Keurig Dr Pepper Inc. - FORM 10-Q

Keurig Dr Pepper Inc. - FORM 10-Q - October 22, 2015

Attached files

Attached files

file	filename
EX-32.1 - CERTIFICATION OF OUR CEO PURSUANT TO SECTION 906 - Keurig Dr Pepper Inc.	dps-ex321_20150930.htm
EX-31.1 - CERTIFICATION OF OUR CEO PURSUANT TO SECTION 302 - Keurig Dr Pepper Inc.	dps-ex311_20150930.htm
EX-12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Keurig Dr Pepper Inc.	dps-ex121_20150930.htm
EX-32.2 - CERTIFICATION OF OUR CFO PURSUANT TO SECTION 906 - Keurig Dr Pepper Inc.	dps-ex322_20150930.htm
EX-31.2 - CERTIFICATION OF OUR CFO PURSUANT TO SECTION 302 - Keurig Dr Pepper Inc.	dps-ex312_20150930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2015

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.

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

Yes o No R

As of October 19, 2015, there were 188,892,081 shares of the registrant's common stock, par value $0.01 per share, outstanding.

DR PEPPER SNAPPLE GROUP, INC.

FORM 10-Q

INDEX




				Page

Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014		1
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014		2
		Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014		3
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014		4
		Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2015		5
		Notes to Condensed Consolidated Financial Statements		6
		1	General	6
		2	Inventories	8
		3	Investments in Unconsolidated Subsidiaries	8
		4	Goodwill and Other Intangible Assets	9
		5	Prepaid Expenses and Other Current Assets and Other Current Liabilities	11
		6	Debt	11
		7	Derivatives	13
		8	Other Non-Current Assets and Other Non-Current Liabilities	20
		9	Income Taxes	20
		10	Employee Benefit Plans	21
		11	Fair Value	21
		12	Stock-Based Compensation	23
		13	Earnings Per Share	25
		14	Accumulated Other Comprehensive Loss	26
		15	Supplemental Cash Flow Information	27
		16	Commitments and Contingencies	28
		17	Segments	28
		18	Guarantor and Non-Guarantor Financial Information	29
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		39
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		55
	Item 4.	Controls and Procedures		56

Part II.	Other Information
	Item 1.	Legal Proceedings		57
	Item 1A.	Risk Factors		57
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		57
	Item 6.	Exhibits		58

Table of Contents

DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three and Nine Months Ended September 30, 2015 and 2014

(Unaudited, in millions, except per share data)

PART I - FINANCIAL INFORMATION


ITEM 1.	Financial Statements (Unaudited)



	For the				For the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015			2014
Net sales	$	1,630	$	1,583	$	4,736		$	4,612
Cost of sales	673		658		1,949			1,877
Gross profit	957		925		2,787			2,735
Selling, general and administrative expenses	592		581		1,730			1,727
Depreciation and amortization	26		28		79			86
Other operating expense (income), net	2		—		2			(2		)
Income from operations	337		316		976			924
Interest expense	28		27		83			80
Interest income	—		—		(1		)	(1		)
Other expense, net	1		4		1			2
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries	308		285		893			843
Provision for income taxes	106		97		314			291
Income before equity in earnings of unconsolidated subsidiaries	202		188		579			552
Equity in earnings of unconsolidated subsidiaries, net of tax	—		—		—			1
Net income	$	202	$	188	$	579		$	553
Earnings per common share:
Basic	$	1.06	$	0.97	$	3.02		$	2.81
Diluted	1.05		0.96		3.00			2.79
Weighted average common shares outstanding:
Basic	190.4		194.8		191.6			196.4
Diluted	191.5		196.2		192.8			197.8
Cash dividends declared per common share	$	0.48	$	0.41	$	1.44		$	1.23

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

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DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months Ended September 30, 2015 and 2014

(Unaudited, in millions)



	For the				For the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Comprehensive income	$	161	$	174	$	526	$	542

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

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DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2015 and December 31, 2014

(Unaudited, in millions, except share and per share data)



