Keurig Dr Pepper
Annual Report 2017

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KDr Pepper Snapple Group, Inc. - DPSFiled: February 14, 2018 (period: December 31, 2017)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549 Form 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017oroTRANSITION 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(Exact name of Registrant as specified in its charter)Delaware 98-0517725(State or other jurisdiction of (I.R.S. employerincorporation or organization) identification number) 5301 Legacy Drive, Plano, Texas 75024(Address of principal executive offices) (Zip code) Registrant's telephone number, including area code:(972) 673-7000 Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Each Exchange on Which RegisteredCOMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGESecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x 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 duringthe 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 requirementsfor the past 90 days. Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was requiredto submit and post such files). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, oremerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" inRule 12b-2 of the Exchange Act.Large Accelerated Filer xAccelerated Filer oNon-Accelerated Filer oSmaller Reporting Company oEmerging Growth Company oIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ). Yes o No xThe aggregate market value of the common equity held by non-affiliates of the registrant (assuming for these purposes, but without conceding, that allexecutive officers and directors are "affiliates" of the registrant) as of June 30, 2017, the last business day of the registrant's most recently completed secondfiscal quarter, was $16,544,425,098 (based on the closing sales price of the registrant's common stock on that date as reported on the New York StockExchange). As of February 8, 2018, there were 179,744,078 shares of the registrant's common stock, par value $0.01 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the registrant's AnnualMeeting of Stockholders or on an amendment on Form 10-K/A are incorporated by reference in Part III. Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.DR PEPPER SNAPPLE GROUP, INC.FORM 10-KFor the Year Ended December 31, 2017 PagePART I.Item 1.Business1Item 1A.Risk Factors12Item 1B.Unresolved Staff Comments22Item 2.Properties23Item 3.Legal Proceedings23Item 4.Mine Safety Disclosures23 PART II.Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities24Item 6.Selected Financial Data26Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations28Item 7A.Quantitative and Qualitative Disclosures About Market Risk50Item 8.Financial Statements and Supplementary Data52Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure116Item 9A.Controls and Procedures116Item 9B.Other Information116 PART III.Item 10.Directors, Executive Officers of the Registrant and Corporate Governance Item 11.Executive Compensation Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13.Certain Relationships and Related Transactions and Director Independence Item 14.Principal Accounting Fees and Services PART IV.Item 15.Exhibits and Financial Statement Schedules118 iiSource: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXPLANATORY NOTEOn January 29, 2018, Dr. Pepper Snapple Group, Inc. (“DPS”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and amongDPS, Maple Parent Holdings Corp. (“Maple Parent”) and Salt Merger Sub, Inc. (“Merger Sub”), whereby Merger Sub will be merged with and into MapleParent, the owner of Keurig Green Mountain, Inc. (“Keurig”), a leader in specialty coffee and innovative single serve brewing systems, with Maple Parentsurviving the merger as a wholly-owned subsidiary of DPS and the holders of the equity interests of Maple Parent will receive newly-issued shares of DPScommon stock (the “Acquisition Shares”) constituting approximately 87% of our outstanding common stock, on a fully diluted basis following the closing (the“Transaction”). The completion of the Transaction requires the approval by the holders of DPS’ common stock of (i) an amendment to the DPS certificate ofincorporation to increase the number of authorized shares of common stock and to change DPS’ name to “Keurig Dr Pepper Inc.” and (ii) the issuance of theAcquisition Shares pursuant to the Merger Agreement (collectively, the “Stockholder Approvals”). DPS expects to seek the Stockholder Approvals at ameeting of stockholders to be scheduled. DPS will prepare, file and mail a definitive proxy statement relating to such meeting. The definitive proxy statementwill contain a more detailed description of the Merger Agreement and the Transaction.Please see “Item 1 - Business - Proposed Keurig Transaction” for further information.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements including, in particular, statements about future events, and future financialperformance, including earnings estimates, plans, strategies, expectations, prospects, competitive environment, regulation and availability of raw materials.Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as thewords "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" or the negative of these terms or similar expressions in this Annual Report onForm 10-K. We have based these forward-looking statements on our current views with respect to future events and financial performance, including for KDP(formerly DPS) following the closing of the Transaction. Our actual financial performance could differ materially from those projected in the forward-lookingstatements due to the inherent uncertainty of estimates, forecasts and projections, as well as a variety of other risks and uncertainties and other factors, andour financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-lookingstatements.Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to updatethe forward-looking statements, and the estimates and assumptions associated with them after the date of this Annual Report on Form 10-K, except to theextent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed inItem 1A, "Risk Factors" under "Risks Related to Our Business" and elsewhere in this Annual Report on Form 10-K. These risk factors may not be exhaustive,as we operate in a continually changing business environment with new risks emerging from time to time that we are unable to predict or that we currently donot expect to have a material adverse effect on our business. You should carefully read this report in its entirety as it contains important information about ourbusiness and the risks we face.Our forward-looking statements are subject to risks and uncertainties, including:•stockholders may not approve the Stockholder Approvals;•regulatory and required approvals in connection with the Transaction may not be obtained on the proposed terms or on the anticipated schedule;•conditions of the Transaction may not be satisfied or waived;•legal proceedings or governmental inquiries in connection with the Transaction could delay or prevent the completion of the Transaction;•DPS stockholders will have a minority ownership and voting interest after the Transaction and exercise less influence;•the composition of the DPS Board of Directors (our "Board") will change following the Transaction;•the Company will be a "controlled company" following the Transaction and will rely on exemptions from certain corporate governance requirements,including having fewer independent directors on its board of directors or board committees following the Transaction;•the Merger Agreement may be terminated in accordance with its terms and the Transaction may not be consummated;•failure to consummate the Transaction could negatively impact DPS and its future operations;•business uncertainties and certain operating restrictions will exist for both DPS and Keurig until consummation of the Transaction;•restrictions on DPS' ability to pursue other alternatives to the Transaction;•DPS stockholders' investment could be materially and adversely affected if the due diligence of Keurig was inadequate or if unexpected risks relatedto Keurig materialize;•expected combination benefits from the Transaction may not be fully-realized;•integration of the combined businesses of DPS and Keurig may not be successful or may be more challenging than anticipated;•the diversion of management's attention to the completion of the Transaction and the integration of the DPS and Keurig businesses may reducemanagement's ability to devote sufficient time to the Company's business and operations prior to and after the Transaction;•the announcement of the Transaction may lead to the departure of key personnel;iiiSource: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•downgrade of DPS' credit rating below investment grade could occur;•Maple Parent and DPS will incur direct and indirect costs as a result of the Transaction;•restrictions on DPS from indebtedness agreements in connection with the Transaction may affect business operations;•additional risks associated with the coffee and appliance business and operations in new geographical regions;•changes in consumer preferences, trends and health concerns;•maintaining our relationships with our allied brand owners;•changes in the cost of commodities used in our business;•the impact of new or proposed beverage taxes or regulations on our business;•our ability to successfully integrate and manage our acquired businesses or