
)
Income (loss) before provision for income taxes and equity in earnings of subsidiaries
(9
)
 
155

 
17

 

 
163

Provision for income taxes
(3
)
 
61

 
3

 

 
61

Income (loss) before equity in earnings of subsidiaries
(6
)
 
94

 
14

 

 
102

Equity in earnings of consolidated subsidiaries
108

 
14

 

 
(122
)
 

Equity in earnings of unconsolidated subsidiaries, net of tax

 

 

 

 

Net income
$
102

 
$
108

 
$
14

 
$
(122
)
 
$
102



24

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



 
Condensed Consolidating Statements of Operations
 
For the Three Months Ended March 31, 2011
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$

 
$
1,211

 
$
122

 
$
(2
)
 
$
1,331

Cost of sales

 
497

 
52

 
(2
)
 
547

Gross profit

 
714

 
70

 

 
784

Selling, general and administrative expenses

 
496

 
51

 

 
547

Depreciation and amortization

 
31

 
2

 

 
33

Other operating expenses

 
2

 

 

 
2

Income from operations

 
185

 
17

 

 
202

Interest expense
27

 
18

 

 
(18
)
 
27

Interest income
(18
)
 
(1
)
 

 
18

 
(1
)
Other (income) expense, net
(2
)
 

 

 

 
(2
)
Income (loss) before provision for income taxes and equity in earnings of subsidiaries
(7
)
 
168

 
17

 

 
178

Provision for income taxes
(3
)
 
62

 
5

 

 
64

Income (loss) before equity in earnings of subsidiaries
(4
)
 
106

 
12

 

 
114

Equity in earnings of consolidated subsidiaries
118

 
12

 

 
(130
)
 

Equity in earnings of unconsolidated subsidiaries, net of tax

 

 

 

 

Net income
$
114

 
$
118

 
$
12

 
$
(130
)
 
$
114



25

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


 
Condensed Consolidating Statements of Comprehensive Income
 
For the Three Months Ended March 31, 2012
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income
$
126

 
$
130

 
$
39

 
$
(169
)
 
$
126



 
Condensed Consolidating Statements of Comprehensive Income
 
For the Three Months Ended March 31, 2011
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income
$
111

 
$
197

 
$
30

 
$
(222
)
 
$
116









26

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


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

 
$
133

 
$
59

 
$

 
$
192

Accounts receivable:
 
 
 
 
 
 
 
 
 
Trade, net

 
504

 
60

 

 
564

Other
4

 
23

 
10

 

 
37

Related party receivable
13

 
9

 

 
(22
)
 

Inventories

 
202

 
23

 

 
225

Deferred tax assets
10

 
70

 
6

 

 
86

Prepaid expenses and other current assets
150

 
128

 
22

 
(143
)
 
157

Total current assets
177

 
1,069

 
180

 
(165
)
 
1,261

Property, plant and equipment, net

 
1,072

 
77

 

 
1,149

Investments in consolidated subsidiaries
3,759

 
569

 

 
(4,328
)
 

Investments in unconsolidated subsidiaries
2

 

 
12

 

 
14

Goodwill

 
2,961

 
22

 

 
2,983

Other intangible assets, net

 
2,607

 
80

 

 
2,687

Long-term receivable, related parties
2,938

 
2,131

 
203

 
(5,272
)
 

Other non-current assets
458

 
93

 
7

 

 
558

Non-current deferred tax assets
8

 

 
132

 
(8
)
 
132

Total assets
$
7,342

 
$
10,502

 
$
713

 
$
(9,773
)
 
$
8,784

Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
292

 
$
21

 
$

 
$
313

Related party payable

 
13

 
9

 
(22
)
 

Deferred revenue

 
63

 
2

 

 
65

Current portion of long-term obligations
452

 

 

 

 
452

Income taxes payable

 
182

 

 
(142
)
 
40

Other current liabilities
151

 
346

 
45

 

 
542

Total current liabilities
603

 
896

 
77

 
(164
)
 
1,412

Long-term obligations to third parties
2,236

 
11

 

 

 
2,247

Long-term obligations to related parties
2,131

 
3,141

 

 
(5,272
)
 

Non-current deferred tax liabilities

 
611

 

 
(9
)
 
602

Non-current deferred revenue

 
1,388

 
46

 

 
1,434

Other non-current liabilities
112

 
696

 
21

 

 
829

Total liabilities
5,082

 
6,743

 
144

 
(5,445
)
 
6,524

Total stockholders' equity
2,260

 
3,759

 
569

 
(4,328
)
 
2,260

Total liabilities and stockholders' equity
$
7,342

 
$
10,502

 
$
713

 
$
(9,773
)
 
$
8,784



27

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