	September 30,			December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	207		$	237
Accounts receivable:
Trade, net	571			556
Other	57			61
Inventories	201			204
Deferred tax assets	73			67
Prepaid expenses and other current assets	113			86
Total current assets	1,222			1,211
Property, plant and equipment, net	1,077			1,141
Investments in unconsolidated subsidiaries	31			14
Goodwill	2,988			2,990
Other intangible assets, net	2,673			2,684
Other non-current assets	172			159
Non-current deferred tax assets	62			74
Total assets	$	8,225		$	8,273
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	310		$	289
Deferred revenue	64			64
Short-term borrowings and current portion of long-term obligations	505			3
Income taxes payable	25			10
Other current liabilities	685			672
Total current liabilities	1,589			1,038
Long-term obligations	2,130			2,588
Non-current deferred tax liabilities	846			801
Non-current deferred revenue	1,198			1,250
Other non-current liabilities	265			302
Total liabilities	6,028			5,979
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued	—			—
Common stock, $0.01 par value, 800,000,000 shares authorized, 189,112,688 and 192,957,696 shares issued and outstanding for 2015 and 2014, respectively	2			2
Additional paid-in capital	313			658
Retained earnings	2,072			1,771
Accumulated other comprehensive loss	(190		)	(137		)
Total stockholders' equity	2,197			2,294
Total liabilities and stockholders' equity	$	8,225		$	8,273

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

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DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2015 and 2014

(Unaudited, in millions)



	For the
	Nine Months Ended
	September 30,
	2015			2014
Operating activities:
Net income	$	579		$	553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	143			148
Amortization expense	25			26
Amortization of deferred revenue	(48		)	(48		)
Employee stock-based compensation expense	33			35
Deferred income taxes	27			33
Other, net	(7		)	(20		)
Changes in assets and liabilities, net of effects of acquisition:
Trade accounts receivable	(25		)	15
Other accounts receivable	3			(6		)
Inventories	(2		)	8
Other current and non-current assets	(33		)	(49		)
Other current and non-current liabilities	(35		)	24
Trade accounts payable	25			49
Income taxes payable	38			1
Net cash provided by operating activities	723			769
Investing activities:
Purchase of property, plant and equipment	(71		)	(103		)
Purchase of intangible assets	(1		)	(1		)
Investment in unconsolidated subsidiaries	(20		)	—
Purchase of cost method investment	(15		)	—
Proceeds from disposals of property, plant and equipment	12			7
Other, net	—			(3		)
Net cash used in investing activities	(95		)	(100		)
Financing activities:
Net issuance of commercial paper	—			(65		)
Repurchase of shares of common stock	(404		)	(276		)
Dividends paid	(264		)	(237		)
Tax withholdings related to net share settlements of certain stock awards	(27		)	(16		)
Proceeds from stock options exercised	28			32
Excess tax benefit on stock-based compensation	22			9
Other, net	(3		)	—
Net cash used in financing activities	(648		)	(553		)
Cash and cash equivalents — net change from:
Operating, investing and financing activities	(20		)	116
Effect of exchange rate changes on cash and cash equivalents	(10		)	(3		)
Cash and cash equivalents at beginning of period	237			153
Cash and cash equivalents at end of period	$	207		$	266

See Note 15 for supplemental cash flow information.

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

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DR PEPPER SNAPPLE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the Nine Months Ended September 30, 2015

(Unaudited, in millions, except per share data)




											Accumulated
	Common Stock				Additional						Other
	Issued				Paid-In			Retained			Comprehensive			Total
	Shares		Amount		Capital			Earnings			Loss			Equity
Balance as of January 1, 2015	193.0		$	2	$	658		$	1,771		$	(137	)	$	2,294
Shares issued under employee stock-based compensation plans and other	1.3		—		—			—			—			—
Net income	—		—		—			579			—			579
Other comprehensive loss	—		—		—			—			(53		)	(53		)
Dividends declared, $1.44 per share	—		—		3			(278		)	—			(275		)
Stock options exercised and stock-based compensation, net of tax of ($22)	—		—		56			—			—			56
Common stock repurchases	(5.2	)	—		(404		)	—			—			(404		)
Balance as of September 30, 2015	189.1		$	2	$	313		$	2,072		$	(190	)	$	2,197

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

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	General

References in this Quarterly Report on Form 10-Q to "DPS" or "the Company" refer to Dr Pepper Snapple Group, Inc. and all entities included in the unaudited condensed consolidated financial statements.

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 herein 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, 2014.

PRINCIPLES OF CONSOLIDATION

DPS consolidates all wholly owned subsidiaries. The Company uses the equity method to account for investments in companies if the investment provides the Company with the ability to exercise significant influence over operating and financial policies of the investee. Consolidated net income includes DPS' proportionate share of the net income or loss of these companies. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.