brands;•dependence on third party bottling and distribution companies;•maintaining our relationships with our large retail customers;•operating in highly competitive markets and our ability to compete with companies with significant financial resources;•future impairment of our goodwill and other intangible assets;•the need to service our debt;•fluctuations in foreign currency exchange rates;•disruptions to our information systems and third-party service providers;•increases in the cost of employee benefits;•recession, financial and credit market disruptions and other economic conditions;•litigation claims or legal proceedings against us;•shortages of materials used in our business;•substantial disruption at our manufacturing or distribution facilities;•failure to comply with governmental regulations in the countries in which we operate;•weather, natural disasters, climate changes and the availability of water; •our products meeting health and safety standards or contamination of our products;•fluctuations in our tax obligations;•strikes or work stoppages;•infringement of our intellectual property rights by third parties, intellectual property claims against us or adverse events regarding licensedintellectual property;•the need for substantial investment and restructuring at our manufacturing, distribution and other facilities;•our ability to retain or recruit qualified personnel; and•other factors discussed in Item 1A, "Risk Factors" under "Risks Related to Our Current DPS Business" and elsewhere in this Annual Report onForm 10-K.ivSource: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IITEM 1. BUSINESSOUR COMPANYDr Pepper Snapple Group, Inc. is a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in theUnited States ("U.S."), Mexico and the Caribbean, and Canada with a diverse portfolio of flavored (non-cola) carbonated soft drinks ("CSDs")and non-carbonated beverages ("NCBs"), including ready-to-drink teas, juices, juice drinks, water and mixers. We have some of the mostrecognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotionalconnections with consumers. References in this Annual Report on Form 10-K to "we", "our", "us", "DPS" or "the Company" refer to Dr PepperSnapple Group, Inc. and its subsidiaries, unless the context requires otherwise.The following provides highlights about our company:•#1 flavored CSD company(1) in the U.S.•Approximately 83% of our bottler case sales ("BCS") volume from brands that are either #1 or #2 in theircategory(1)•#3 North American liquid refreshment beverage ("LRB") business(1)•$6.7 billion of net sales in 2017 from the U.S. (90%), Mexico and the Caribbean (7%) and Canada (3%)_____________________________________________________(1) Based on retail sales as reported by Information Resources, Inc. ("IRi")History of Our BusinessWe have built our business over the last three decades through a series of strategic acquisitions. In the 1980s through the mid-1990s, webegan building on our then-existing Schweppes business by adding brands such as Mott's, Canada Dry and A&W and a license for Sunkistsoda. We also acquired the Peñafiel business in Mexico. In 1995, we acquired Dr Pepper/Seven Up, Inc., having previously made minorityinvestments in the company. In 1999, we acquired a 40% interest in Dr Pepper/Seven Up Bottling Group, Inc. ("DPSUBG"), which was thenour largest independent bottler, and increased our interest to 45% in 2005. In 2000, we acquired Snapple and other brands, significantlyincreasing our share of the U.S. NCB market segment. During 2006 and 2007, we acquired the remaining 55% of DPSUBG and severalsmaller bottlers and integrated them into our Packaged Beverages segment, thereby expanding our geographic coverage.We were incorporated in Delaware on October 24, 2007. In 2008, Cadbury Schweppes plc ("Cadbury") separated its beverage businessin the U.S., Canada, Mexico and the Caribbean (the "Americas Beverages business") from its global confectionery business by contributingthe subsidiaries that operated its Americas Beverages business to us.PROPOSED KEURIG TRANSACTIONOn January 29, 2018, DPS entered into the Merger Agreement by and among DPS, Maple Parent and Merger Sub, whereby Merger Subwill be merged with and into Maple Parent, with Maple Parent surviving the merger as a wholly-owned subsidiary of the Company. Forfinancial reporting and accounting purposes, Maple Parent will be the acquirer of DPS upon completion of the Transaction.Maple Parent owns Keurig, a leader in specialty coffee and innovative single serve brewing systems. The combined businesses willcreate Keurig Dr Pepper Inc. ("KDP"), a new beverage company of scale with a portfolio of iconic consumer brands and expanded distributioncapability to reach virtually every point-of-sale in North America.In consideration for the Transaction, each share of common stock of Maple Parent issued and outstanding immediately prior to theclosing of the Transaction (the “Effective Time”) shall be converted into the Acquisition Shares. As a result, upon completion of theTransaction, the former stockholders of Maple Parent will own approximately 87% of our common stock and our continuing stockholders willown approximately 13% on a fully diluted basis.The Merger Agreement provides that DPS will declare a special cash dividend equal to $103.75 per share, subject to any withholding oftaxes required by law, payable to holders of its common stock as of the business day immediately prior to the completion of the Transaction.The completion of the Transaction is subject to, among other things, the Stockholder Approvals.See Note 20 of the Notes to our Audited Consolidated Financial Statements for further information related to the Transaction.1Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPRODUCTS AND DISTRIBUTIONWe are a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the U.S., Mexico and theCaribbean and Canada. We also sell certain of our products to distributors in Europe and Asia. We recognized net sales from the shipment of1.6 billion equivalent 288 fluid ounce cases in 2017. The following charts provide various details regarding sources of our total 288 fluidounce cases in 2017: Our success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. We have seven of the top 10 non-cola soft drinks, and nine of our 10 leading brands are #1 or #2 in their flavor categories based on IRi sales volume.2Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe highlights about our priority brands as of December 31, 2017 are as follows:• #1 in its flavor category and #2 overall flavored CSD in the U.S.•Distinguished by its unique blend of 23 flavors and loyal consumer following•Flavors include regular, diet, cherry and Dr Pepper TEN•Oldest major soft drink in the U.S., introduced in 1885 •#1 ginger ale in the U.S. and Canada, which includes regular, diet and Canada Dry TEN•Brand also includes club soda, tonic, sparkling water and other mixers•Created in Toronto, Canada in 1904 and introduced in the U.S. in 1919 •#2 lemon-lime CSD in the U.S.•Flavors include regular, diet, cherry and 7UP TEN•The original "Un-Cola," created in 1929 •#1 root beer in the U.S.•Flavors include regular, diet, A&W TEN and cream soda•A classic all-American beverage first sold at a veteran's parade in 1919 •#1 carbonated mineral water brand in Mexico•Brand includes unflavored mineral water, Limeade, Orangeade, Grapefruitade, Strawberryade, Twist andFlavors•Mexico's oldest mineral water, created in 1948 •#1 grapefruit CSD in the U.S. and a leading grapefruit CSD in Mexico•Founded in 1938 •#2 ginger ale in the U.S. and Canada•Brand includes club soda, tonic, sparkling water and other mixers•First carbonated beverage in the world, invented in 1783 •#2 premium shelf-stable ready to drink tea in the U.S.•A full range of premium, flavored tea products including regular and diet offerings, as well as unflavoredStraight Up Tea•Brand also includes premium juices and juice drinks•Founded in Brooklyn, New York in 19723Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents•#4 enhanced water brand in the U.S. and one of the fastest-growing LRB brands in the U.S.•Bai, Bai Cocofusion and Bai Bubbles lines offer fresh fruit flavor and antioxidants.•Bai Supertea is an antioxidant-infused real brewed tea.•Created in 2008•#1 branded multi-serve apple juice and apple sauce brand in the U.S.•Juice products include apple and other fruit juices and Mott's for Tots•Apple sauce products include regular, unsweetened and flavored•Brand began as a line of apple cider and vinegar offerings in 1842 •A leading spicy tomato juice brand in the U.S., Canada and Mexico that ranks as the #1 shelf stablevegetable juice brand in the U.S.