The Company is also required to consolidate entities that are variable interest entities (“VIEs”) of which DPS is the primary beneficiary. Judgments are made in assessing whether the Company is the primary beneficiary, including determination of the activities that most significantly impact the VIE’s economic performance. During the year ended December 31, 2014, the Company provided 100% financing to a VIE as part of a short term leasing structure for which DPS is the primary beneficiary. As a result, DPS has consolidated that entity. The Company’s financing of the VIE, which totaled $21 million as of December 31, 2014, included a transfer of cash and assignment of the rights to deposits previously made with a manufacturer in prior years. The Company's financing of the VIE, which eliminates in consolidation, was used by the VIE to purchase certain property, plant and equipment. During the quarter ended June 30, 2015, the leasing arrangement with the VIE was terminated through the Company assuming ownership of the property, plant and equipment purchased by the VIE as repayment of the Company's financing of the VIE. No gain or loss was recorded as a result of the termination.

The Company eliminates from its financial results all intercompany transactions between entities included in the consolidated financial statements and the intercompany transactions with its equity method investees.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

USE OF ESTIMATES

The process of preparing DPS' unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates:

•goodwill and other indefinite-lived intangible assets;

•revenue recognition;

•pension and postretirement benefits;

•multi-employer pension plan withdrawal liability;

•risk management programs; and

•income taxes.

These critical accounting estimates are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2014.

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. ASU 2014-09 provides alternative methods of initial adoption. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date. The Company is currently evaluating the impact that these standards will have on the consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"), in order to simplify the presentation of debt issuance costs. The ASU requires debt issuance costs to be presented on the balance sheet as a direct deduction from the related debt liability rather than an asset. In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update) ("ASU 2015-15"), which clarifies that companies may continue to present unamortized debt issuance costs associated with line of credit arrangements as an asset. ASU 2015-03 and ASU 2015-15 are effective for public companies for annual periods beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The guidance also requires retrospective application to all prior periods presented. The Company will early adopt these standards as of December 31, 2015, and does not anticipate a significant impact to the Company's financial position as a result of this change.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory ("ASU 2015-11"). This ASU requires inventories measured under any methods other than last-in, first-out ("LIFO") or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Subsequent measurement of inventory using LIFO or the retail inventory method is unchanged by this ASU. ASU 2015-11 is effective for public companies for interim and annual periods beginning after December 15, 2016. The Company is currently evaluating the impact that this standard will have on the consolidated financial statements and does not anticipate a significant impact to the Company's financial position as a result of this change.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)


2.	Inventories

Inventories consisted of the following:



	September 30,			December 31,
(in millions)	2015			2014
Raw materials	$	78		$	92
Spare parts	18			18
Work in process	5			5
Finished goods	136			126
Inventories at first in first out cost	237			241
Reduction to LIFO cost	(36		)	(37		)
Inventories	$	201		$	204

Approximately $154 million and $151 million of the Company's inventory was accounted for under the LIFO method of accounting as of September 30, 2015 and December 31, 2014, respectively. The reduction to LIFO cost reflects the excess of the current cost of LIFO inventories as of September 30, 2015 and December 31, 2014, over the amount at which these inventories were valued on the unaudited Condensed Consolidated Balance Sheets. For the nine months ended September 30, 2015, a LIFO inventory liquidation increased the Company's gross profit by $1 million. For the three months ended September 30, 2015 and for the three and nine months ended September 30, 2014, there was no LIFO inventory liquidation.

3. Investments in Unconsolidated Subsidiaries

On August 10, 2015, the Company acquired an 11.7% interest in BA Sports Nutrition, LLC for $20 million. The investment is accounted for as an equity method investment as the Company is deemed to have the ability to exercise influence through more than a minor interest in the investee in accordance with U.S. GAAP. The carrying value of the investment was $20 million as of September 30, 2015.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)


4.	Goodwill and Other Intangible Assets

GOODWILL

Changes in the carrying amount of goodwill by reporting unit are as follows:



(in millions)	Beverage Concentrates		WD Reporting Unit⁽¹⁾		DSD Reporting Unit⁽¹⁾			Latin America Beverages			Total
Balance as of January 1, 2014
Goodwill	$	1,732	$	1,220	$	185		$	31		$	3,168
Accumulated impairment losses	—		—		(180		)	—			(180		)
	1,732		1,220		5			31			2,988
Foreign currency impact	—		—		—			(3		)	(3		)
Acquisition activity⁽²⁾	—		2		3			—			5
Balance as of December 31, 2014
Goodwill	1,732		1,222		188			28			3,170
Accumulated impairment losses	—		—		(180		)	—			(180		)
	1,732		1,222		8			28			2,990
Foreign currency impact	—		—		—			(3		)	(3		)
Acquisition activity⁽²⁾	—		—		1			—			1
Balance as of September 30, 2015
Goodwill	1,732		1,222		189			25			3,168
Accumulated impairment losses	—		—		(180		)	—			(180		)
	$	1,732	$	1,222	$	9		$	25		$	2,988

____________________________


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


(2)	The acquisition activity represents the goodwill associated with the purchase of Davis Beverage Group, Inc. and Davis Bottling Co, Inc. in 2014.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

INTANGIBLE ASSETS OTHER THAN GOODWILL

The net carrying amounts of intangible assets other than goodwill are as follows:



	September 30, 2015							December 31, 2014
	Gross		Accumulated			Net		Gross		Accumulated			Net
(in millions)	Amount		Amortization			Amount		Amount		Amortization			Amount
Intangible assets with indefinite lives:
Brands⁽¹⁾	$	2,635	$	—		$	2,635	$	2,643	$	—		$	2,643
Distribution rights	27		—			27		27		—			27
Intangible assets with finite lives:
Brands	29		(28		)	1		29		(28		)	1
Distribution rights	14		(6		)	8		13		(4		)	9
Customer relationships	76		(74		)	2		76		(72		)	4
Bottler agreements	19		(19		)	—		19		(19		)	—
Total	$	2,800	$	(127	)	$	2,673	$	2,807	$	(123	)	$	2,684

____________________________


(1)	For the nine months ended September 30, 2015, brands with indefinite lives decreased due to an $8 million change in foreign currency translation.

As of September 30, 2015, the weighted average useful life of intangible assets with finite lives was 10 years for distribution rights, brands, customer relationships, and in total. Amortization expense for intangible assets was $1 million and $4 million for the three and nine months ended September 30, 2015, respectively, and $2 million and $4 million for the three and nine months ended September 30, 2014, respectively.

Amortization expense of these intangible assets over the remainder of 2015 and the next four years is expected to be the following (in millions):



Year	Aggregate Amortization Expense
October 1, 2015 through December 31, 2015	$	2
2016	3
2017	1
2018	1
2019	1

IMPAIRMENT TESTING

The Company conducts impairment tests on goodwill and all indefinite-lived intangible assets annually or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. DPS did not identify any circumstances that indicated that the carrying amount of any goodwill or any indefinite-lived intangible asset may not be recoverable as of September 30, 2015.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)


5.	Prepaid Expenses and Other Current Assets and Other Current Liabilities

The table below details the components of prepaid expenses and other current assets and other current liabilities:



	September 30,		December 31,
(in millions)	2015		2014
Prepaid expenses and other current assets:
Customer incentive programs	$	43	$	18
Derivative instruments	10		11
Current assets held for sale	3		12
Other	57		45
Total prepaid expenses and other current assets	$	113	$	86
Other current liabilities:
Customer rebates and incentives	$	243	$	248
Accrued compensation	116		127
Insurance liability	43		46
Interest accrual	40		26
Dividends payable	90		79
Derivative instruments	37		18
Other	116		128
Total other current liabilities	$	685	$	672


6.	Debt

The following table summarizes the Company's long-term obligations:



	September 30,			December 31,
(in millions)	2015			2014
Senior unsecured notes⁽¹⁾	$	2,523		$	2,505
Capital lease obligations	112			86
Subtotal	2,635			2,591
Less - current portion	(505		)	(3		)
Long-term obligations	$	2,130		$	2,588

____________________________


(1)	The carrying amount includes the unamortized net discount on debt issuances and adjustments of $51 million and $34 million as of September 30, 2015 and December 31, 2014, respectively, related to the change in the fair value of interest rate swaps designated as fair value hedges. See Note 7 for further information regarding derivatives.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

The following table summarizes the Company's short-term borrowings and current portion of long-term obligations:



	September 30,		December 31,
(in millions)	2015		2014
Commercial paper	$	—	$	—
Current portion of long-term obligations:
Senior unsecured notes	500		—
Capital lease obligations	5		3
Short-term borrowings and current portion of long-term obligations	$	505	$	3

SENIOR UNSECURED NOTES

The Company's senior unsecured notes consisted of the following:



(in millions)			Principal Amount		Carrying Amount
			September 30,		September 30,		December 31,
Issuance	Maturity Date	Rate	2015		2015		2014
2016 Notes	January 15, 2016	2.90%	$	500	$	500	$	500
2018 Notes	May 1, 2018	6.82%	724		724		724
2019 Notes	January 15, 2019	2.60%	250		252		250
2020 Notes	January 15, 2020	2.00%	250		248		245
2021 Notes	November 15, 2021	3.20%	250		254		249
2022 Notes	November 15, 2022	2.70%	250		270		265
2038 Notes	May 1, 2038	7.45%	250		275		272
			$	2,474	$	2,523	$	2,505

COMMERCIAL PAPER PROGRAM

On December 10, 2010, the Company entered into a commercial paper program under which the Company may issue unsecured commercial paper notes (the "Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $500 million. The program is supported by a $500 million revolving line of credit (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 September 30, 2015 and December 31, 2014, the Company had no outstanding Commercial Paper.

UNSECURED CREDIT AGREEMENT

The following table provides amounts utilized and available under the Revolver and each sublimit arrangement type as of September 30, 2015:



(in millions)	Amount Utilized		Balances Available
Revolver	$	—	$	499
Letters of credit	1		74
Swingline advances	—		50

As of September 30, 2015, the Company was in compliance with all financial covenant requirements relating to its unsecured credit agreement.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

SHELF REGISTRATION STATEMENT

On February 7, 2013, the Company's Board of Directors (the "Board") authorized the Company to issue up to $1,500 million of securities from time to time. Subsequently, the Company filed a "well-known seasoned issuer" shelf registration statement with the Securities and Exchange Commission ("SEC"), effective May 23, 2013, which registered an indeterminable amount of securities for future sales. As of September 30, 2015, the Company had not issued any securities under this shelf registration statement.

LETTERS OF CREDIT FACILITIES

In addition to the portion of the Revolver reserved for issuance of letters of credit, the Company has incremental letters of credit facilities. Under these facilities, $140 million is available for the issuance of letters of credit, $61 million of which was utilized as of September 30, 2015 and $79 million of which remains available for use.

7. Derivatives

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

•interest rates;

•foreign exchange rates; and


•	commodity prices affecting the cost of raw materials and fuels, which are recorded in cost of sales and selling, general and administrative ("SG&A") expenses, respectively.

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

The Company formally designates and accounts for certain interest rate contracts and foreign exchange forward contracts that meet established accounting criteria under U.S. GAAP as either fair value or cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in 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 Income. For derivative instruments that are designated and qualify as fair value hedges, the effective change in the fair value of the instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized immediately in current-period earnings. For derivatives that are not designated or are de-designated as a hedging instrument, the gain or loss on the instrument is recognized in earnings in the period of change.

Certain interest rate contracts qualify for the "shortcut" method of accounting for hedges under U.S. GAAP. Under the shortcut method, the hedges are assumed to be perfectly effective and no ineffectiveness is recorded in earnings. For all other designated hedges, the Company assesses whether the derivative instrument is effective in offsetting the changes in fair value or variability of cash flows at the inception of the derivative contract. DPS measures hedge ineffectiveness on a quarterly basis throughout the designated period. Changes in the fair value of the derivative instrument that do not effectively offset changes in the fair value of the underlying hedged item throughout the designated hedge period are recorded in earnings each period.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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

INTEREST RATES

Cash Flow Hedges

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 has entered into the following forward starting swap agreements:



($ in millions)
	Future 30 year debt issuance			Future 10 year debt issuance
	Number of			Number of
Period Entered	instruments	Notional value		instruments	Notional value
Fourth quarter 2014	1	$	125	—	$	—
First quarter 2015	3	100		—	—
Third quarter 2015	1	25		4	175
Total	5	$	250	4	$	175

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 and nine months ended September 30, 2015, the Company realized no ineffectiveness as a result of these hedging relationships. The forward starting swaps are expected to be unwound at the planned issuance of the debt.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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. Any ineffectiveness is recorded as interest during the period incurred. The following table presents information regarding these interest rate swaps and the associated hedging relationships:



($ in millions)						Impact to the carrying value
			Method of			of long-term debt
	Hedging	Number of	measuring	Notional		September 30,			December 31,
Period entered	relationship	instruments	effectiveness	value		2015			2014
November 2011	2019 Notes	2	Short cut method	$	100	$	2		—
November 2011	2021 Notes	2	Short cut method	150		4			(1		)
November 2012	2020 Notes	5	Short cut method	120		(1		)	(4		)
December 2013	2022 Notes	4	Cumulative dollar offset⁽¹⁾	250		21			16
February 2015	2038 Notes⁽²⁾	1	Regression	100		25			23
						$	51		$	34

____________________________

(1) 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.