•Key ingredient in the popular Mexican drink, the Michelada, and Canada’s national drink cocktail, theBloody Caesar•Brand includes a variety of flavors, Original, Picante, Lime, Camarón, Vuelve a la Vida, Cubano andPreparado (the Works)•Created in 1969_______________________________________________________All information regarding our brand market positions in the U.S. is from IRi and is based on sales volume in 2017.All logos in the table above are registered trademarks of DPS or its subsidiaries.In the CSD market in the U.S. and Canada, we participate primarily in the flavored CSD category. Our significant brands are Dr Pepper,Canada Dry, 7UP, Crush, A&W, Sunkist soda, Schweppes, Squirt and RC Cola. We also sell regional and smaller niche brands, such asVernors. In the CSD market, we distribute finished beverages and manufacture beverage concentrates and fountain syrups. Beverageconcentrates are highly concentrated proprietary flavors used to make syrup or finished beverages. We manufacture beverage concentratesthat are used by our own Packaged Beverages and Latin America Beverages segments, as well as sold to third party bottling companies.According to IRi, we had a 21.7% share of the U.S. CSD market in 2017 (measured by retail sales), an increase of 0.5% over 2016. We alsomanufacture fountain syrup that we sell to the foodservice industry directly, through bottlers or through other third parties.In the NCB market segment in the U.S., we participate primarily in the ready-to-drink tea, juice, juice drinks, water, including enhancedand flavored water, and mixer categories. Our significant NCB brands are Snapple, Hawaiian Punch, Mott's, Clamato and Bai. We also sellregional and smaller niche brands, such as Nantucket Nectars. We manufacture most of our NCBs as ready-to-drink beverages and distributethem through our own distribution network and through third parties or direct to our customers' warehouses. In addition to NCB beverages, wealso manufacture Mott's apple sauce as a finished product.In Mexico and the Caribbean, we participate primarily in the carbonated mineral water, flavored CSDs, bottled water and vegetable juicecategories. Our significant brands in Mexico include Peñafiel, Squirt, Aguafiel, Clamato and Crush. In Mexico, we manufacture and sell ourbrands through both our own manufacturing and distribution operations as well as third party bottlers. In the Caribbean, we distribute ourproducts solely through third party distributors and bottlers. We have also begun to distribute certain products in other internationaljurisdictions through various third party bottlers and distributors.In 2017, we manufactured and/or distributed approximately 52% of our total products sold in the U.S. (as measured by volume). Inaddition, our businesses manufacture and/or distribute a variety of brands owned by third parties in specified licensed geographic territories.OUR STRENGTHS The key strengths of our business are:Strong portfolio of leading, consumer-preferred brands. We own a diverse portfolio of well-known CSD and NCB brands. Many of ourbrands enjoy high levels of consumer awareness, preference and loyalty rooted in their rich heritage, which drive their market positions. Ourdiverse portfolio provides our bottlers, distributors and retailers with a wide variety of products and provides us with a platform for growth andprofitability. According to IRi retail sales, we are the #1 flavored CSD company in the U.S. Our largest brand, Dr Pepper, is the #2 flavoredCSD in the U.S. and our Snapple brand is a leading ready-to-drink tea. Overall, in 2017, approximately 83% of our volume was generated bybrands that hold either the #1 or #2 position in their category. The strength of our significant brands has allowed us to launch innovations,brand extensions or limited time offers.4Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIntegrated business model. Our integrated business model provides opportunities for net sales and profit growth through the alignmentof the economic interests of our brand ownership and our manufacturing and distribution businesses. For example, we can focus onmaximizing profitability for our company as a whole rather than focusing on profitability generated from either the sale of beverageconcentrates or the bottling and distribution of our products. Additionally, our integrated business model enables us to be more flexible andresponsive to the changing needs of our large retail customers by coordinating sales, service, distribution, promotions and product launchesand allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage. Ourmanufacturing and distribution system in the U.S. also enables us to improve focus on our brands, especially certain brands such as 7UP,A&W, Sunkist soda, Squirt, Snapple and Hawaiian Punch, which do not have a large presence in the bottler systems affiliated with The Coca-Cola Company ("Coca-Cola") or PepsiCo, Inc. ("PepsiCo").Strong customer relationships. Our brands have enjoyed long-standing relationships with many of our top customers. We sell ourproducts to a wide range of customers, from bottlers and distributors to national retailers, large food service and convenience storecustomers. We have strong relationships with some of the largest bottlers and distributors, including those affiliated with Coca-Cola andPepsiCo, some of the largest and most important retailers, including WalMart Stores, Inc. ("Walmart"), The Kroger Co., Albertson CompaniesLLC, Target Corporation and Publix Super Markets, Inc., some of the largest food service customers, including McDonald's Corporation,Restaurant Brands International Inc., Yum! Brands, Inc., Sonic Corp., The Wendy's Company, Chick-fil-A, Inc., Subway Restaurants,Whataburger Restaurants LLC, Arby's Group, Inc., and Jack in the Box, Inc., and convenience store customers, including 7-Eleven, Inc.,OXXO and Circle K Enterprises, Inc. Our portfolio of strong brands, operational scale and experience across beverage segments has enabledus to maintain strong relationships with our customers.Attractive positioning within a large and profitable market. We hold the #1 position in the U.S. flavored CSD beverage markets by salesvolume according to IRi. We are also a leader in the Canada and Mexico beverage markets. Our portfolio of products is biased towardflavored CSDs, which continue to gain market share versus cola CSDs, but also focuses on growing categories such as teas, juices andenhanced and flavored water.Broad geographic manufacturing and distribution coverage. As of December 31, 2017, we had 18 manufacturing facilities and 98principal distribution centers and warehouse facilities in the U.S., as well as four manufacturing facilities and 21 principal distribution centersand warehouse facilities in Mexico. We have strategically located manufacturing and distribution capabilities, enabling us to better align ouroperations with our customers, reduce transportation costs and have greater control over the timing and coordination of new productlaunches. In addition, our warehouses are generally located at or near bottling plants and geographically dispersed to ensure our productsare available to meet consumer demand. We actively manage transportation of our products using our fleet (owned and leased) ofapproximately 6,100 and 1,700 vehicles in the U.S. and Mexico, respectively, and third party logistics providers on a selected basis.As a result of our distribution capabilities, we believe brand owners view us as a partner with a strong route-to-market in order to growtheir allied brands in our Packaged Beverages segment. These allied brand partnerships allow us to rapidly participate in growth in emergingand fast growing categories where we do not currently have a brand presence. We typically make a minimal investment in each allied brandcompany in order to obtain a return for our distribution efforts.Strong operating margins and stable cash flows. The breadth of our brand portfolio has enabled us to generate strong operating marginswhich have delivered stable cash flows. These cash flows enable us to consider a variety of alternatives, such as acquisitions, investing inour business, repurchasing shares of our common stock, paying dividends to our stockholders and reducing our debt. As a result of our stablecash flows, we have been able to increase our dividends each year since 2010 in order to return more cash to our stockholders.Experienced executive management team. Our executive management team has over 200 years of collective experience in the food andbeverage industry. The team has broad experience in brand ownership, manufacturing and distribution, and enjoys strong relationships bothwithin the industry and with major customers. In addition, our management team has diverse skills that support our operating strategies,including driving organic growth through targeted and efficient marketing, improving productivity of our operations, aligning manufacturingand distribution interests and executing strategic acquisitions.OUR STRATEGYThe key elements of our business strategy are to:Build our brands. We have a well-defined portfolio strategy to allocate our marketing and sales resources. We use an on-going processof market and consumer analysis to identify key brands that we believe have the greatest potential for profitable sales growth. We continue toinvest most heavily in our priority brands to drive profitable and sustainable growth by strengthening consumer awareness, innovating ourbrands to take advantage of evolving consumer trends, improving distribution and increasing promotional effectiveness. We also focus onnew distribution agreements for emerging, high-growth third party brands in new categories that can use our manufacturing and distributionnetwork. We provide these new brands with distribution capability and resources to grow, and they provide us with exposure to growingsegments of the market with relatively low risk and capital investment.Execute with excellence. We are focused on improving our product presence in high margin brands, products and channels, such asconvenience stores, vending machines and small independent retail outlets, through increased selling activity. We also intend to increasedemand for high margin products like single-serve packages for many of our key brands through increased in-store activity.5Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe believe our integrated brand ownership, manufacturing and distribution business model provides us opportunities for net sales andprofit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses. Weintend to continue leveraging our integrated business model to reduce costs by optimizing geographic manufacturing and distributioncoverage and to be more flexible and responsive to the changing needs of our large retail customers by coordinating sales, service,distribution, promotions and product launches.Strengthening our route-to-market will ensure the ongoing health of our brands. We continue to invest in information technology ("IT") toimprove route productivity and data integrity and standards. With third party bottlers, we continue to deliver programs that maintain priority forour brands in their systems.Rapid Continuous Improvement. In 2011, we adopted our Rapid Continuous Improvement ("RCI"), which uses Lean and Six Sigmamethods to deliver customer value and improve productivity. We believe RCI is a means to achieve revenue and net income growth andincrease the amount of cash returned to our stockholders.OUR BUSINESS OPERATIONS As of December 31, 2017, our operating structure consists of three reporting segments: Beverage Concentrates, Packaged Beveragesand Latin America Beverages. Segment financial data for 2017, 2016 and 2015, including financial information about foreign and domesticoperations, is included in Note 18 of the Notes to our Audited Consolidated Financial Statements.Beverage ConcentratesOur Beverage Concentrates segment is principally a brand ownership business. In this segment we manufacture and sell beverageconcentrates in the U.S. and Canada. Most of the brands in this segment are CSD brands. In 2017, our Beverage Concentrates segment hadnet sales of approximately $1,332 million. Key brands include Dr Pepper, Canada Dry, Crush, Schweppes, Sunkist soda, A&W, 7UP, SunDrop, Squirt, RC Cola, Diet Rite, Vernors and the concentrate form of Hawaiian Punch. Almost all of our beverage concentrates are manufactured at our plant in St. Louis, Missouri.Beverage concentrates are shipped to third party bottlers, as well as to our own manufacturing systems, who combine them withcarbonation, water, sweeteners and other ingredients, package the combined product in PET containers, glass bottles and aluminum cans,and sell them as a finished beverage to retailers. Beverage concentrates are also manufactured into syrup, which is shipped to fountaincustomers, such as fast food restaurants, who mix the syrup with water and carbonation to create a finished beverage at the point of sale toconsumers. Dr Pepper represents most of our fountain channel volume. Concentrate prices historically have been reviewed and adjusted atleast on an annual basis.Our Beverage Concentrates brands are sold by our bottlers, including our own Packaged Beverages segment, through all major retailchannels including supermarkets, fountains, mass merchandisers, club stores, vending machines, convenience stores, gas stations, smallgroceries, drug chains and dollar stores. Unlike the majority of our other CSD brands, 57% of Dr Pepper volumes are distributed through theCoca-Cola affiliated and PepsiCo affiliated bottler systems.The PepsiCo affiliated and Coca-Cola affiliated bottler systems represent a small number of customers where the loss of any one or moreof those customers would have a material adverse effect on the Beverage Concentrates segment.Packaged BeveragesOur Packaged Beverages segment is principally a brand ownership, manufacturing and distribution business. In this segment, weprimarily manufacture and distribute packaged beverages and other products, including our brands, third party owned brands and certainprivate label beverages, in the U.S. and Canada. In 2017, our Packaged Beverages segment had net sales of approximately $4,871 million.Key NCB brands in this segment include Snapple, Hawaiian Punch, Mott's, FIJI mineral water, Clamato, Bai, Yoo-Hoo, Deja Blue, ReaLemon,AriZona tea, Vita Coco coconut water, BODYARMOR, Mr and Mrs T mixers, Nantucket Nectars, Garden Cocktail, Mistic and Rose's. Key CSDbrands in this segment include Dr Pepper, 7UP, Canada Dry, A&W, Sunkist soda, Squirt, RC Cola, Big Red, Vernors, Venom, IBC, Diet Riteand Sun Drop. Approximately 82% of our 2017 Packaged Beverages net sales of branded products come from our own brands and our contractmanufacturing. Contract manufacturing refers to the bottling of beverages for private label owners or others. The remaining portion of our2017 Packaged Beverages net sales come from the distribution of third party brands such as FIJI mineral water, Big Red, BODYARMOR, VitaCoco coconut water, AriZona tea, CORE Hydration, Neuro drinks, Sunny Delight, High Brew, Hydrive energy drinks and Sparkling Fruit2O.Although the majority of our Packaged Beverages net sales relate to our brands, we also provide a route-to-market for these third party brandowners seeking effective distribution for their new and emerging brands. These brands give us exposure in certain markets to fast growingsegments of the beverage industry with minimal capital investment.Our Packaged Beverages products are manufactured in multiple facilities across the U.S. and are sold or distributed to retailers and theirwarehouses by our own distribution network or by third party distributors. The raw materials used to manufacture our products includealuminum cans and ends, PET bottles and caps, glass bottles and closures, paper products, sweeteners, juices, water and other ingredients.6Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe sell our Packaged Beverages products both through our Direct Store Delivery system ("DSD") and our Warehouse Direct deliverysystem ("WD"), both of which include the sales to all major retail channels, including supermarkets, fountains, mass merchandisers, clubstores, vending machines, convenience stores, gas stations, small groceries, drug chains and dollar stores.In 2017, Walmart, the largest customer of our Packaged Beverages segment, accounted for approximately 16% of our net sales in thissegment.Latin America BeveragesOur Latin America Beverages segment is a brand ownership, manufacturing and distribution business. This segment participates mainlyin the carbonated mineral water, flavored CSD, bottled water and vegetable juice categories, with particular strength in carbonated mineralwater, vegetable juice categories and grapefruit flavored CSDs. In 2017, our Latin America Beverages segment had net sales of $487 million,with our operations in Mexico representing approximately 90% of the net sales of this segment. Key brands in this segment include Peñafiel,Squirt, Aguafiel, Clamato and Crush.In Mexico, we manufacture and distribute our products through our bottling operations and third party bottlers and distributors. In theCaribbean, we distribute our products through third party bottlers and distributors. We have also begun to distribute certain products in otherinternational jurisdictions through various third party bottlers and distributors.We sell our finished beverages through all major Mexican retail channels, including "mom and pop" stores, supermarkets, hypermarkets,convenience stores and on-premise channels.In 2017, Walmart, the largest customer of our Latin America Beverages segment, accounted for approximately 12% of our net sales inthis segment. Walmart and OXXO represent a small number of customers where the loss of one of those customers would have a materialadverse effect on the Latin America Beverages segment.BOTTLER AND DISTRIBUTOR AGREEMENTSIn the U.S. and Canada, we generally grant perpetual, exclusive licenses for CSD brands and packages to bottlers for specificgeographic areas. Many of our brands, such as Snapple, Mistic, Nantucket Nectars, Yoo-Hoo and Orangina, are licensed for distribution invarious territories to bottlers and a number of smaller distributors such as beer wholesalers, wine and spirit distributors, independentdistributors and retail brokers. These agreements prohibit bottlers and distributors from selling the licensed products outside their exclusiveterritory and selling any imitative products in that territory. Generally, we may terminate bottling and distribution agreements only for cause,change in control or breach of agreements and the bottler or distributor may terminate without cause upon giving certain specified notice andcomplying with other applicable conditions. Fountain agreements for bottlers generally are not exclusive for a territory, but do restrict bottlersfrom carrying imitative product in the territory.The following chart details the distribution sources of our total 288 fluid ounce cases sold in the U.S. in 2017:Agreements with PepsiCo and Coca-ColaIn 2010, we completed the licensing of certain brands to PepsiCo and Coca-Cola. The agreements have an initial period of 20 years withautomatic 20-year renewal periods and require PepsiCo, Coca-Cola and certain Coca-Cola affiliated bottlers to meet certain performanceconditions.7Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCUSTOMERSWe primarily serve two groups of customers: 1) bottlers and distributors and 2) retailers.Bottlers buy beverage concentrates from us and, in turn, they manufacture, bottle, sell and distribute finished beverages. Bottlers alsomanufacture and distribute syrup for the fountain foodservice channel. In addition, bottlers and distributors