(2) 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. In February 2015, the swap agreement was modified and transferred to another counterparty through a novation transaction. As a result, the Company de-designated the original hedging relationship. Under the original hedging relationship, the $25 million recorded as an increase to debt due to the changes in fair market value of the debt will be amortized into earnings over the remaining term of the 2038 Notes.

In February 2015, the Company then designated the new interest rate swap contract as a fair value hedge with 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. The Company uses regression analysis to assess the prospective and retrospective effectiveness of this hedge relationship.

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 and nine months ended September 30, 2015 and 2014, 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 three months as of September 30, 2015. The Company had outstanding foreign exchange forward contracts with notional amounts of $6 million and $10 million as of September 30, 2015 and December 31, 2014, respectively.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

COMMODITIES

Economic Hedges

DPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through forward and future contracts. The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure. During the three and nine months ended September 30, 2015 and 2014, the Company held forward and future contracts that economically hedged certain of its risks. In these cases, a natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in net income throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's operating profit ("SOP"). The total notional values of derivatives related to economic hedges of this type were $174 million and $160 million as of September 30, 2015 and December 31, 2014, respectively.

FAIR VALUE OF DERIVATIVE INSTRUMENTS

The following table summarizes the location of the fair value of the Company's derivative instruments within the unaudited Condensed Consolidated Balance Sheets:



(in millions)	Balance Sheet Location	September 30, 2015		December 31, 2014
Assets:
Derivative instruments designated as hedging instruments under U.S. GAAP:
Interest rate contracts	Prepaid expenses and other current assets	$	9	$	11
Foreign exchange forward contracts	Prepaid expenses and other current assets	1		—
Interest rate contracts	Other non-current assets	45		29
Total assets		$	55	$	40
Liabilities:
Derivative instruments designated as hedging instruments under U.S. GAAP:
Interest rate contracts	Other current liabilities	$	12	$	—
Interest rate contracts	Other non-current liabilities	1		9
Derivative instruments not designated as hedging instruments under U.S. GAAP:
Commodity contracts	Other current liabilities	25		18
Commodity contracts	Other non-current liabilities	6		8
Total liabilities		$	44	$	35

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

IMPACT OF CASH FLOW HEDGES

The following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income and Comprehensive Income:



	Amount of (Loss) Recognized in			Amount of Gain (Loss) Reclassified from AOCL into Income			Location of Gain (Loss) Reclassified from AOCL into Income
(in millions)	Other Comprehensive Income (Loss) ("OCI")			Amount of Gain (Loss) Reclassified from AOCL into Income			Location of Gain (Loss) Reclassified from AOCL into Income
For the three months ended September 30, 2015:
Interest rate contracts	$	(24	)	$	(2	)	Interest expense
Foreign exchange forward contracts	—			1			Cost of sales
Total	$	(24	)	$	(1	)

For the nine months ended September 30, 2015:
Interest rate contracts	$	(9	)	$	(6	)	Interest expense
Foreign exchange forward contracts	—			1			Cost of sales
Total	$	(9	)	$	(5	)

For the three months ended September 30, 2014:
Interest rate contracts	$	—		$	(2	)	Interest expense
Foreign exchange forward contracts	—			—			Cost of sales
Total	$	—		$	(2	)

For the nine months ended September 30, 2014:
Interest rate contracts	$	—		$	(6	)	Interest expense
Foreign exchange forward contracts	(1		)	1			Cost of sales
Total	$	(1	)	$	(5	)

There was no hedge ineffectiveness recognized in earnings for the three and nine months ended September 30, 2015 and 2014 with respect to derivative instruments designated as cash flow hedges. During the next 12 months, the Company expects to reclassify pre-tax net losses of $8 million from AOCL into net income.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

IMPACT OF FAIR VALUE HEDGES

The following table presents the impact of derivative instruments designated as fair value hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income:



	Amount of Gain		Location of Gain
(in millions)	Recognized in Income		Recognized in Income
For the three months ended September 30, 2015:
Interest rate contracts⁽¹⁾	$	4	Interest expense
Total	$	4

For the nine months ended September 30, 2015:
Interest rate contracts⁽¹⁾	$	13	Interest expense
Total	$	13

For the three months ended September 30, 2014:
Interest rate contracts	$	4	Interest expense
Total	$	4

For the nine months ended September 30, 2014:
Interest rate contracts	$	12	Interest expense
Total	$	12

____________________________

(1) Interest expense for the three and nine months ended September 30, 2015 includes amortization of the forward starting swap associated with the 2038 Notes, which was de-designated in February 2015, and basis adjustments related to the 2038 and 2022 Notes.

For the three and nine months ended September 30, 2015, no hedge ineffectiveness was recognized in earnings with respect to derivative instruments designated as fair value hedges. There was no hedge ineffectiveness recognized in earnings for the three months ended September 30, 2014. For the nine months ended September 30, 2014, a $1 million benefit due to hedge ineffectiveness was recognized in earnings with respect to derivative instruments designated as fair value hedges.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

IMPACT OF ECONOMIC HEDGES

The following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income:



	Amount of Gain (Loss)			Location of Gain (Loss)
(in millions)	Recognized in Income			Recognized in Income
For the three months ended September 30, 2015:
Commodity contracts⁽¹⁾	$	(10	)	Cost of sales
Commodity contracts⁽¹⁾	(8		)	SG&A expenses
Total	$	(18	)

For the nine months ended September 30, 2015:
Commodity contracts⁽¹⁾	$	(17	)	Cost of sales
Commodity contracts⁽¹⁾	(9		)	SG&A expenses
Total	$	(26	)

For the three months ended September 30, 2014:
Commodity contracts⁽¹⁾	$	(3	)	Cost of sales
Commodity contracts⁽¹⁾	(6		)	SG&A expenses
Total	$	(9	)

For the nine months ended September 30, 2014:
Commodity contracts⁽¹⁾	$	6		Cost of sales
Commodity contracts⁽¹⁾	(4		)	SG&A expenses
Total	$	2

____________________________


(1)	Commodity contracts include both realized and unrealized gains and losses.

Refer to Note 11 for additional information on the valuation of derivative instruments. The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, DPS has not experienced credit losses as a result of counterparty nonperformance. The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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

The table below details the components of other non-current assets and other non-current liabilities:



	September 30,		December 31,
(in millions)	2015		2014
Other non-current assets:
Deferred financing costs, net	$	7	$	9
Customer incentive programs	55		55
Marketable securities - trading	24		25
Derivative instruments	45		29
Cost method investments⁽¹⁾	15		—
Other	26		41
Total other non-current assets	$	172	$	159
Other non-current liabilities:
Long-term payables due to Mondelēz International, Inc.	$	26	$	37
Long-term pension and post-retirement liability	42		44
Multi-employer pension plan withdrawal liability	56		57
Insurance liability	74		90
Derivative instruments	7		17
Deferred compensation liability	24		25
Other	36		32
Total other non-current liabilities	$	265	$	302

____________________________

(1)

During the quarter ended March 31, 2015, the Company acquired a minor interest in Bai Brands, LLC for $15 million. This investment is accounted for as a cost-method investment, as the Company owns a minor interest and does not have the ability to exercise significant influence over operating and financial policies of the entity. This cost method investment does not have a readily determinable fair value as the entity is not publicly traded.

9. Income Taxes

The effective tax rates for the three months ended September 30, 2015 and 2014 were 34.4% and 34.0%, respectively. The effective tax rates for the nine months ended September 30, 2015 and 2014 were 35.2% and 34.5%, respectively. For the three months and nine months ended September 30, 2014, the provision for income taxes included an income tax benefit of $4 million due to the resolution of a tax audit in a foreign jurisdiction.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

10. Employee Benefit Plans

The following table sets forth the components of net periodic benefit costs for the Company's pension plans:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in millions)	2015			2014			2015			2014
Service cost	$	1		$	1		$	2		$	2
Interest cost	2			3			7			10
Expected return on assets	(2		)	(4		)	(7		)	(11		)
Recognition of actuarial loss	1			1			3			2
Settlement loss	3			—			3			—
Net periodic benefit costs	$	5		$	1		$	8		$	3

The Company made the following contributions to its pension plans:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in millions)	2015		2014		2015		2014
Employer contributions to pension plans	$	7	$	—	$	8	$	1

11. Fair Value

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

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

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

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

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

RECURRING FAIR VALUE MEASUREMENTS

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:



	Fair Value Measurements at September 30, 2015
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in millions)	Level 1		Level 2		Level 3
Interest rate contracts	$	—	$	54	$	—
Foreign exchange forward contracts	—		1		—
Marketable securities - trading	24		—		—
Total assets	$	24	$	55	$	—