purchase finished beverages fromus and sell them to retail and other customers. We have strong relationships with bottlers affiliated with Coca-Cola and PepsiCo primarilybecause of the strength and market position of our key Dr Pepper brand.Retailers also buy finished beverages directly from us. Our portfolio of strong brands, operational scale and experience in the beverageindustry has enabled us to maintain strong relationships with major retailers in the U.S., Canada and Mexico. In 2017, our largest retailer wasWalmart, representing approximately 13% of our consolidated net sales.SEASONALITYThe beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months andalso can be influenced by the timing of holidays as well as weather fluctuations.COMPETITIONThe LRB industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition is generallybased upon brand recognition, taste, quality, price, availability, selection and convenience. We compete with multinational corporations, suchas Coca-Cola and PepsiCo, with significant financial resources.We also compete against other large companies, including Nestlé, S.A. ("Nestle"), Kraft Foods Group, Inc. ("Kraft Foods") and TheCampbell Soup Company ("Campbell Soup"). These competitors can use their resources and scale to rapidly respond to competitivepressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities. As abottler and manufacturer, we also compete with a number of smaller bottlers and distributors and a variety of smaller, regional and privatelabel manufacturers, such as The Cott Corporation ("Cott"). Smaller companies may be more innovative, better able to bring new products tomarket and better able to quickly exploit and serve niche markets. Other bottlers and manufacturers could also expand their contractmanufacturing. We also have exposure to some of the faster growing non-carbonated and bottled water segments in the overall LRB market.In Canada, Mexico and the Caribbean, we compete with many of these same international companies as well as a number of regionalcompetitors.Although these bottlers and distributors are our competitors, several of these companies are also our customers as they purchasebeverage concentrates from us.INTELLECTUAL PROPERTY AND TRADEMARKSOur Intellectual Property. We possess a variety of intellectual property rights that are important to our business. We rely on a combinationof trademarks, copyrights, patents and trade secrets to safeguard our proprietary rights, including our brands and ingredient and productionformulas for our products.8Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOur Trademarks. We own numerous trademarks in our portfolio within the U.S., Canada, Mexico and other countries. As ofDecember 31, 2017, brands we own through various subsidiaries in various jurisdictions include, but are not limited to, Dr Pepper, CanadaDry, Peñafiel, Squirt, 7UP, Crush, A&W, Schweppes, RC Cola, Sun Drop, Venom, Snapple, Hawaiian Punch, Mott's, Bai, Clamato, Aguafiel,Deja Blue, ReaLemon, Mistic, Mr & Mrs T and Nantucket Nectars. We own trademark registrations for most of these brands in the U.S., andwe own trademark registrations for some but not all of these brands in Canada, Mexico and other countries. We also own trademarkregistrations for a number of smaller regional brands. Some of our other trademark registrations are in countries where we do not currentlyhave any significant level of business. Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or theirregistrations are properly maintained. In addition, in many countries outside the U.S., Canada and Mexico, our rights to many of our CSDbrands, including our Dr Pepper trademark and formula, were sold by Cadbury beginning over a decade ago to third parties including, incertain cases, to competitors such as Coca-Cola.Trademarks Licensed from Others. We license various trademarks from third parties, which generally allow us to manufacture anddistribute certain products or brands throughout the U.S. and/or Canada and Mexico. For example, we license from third parties the Sunkistsoda, Stewart's, Rose's, Orangina and Margaritaville trademarks. Although these licenses vary in length and other terms, they generally arelong-term, cover the entire U.S. and/or Canada and Mexico and generally include a royalty payment to the licensor.Licensed Distribution Rights for our Allied Brands. We have rights in certain territories to bottle and/or distribute various brands we donot own. Some of these arrangements are relatively shorter in term and limited in geographic scope, and the licensor may be able toterminate the agreement upon an agreed period of notice, in a few cases without payment to us. As of December 31, 2017, our Allied Brandportfolio included, but was not limited to, the following brands:Intellectual Property We License to Others. We license some of our intellectual property, including trademarks, to others, whichenhances brand awareness. For example, we license the Dr Pepper trademark to certain companies for use in connection with food,confectionery and other products. We also license certain brands, such as Dr Pepper and Snapple, to third parties for use in beverages incertain countries where we own the brand but do not otherwise conduct business. We also have intellectual property related to licensingarrangements for certain brands, primarily Dr Pepper, with Coca-Cola affiliated and PepsiCo affiliated bottler systems and distribution routes.MARKETINGOur marketing strategy is to grow our brands through continuously providing new solutions to meet consumers' changing preferencesand needs. We identify these preferences and needs and then develop innovative consumer and shopper programs to address theopportunities. Solutions include new and reformulated products, improved packaging design, pricing and enhanced availability. We useadvertising, sponsorships, merchandising, public relations, promotions and social media to provide maximum impact for our brands andmessages. We also apply a marketing return on investment analysis to ensure we focus our marketing spend in a manner to drive profitableand sustainable growth in our key brands.MANUFACTURINGAs of December 31, 2017, we operated 22 manufacturing facilities across the U.S. and Mexico. Almost all of our CSD beverageconcentrates are manufactured at a single plant in St. Louis, Missouri. Our manufacturing facilities consist of regional manufacturing facilities,with the capacity and capabilities to manufacture many brands and packages, facilities with particular capabilities that are dedicated tocertain brands or products, and smaller bottling plants with a more limited range of packaging capabilities.9Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe have a variety of production capabilities, including hot-fill, cold-fill and aseptic bottling processes, and we manufacture beverages ina variety of packaging materials, including aluminum, glass and PET cans and bottles and a variety of package formats, including single-serve and multi-serve packages and "bag-in-box" fountain syrup packaging.In 2017, 92% of our manufactured volumes came from our brands and 8% from third party and private-label products. We also use thirdparty manufacturers to package our products for us on a limited basis.RAW MATERIALSThe principal raw materials we use in our business, which we commonly refer to as ingredients and packaging costs, are aluminum cansand ends, PET bottles and caps, glass bottles and closures, paper products, sweeteners, juice, fruit, water and other ingredients. Theseingredients and packaging costs can fluctuate substantially. As it relates to our costs of sales, these costs make up a significant portion of ourcosts, as shown below.In addition, we are significantly impacted by changes in fuelcosts, which can also fluctuate substantially, due to the large truckfleet we operate in our distribution businesses.Under many of our supply arrangements for these rawmaterials, the price we pay fluctuates along with certain changes inunderlying commodities costs, such as aluminum in the case ofcans, natural gas in the case of glass bottles, resin in the case ofPET bottles and caps, corn in the case of sweeteners and pulp inthe case of paperboard packaging. When appropriate, we mitigatethe exposure to volatility in the prices of certain commodities usedin our production process through the use of forward contracts andsupplier pricing agreements. The intent of the contracts andagreements is to provide a certain level of short-term predictabilityin our operating margins and our overall cost structure, whileremaining in what we believe to be a competitive cost position.Manufacturing costs for our Packaged Beverages segment, where we manufacture and bottle finished beverages, are higher as apercentage of our net sales than our Beverage Concentrates segment, as the Packaged Beverages segment requires the purchase of amuch larger portion of the ingredients and packaging. Although we have contracts with a relatively small number of suppliers, we havegenerally not experienced any difficulties in obtaining the required amount of raw materials.RESEARCH AND DEVELOPMENTOur research and development team is composed of scientists and engineers in the U.S. and Mexico who are focused on developinghigh quality products which have broad consumer appeal, can be sold at competitive prices and can be safely and consistently producedacross a diverse manufacturing network. Our research and development team engages in activities relating to product development,microbiology, analytical chemistry, process engineering, sensory science, nutrition, knowledge management and regulatory compliance. Wehave particular expertise in flavors and sweeteners, which allows us to focus our research in areas of importance to the industry, such as newsweetener development. Refer to Note 2 of the Notes to our Audited Consolidated Financial Statements for further information.INFORMATION TECHNOLOGYWe use a variety of IT systems and networks configured to meet our business needs. Our primary IT data center is hosted in Toronto,Canada by a third party provider. We also use a third party vendor for application support and maintenance, which is based in India andprovides resources offshore and onshore.EMPLOYEESAs of December 31, 2017, we employed approximately 21,000 employees.In the U.S., we have approximately 17,000 full-time employees. We have union collective bargaining agreements covering approximately4,500 full-time employees. Several agreements cover multiple locations. These agreements address working conditions as well as wagerates and benefits. In Mexico, we employ approximately 4,000 full-time employees, with approximately 3,000 employees party to collectivebargaining agreements. We do not have a significant number of employees in Canada, the Caribbean or overseas.We believe we have good relations with our employees.10Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsREGULATORY MATTERSWe are subject to a variety of federal, state and local laws and regulations in the countries in which we do business. Regulations apply tomany aspects of our business, including our products and their ingredients, manufacturing, safety, labeling, transportation, recycling,advertising and sale. For example, our products and their manufacturing, labeling, marketing and sale in the U.S. are subject to variousaspects of the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the Lanham Act, state consumer protection lawsand state warning and labeling laws. Certain cities and municipalities within the U.S. have also passed various taxes on the distribution ofsugar-sweetened and diet beverages, which are at different stages of enactment. In Canada and Mexico, the manufacture, distribution,marketing and sale of many of our products are also subject to similar statutes and regulations. Additionally, the government of Mexicoenacted broad based tax reform, including a one peso per liter tax on the manufacturing of certain sugar-sweetened beverages.We and our bottlers use various refillable and non-refillable, recyclable bottles and cans in the U.S. and other countries. Various statesand other authorities require deposits, eco-taxes or fees on certain containers. Similar legislation or regulations may be proposed in thefuture at local, state and federal levels, both in the U.S. and elsewhere. In Mexico, the government has encouraged the soft drink industry tocomply voluntarily with collection and recycling programs for plastic materials, and we are in compliance with these programs.ENVIRONMENTAL, HEALTH AND SAFETY MATTERSIn the normal course of our business, we are subject to a variety of federal, state and local environmental, health and safety laws andregulations. We maintain environmental, health and safety policies and a quality, environmental, health and safety program designed toensure compliance with applicable laws and regulations. The cost of such compliance measures does not have a material financial impact onour operations.AVAILABLE INFORMATIONOur web site address is www.drpeppersnapplegroup.com. Information on our web site is not incorporated by reference in this document.We make available, free of charge through this web site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the "ExchangeAct"), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and ExchangeCommission ("SEC").MARKET AND INDUSTRY DATAThe market and industry data in this Annual Report on Form 10-K is from IRi, an independent industry source, and is based on retaildollar sales and sales volumes in 2017. Although we believe that this independent source is reliable, we have not verified the accuracy orcompleteness of this data or any assumptions underlying such data. IRi is a marketing information provider, primarily serving consumerpackaged goods manufacturers and retailers. We use IRi data as our primary management tool to track market performance because it hasbroad and deep data coverage, is based on consumer transactions at retailers, and is reported to us monthly. IRi data provides measurementand analysis of marketplace trends such as market share, retail pricing, promotional activity and distribution across various channels, retailersand geographies. Measured categories provided to us by IRi include CSDs, energy drinks, carbonated waters, non-alcoholic mixers andNCBs, including ready-to-drink teas, single-serve and multi-serve juice and juice drinks, sports drinks and still waters. IRi also provides dataon other food items such as apple sauce. IRi data we present in this report is from IRi service, which compiles data based on scannertransactions in key retail channels, including grocery stores, mass merchandisers (including Walmart), drug chains, convenience stores andgas stations. However, this data does not include the fountain or vending channels, or small independent retail outlets, which togetherrepresent a meaningful portion of the U.S. LRB market and of our net sales and volume.11Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 1A. RISK FACTORSIn addition to the other information set forth in this report, you should carefully consider the risks described below, which could materiallyaffect our business, financial condition or future results. Any of the following risks, as well as other risks and uncertainties, could harm ourbusiness and financial condition. RISKS RELATED TO THE PROPOSED TRANSACTION WITH KEURIGOur stockholders may not approve the Transaction.The completion of the Transaction requires the Stockholder Approvals and we can provide no assurance that all required approvals willbe obtained.The regulatory approvals and any other required approvals in connection with the Transaction may not be obtained on the proposedterms or on the anticipated schedule.The completion of the Transaction will depend upon a number of conditions being satisfied, including, among others, obtaining allregulatory approvals required to complete the Transaction, including the expiration or early termination of the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and any required foreign regulatory approvals, and theabsence of any injunction prohibiting the Transaction and absence of any legal requirements enacted by a court or other governmental entitysince the date of the Merger Agreement that remain in effect prohibiting consummation of the Transaction. We can provide no assurance thatall required approvals will be obtained on the anticipated schedule, or at all.The waiting period with respect to the notifications filed under the HSR Act expires 30 calendar days after such filings, unless otherwiseextended or terminated. The Federal Trade Commission ("FTC") or Department of Justice ("DOJ") may effectively extend the statutory waitingperiod by requesting additional information regarding the Transaction and its potential effects on competition. Also, at any time before or aftercompletion of the Transaction, the FTC or the DOJ could act under the antitrust laws to prevent a substantial lessening of competition or thecreation of a monopoly, including by seeking to enjoin completion of the Transaction or seeking divestiture of our or Keurig’s assets,businesses or product lines.The annual meeting of our stockholders at which the Stockholder Approvals will be considered may take place before all of the requiredregulatory approvals have been obtained and before all conditions to such approvals, if any, are known. In this event, if the StockholderApprovals are obtained, we and Maple Parent may subsequently agree to conditions without further seeking stockholder approval, even ifsuch conditions could have an adverse effect on us, Maple Parent or the combined company, except as required by applicable law.The closing of the Transaction is subject to many other conditions and if these conditions are not satisfied or waived, the Transactionwill not be completed.In addition to regulatory and other required approvals, the closing of the Transaction is subject to a number of conditions as set forth in theMerger Agreement that must be satisfied or waived, including the authorization of the listing on the NYSE of the Acquisition Shares and, withrespect to DPS’s obligation to close, the securing of debt financing for the Transaction.The closing of the Transaction is also dependent on the accuracy of representations and warranties made by the parties to the MergerAgreement (subject to customary materiality qualifiers and other customary exceptions), the performance in all material respects by theparties of obligations imposed under the Merger Agreement, the absence of a material adverse effect on Maple Parent or us, the receipt ofofficer certificates by the other party certifying the satisfaction of the preceding conditions, receipt by Maple Parent of the tax opinion fromMcDermott Will & Emery LLP as to the tax treatment of the Transaction, and receipt by us of the solvency opinion from our solvency advisor. Inaddition, it is a condition to our obligation to close under the Merger Agreement