Commodity contracts	$	—	$	31	$	—
Interest rate contracts	—		13		—
Total liabilities	$	—	$	44	$	—



	Fair Value Measurements at December 31, 2014
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in millions)	Level 1		Level 2		Level 3
Interest rate contracts	$	—	$	40	$	—
Marketable securities - trading	25		—		—
Total assets	$	25	$	40	$	—

Commodity contracts	$	—	$	26	$	—
Interest rate contracts	—		9		—
Total liabilities	$	—	$	35	$	—

The fair values of marketable securities are determined using quoted market prices from daily exchange traded markets based on the closing price as of the balance sheet date and are classified as Level 1. The fair values of commodity forward and future contracts, interest rate swap contracts and foreign currency forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity forward and future contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the balance sheet date. Interest rate swap contracts are valued using models based primarily on readily observable market parameters, such as London Interbank Offered Rate forward rates, for all substantial terms of the Company's contracts and credit risk of the counterparties. The fair value of foreign currency forward contracts are valued using quoted forward foreign exchange prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.

As of September 30, 2015 and December 31, 2014, the Company did not have any assets or liabilities measured on a recurring basis without observable market values that would require a high level of judgment to determine fair value (Level 3).

There were no transfers of financial instruments between the three levels of fair value hierarchy during the three and nine months ended September 30, 2015 and 2014.

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

ESTIMATED FAIR VALUE OF LONG-TERM OBLIGATIONS

The estimated fair values of long-term obligations are as follows:



	September 30, 2015				December 31, 2014
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt – 2016 Notes	$	500	$	503	$	500	$	510
Long-term debt – 2018 Notes	724		814		724		835
Long-term debt – 2019 Notes⁽¹⁾	252		254		250		253
Long-term debt – 2020 Notes⁽¹⁾	248		245		245		244
Long-term debt – 2021 Notes⁽¹⁾	254		256		249		255
Long-term debt – 2022 Notes⁽¹⁾	270		243		265		244
Long-term debt – 2038 Notes⁽¹⁾	275		340		272		363
	$	2,523	$	2,655	$	2,505	$	2,704

____________________________


(1)	The carrying amount includes the unamortized discounts on the issuance of debt and adjustments related to the change in the fair value of interest rate swaps designated as fair value hedges on the 2019, 2020, 2021, 2022 and 2038 Notes. Refer to Note 7 for additional information regarding derivatives.

Capital lease obligations have been excluded from the calculation of fair value for both 2015 and 2014.

The fair value amounts of long term debt as of September 30, 2015 and December 31, 2014 were based on current market rates available to the Company (Level 2 inputs). The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all debt at such date.

FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

The fair value amounts for cash and cash equivalents, accounts receivable, net, commercial paper, accounts payable and other current liabilities approximate carrying amounts due to the short maturities of these instruments.

12. Stock-Based Compensation

The Company's Omnibus Stock Incentive Plan of 2009 ( "DPS Stock Plan") provides for various long-term incentive awards, including stock options, restricted stock units ("RSUs") and performance share units ("PSUs").

Stock-based compensation expense is recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense are presented below:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in millions)	2015			2014			2015			2014
Total stock-based compensation expense	$	12		$	13		$	33		$	35
Income tax benefit recognized in the statement of income	(5		)	(4		)	(12		)	(12		)
Stock-based compensation expense, net of tax	$	7		$	9		$	21		$	23

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DR PEPPER SNAPPLE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

STOCK OPTIONS

The table below summarizes stock option activity for the nine months ended September 30, 2015:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2015	1,529,235		$	45.27	8.20	$	40
Granted	427,698		79.20
Exercised	(666,822	)	41.67			25
Forfeited or expired	(14,783	)	64.22
Outstanding as of September 30, 2015	1,275,328		58.31		8.42	27
Exercisable as of September 30, 2015	245,655		44.70		7.43	8

As of September 30, 2015, there was $5 million of unrecognized compensation cost related to unvested stock options granted under the DPS Stock Plan that is expected to be recognized over a weighted average period of 1.03 years.

RESTRICTED STOCK UNITS

The table below summarizes RSU activity for the nine months ended September 30, 2015. The fair value of RSUs is determined based on the number of units granted and the grant date price of the Company's common stock.



	RSUs		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2015	1,925,934		$	43.85	1.08	$	138
Granted	380,349		79.18
Vested and released	(751,601	)	37.86			59
Forfeited	(41,236	)	55.60
Outstanding as of September 30, 2015	1,513,446		55.38

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