that the total indebtedness (other than relating to capitalleases) of KDP (formerly DPS), after giving effect to the Transaction and the financings related thereto, does not exceed $16.9 billion in theaggregate. There can be no assurance as to whether or when the conditions to the closing of the Transaction will be satisfied or waived or asto whether or when the Transaction will be consummated.Any legal proceedings or governmental inquiries in connection with the Transaction, the outcomes of which are uncertain, coulddelay or prevent the completion of the Transaction.In connection with the Transaction, plaintiffs may file lawsuits against DPS, Maple Parent and/or the directors and officers of eithercompany. In addition, either company may face inquiries from governmental entities in connection with the Transaction. Although we believeany such lawsuits would be meritless, the outcome of such litigation or governmental inquiry is uncertain. Such legal proceedings orgovernmental inquiries could also prevent or delay the completion of the Transaction and result in additional costs to us.12Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDPS stockholders will have a reduced ownership and voting interest after the Transaction and will exercise less influence overmanagement. DPS stockholders currently have the right to vote in the election of the DPS Board and on other matters affecting DPS.Upon the consummation of the Transaction, each DPS stockholder will remain a stockholder of DPS with a percentage ownership of KDPfollowing the Transaction that is smaller than the stockholder’s prior percentage ownership of DPS. It is currently expected that the formerstockholders of DPS as a group immediately after the Transaction will own approximately 13% of the outstanding shares of common stock ofKDP, on a fully diluted basis. Because of this, DPS stockholders will have less influence on the management and policies of KDP than theynow have on the management and policies of DPS.Also see “-KDP will meet the requirements to be a “controlled company” within the meaning of the rules of the NYSE and, as a result, willqualify for, and intends to rely on, exemptions from certain corporate governance standards, which limit the presence of independent directorson its board of directors or board committees.”Following the Transaction, the composition of the KDP Board will be different than the composition of the current DPS Board.Upon consummation of the Transaction, the composition of the KDP Board will be different than the current DPS Board. The DPS Boardcurrently consists of 9 directors. Upon the consummation of the Transaction, the KDP Board will consist of 12 members:•eight directors will be appointed by Maple Parent's stockholders, including Keurig's current Chief Executive Officer;•two directors will be appointed by DPS, including our current President and Chief Executive Officer; and•two independent directors will be mutually agreed upon by Maple Parent and DPS.This new composition of the board of directors of KDP may affect the future decisions of KDP.KDP will meet the requirements to be a “controlled company” within the meaning of the rules of the NYSE and, as a result, will qualifyfor, and intends to rely on, exemptions from certain corporate governance standards, which limit the presence of independentdirectors on its board of directors or board committees.Following the Transaction, approximately 87% of the outstanding common stock of KDP will be held by holders of the equity interests ofMaple Parent, on a fully diluted basis, and approximately 13% will be held by the stockholders of DPS, on a fully diluted basis.As a result, KDP will be a “controlled company” for purposes of Section 303A of the NYSE Listed Company Manual and will be exemptfrom certain governance requirements otherwise required by the NYSE. Under Section 303A, a company of which more than 50% of thevoting power is held by an individual, a group or another company is a “controlled company” and is exempt from certain corporategovernance requirements, including requirements that (1) a majority of the board of directors consist of independent directors, (2)compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by acompensation committee that is composed entirely of independent directors, and (3) director nominees be selected or recommended forselection by a majority of the independent directors or by a nominating/corporate governance committee composed solely of independentdirectors. Following the consummation of the Transaction, KDP will continue to have an audit committee that is composed entirely ofindependent directors.As a result, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirectinterest in such decisions and KDP’s stockholders will not have the same protections afforded to stockholders of other companies that arerequired to comply with the independence rules of the NYSE.The Merger Agreement may be terminated in accordance with its terms and the Transaction may not be consummated. The MergerAgreement contains provisions that restrict the ability of the DPS Board to pursue alternatives to the Transaction and to change itsrecommendation that DPS stockholders vote for the Stockholder Approvals. In specified circumstances, DPS could be required to payMaple Parent a termination fee of up to $700 million.The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after receipt of the approval of DPS’stockholders or the effectiveness of the Maple Parent stockholder consent or Merger Sub stockholder consent, by the mutual written consentof the parties, by either Maple Parent or DPS if stockholder or regulatory approvals are not obtained, or by Maple Parent or DPS in connectionwith certain breaches of the Merger Agreement by DPS or Maple Parent, respectively.13Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIf the Merger Agreement is terminated by DPS pursuant to accepting a superior acquisition proposal and entering into an alternativeacquisition agreement, by Maple Parent if our Board changes its recommendation to stockholders to approve the issuance of the AcquisitionShares and amendment to the certificate of incorporation, or by either DPS or Maple Parent because the closing does not occur by October29, 2018 and there is an acquisition proposal outstanding at the time of such termination and within twelve months of termination of theMerger Agreement DPS consummates or enters into an agreement with respect to an acquisition proposal, DPS shall pay to Maple Parent atermination fee in the amount of $700 million. If the Merger Agreement is terminated by DPS because Maple Parent is unable to obtainrequired financing on the terms required by the Merger Agreement, Maple Parent shall pay to DPS a reverse termination fee in the amount of$700 million.Failure to consummate the Transaction could negatively impact DPS and its future operations.If the Transaction is not consummated for any reason, DPS may be subjected to a number of material risks. The price of shares of DPScommon stock may decline to the extent that its current market prices reflect a market assumption that the Transaction will be consummated.In addition, some costs related to the Transaction must be paid by DPS whether or not the Transaction is consummated. Furthermore, DPSmay experience negative reactions from its stockholders, customers and employees in the event the Transaction is not consummated.Further, DPS' management would have committed time, financial and other resources to matters relating to the Transaction that couldotherwise have been devoted to pursuing other beneficial opportunities for DPS.In addition, if the Transaction is not completed, DPS could be subject to litigation related to any failure to complete the merger or relatedto any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. The materialization of any ofthese risks could materially and adversely impact our ongoing business.DPS and Keurig will be subject to business uncertainties and certain operating restrictions until consummation of the Transaction.Uncertainty about the effect of the Transaction on employees and customers may have an adverse effect on DPS, Keurig or KDPfollowing the Transaction. These uncertainties could disrupt our business or the business of Keurig and cause customers, suppliers, vendors,partners and others that deal with us and Keurig to defer entering into contracts with us and Keurig or making other decisions concerning usand Keurig or seek to change or cancel existing business relationships with us and Keurig. Retention and motivation of certain employeesmay be challenging during the pendency of the Transaction due to uncertainty about their future roles and difficulty of integration. If keyemployees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with KDP, KDP’s businessfollowing the Transaction could be negatively impacted. In addition, the Merger Agreement restricts DPS from making certain acquisitions andinvestments and imposes certain other restrictions on the conduct of each party's business until the Transaction occurs without the consent ofKeurig. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of theTransaction.The Merger Agreement contains restrictions on our ability to pursue other alternatives to the Transaction.The Merger Agreement contains non-solicitation provisions that, subject to limited exceptions, restrict our ability to initiate, solicit,knowingly encourage, induce or assist any inquiries or the making, submission, announcement or consummation of, proposals or offers thatconstitutes or could reasonably be expected to lead to any acquisition proposal. Further, subject to limited exceptions, consistent withapplicable law, the Merger Agreement provides that our board will not withhold, withdraw, qualify or modify (or publicly propose or resolve towithhold, withdraw, qualify or modify) in a manner adverse to Maple Parent its recommendation that our stockholders vote in favor of theStockholder Approvals. Although our Board is permitted to take certain actions in response to a superior proposal or an intervening event if itdetermines that the failure to do so would be reasonably likely to be inconsistent with its fiduciary duties, doing so in specified situations couldrequire us to pay to Maple Parent the Termination Fee.Such provisions could discourage a potential acquiror that might have an interest in making a proposal from considering or proposingany such transaction, even if it were prepared to pay consideration with a higher value to our stockholders than that to be paid in theTransaction. There also is a risk that the requirement to pay the termination fee or expense payment to Maple Parent in certain circumstancesmay result in a potential acquiror proposing to pay a lower per share price to acquire us than it might otherwise have proposed to pay.If our due diligence investigation of Keurig was inadequate or if unexpected risks related to Keurig's business materialize, it couldhave a material adverse effect on our stockholders' investment.Even though we conducted a due diligence investigation of Keurig, we cannot be sure that our diligence surfaced all material issues thatmay be present inside Keurig or its business, or that it would be possible to uncover all material issues through a customary amount of duediligence, or that factors outside of Keurig and its business and outside of its control will not arise later. If any such material issues arise, theymay materially and adversely impact the on-going business of KDP and our stockholders' investment.14Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRISKS RELATED TO THE BUSINESS OF THE COMBINED COMPANYExpected combination benefits from the Transaction may not be fully-realized or realized within the expected time frame.The ability of Keurig and DPS to realize the anticipated benefits of the Transaction will depend, to a large extent, on KDP’s ability tocombine Keurig’s and DPS' businesses in a manner that facilitates growth opportunities and realizes anticipated synergies, and achieves theprojected stand-alone cost savings and revenue growth trends identified by each company. It is expected that KDP will benefit fromoperational and general and administrative cost synergies resulting from the warehouse and transportation integration, direct procurementsavings on overlapping materials, purchasing scale on indirect spend categories and optimization of duplicate positions and processes. KDPmay also enjoy revenue synergies, driven by a strong portfolio of brands with exposure to higher growth segments and the ability to leverageour collective distribution strength. In order to achieve these expected benefits, KDP must successfully combine the businesses of Keurig andDPS in a manner that permits these cost savings and synergies to be realized and must achieve the anticipated savings and synergieswithout adversely affecting current revenues and investments in future growth. If KDP experiences difficulties with the integration process or isnot able to successfully achieve these objectives, the anticipated benefits of the Transaction may not be realized fully or at all or may takelonger to realize than expected.The businesses of DPS and Keurig may not be integrated successfully or such integration may be more difficult, time-consuming orcostly than expected. Operating costs, customer loss and business disruption, including difficulties in maintaining relationships withemployees, customers, clients or suppliers, may be greater than expected following the transaction. Revenues following thetransaction may be lower than expected.The combination of two independent businesses is a complex, costly and time-consuming process. As a result, Keurig and DPS will berequired to devote significant management attention and resources to combining their business practices and operations. This process maydisrupt the businesses. The failure to meet the challenges involved in combining the two businesses and to realize the anticipated benefits ofthe transactions could cause an interruption of, or a loss of momentum in, the activities of KDP and could adversely affect the results ofoperations of KDP. The overall combination of Keurig’s and DPS’ businesses may also result in material unanticipated problems, expenses,liabilities, competitive responses, loss of customer and other business relationships and diversion of management attention. The difficulties ofcombining the operations of the companies include, among others:•the diversion of management attention to integration matters;•difficulties in integrating operations and systems, including intellectual property and communications systems;•challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensationstructures between the two companies;•difficulties in assimilating employees and in attracting and retaining key personnel;•challenges in keeping existing customers and obtaining new customers;•difficulties in achieving anticipated synergies, business opportunities and growth prospects from the combination;•difficulties in managing the expanded operations of a significantly larger and more complex company;•the transition of management of the combined company from DPS' executive management team to Keurig's executive managementteam who has limited experience with operating a LRB business;•integrating the companies' financial reporting and internal control systems, including compliance by the combined company withSection 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated by the SEC;•the impact of the additional debt financing expected to be incurred in connection with the Transaction;•contingent liabilities that are larger than expected; and•potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Transaction.Many of these factors are outside of the control of Keurig and DPS and/or will be outside the control of KDP, and any one of them couldresult in increased costs, decreased expected revenues and diversion of management time and energy, which could materially impact thebusiness, financial condition and results of operations of KDP. In addition, even if the operations of the businesses of Keurig and DPS arecombined successfully, the full benefits of the Transaction may not be realized, including the synergies or sales or growth opportunities thatare expected. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may beincurred in combining the businesses of Keurig and DPS. All of these factors could cause dilution to the earnings per share of KDP, decreaseor delay the expected accretive effect of the Transaction, and negatively impact the price of DPS common stock. As a result, it cannot beassured that the combination of Keurig and DPS will result in the realization of the full benefits anticipated from the Transaction within theanticipated time frames or at all.15Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIf a credit rating downgrade below investment grade were to occur, DPS may be required to purchase its outstanding notes and maybe unable to do so.DPS has a substantial amount of debt outstanding, comprised of various series of outstanding notes. These notes generally require DPSto offer to repurchase all outstanding senior unsecured notes of each series at 101% of the principal amount thereof plus, without duplication,accrued and unpaid interest, if any, to the date of repurchase should DPS undergo a change of control and receive a credit rating downgradebelow investment grade. Because the Transaction will constitute a change of control of DPS, if any such series is rated below investmentgrade by Moody’s Investors Service, Inc. ("Moody's") and Standard & Poor’s Financial Services LLC ("S&P") within the first 60 days followingthe effectiveness of the Transaction, DPS will be required to offer to repurchase all outstanding senior unsecured notes of each such series at101% of the principal amount thereof plus, without duplication, accrued and unpaid interest, if any, to the date of repurchase. DPS may nothave sufficient funds (including as a result of a failure to raise sufficient funds through the debt or equity markets) to finance a requiredrepurchase of such senior unsecured notes by DPS. The failure to finance or complete such an offer would place DPS in default under theindentures governing the senior unsecured notes. Additionally, if there is increased volatility or a disruption in the global capital and creditmarkets, it could impair DPS’s ability to access these markets for purposes of funding a required repurchase on commercially acceptableterms.Maple Parent and DPS will incur direct and indirect costs as a result of the Transaction. Maple Parent and DPS will incur substantialexpenses in connection with and as a result of consummating the Transaction.A portion of the transaction costs related to the Transaction will be incurred regardless of whether the Transaction is consummated. WhileMaple Parent and DPS have assumed that a certain level of transaction expenses will be incurred, factors beyond Maple Parent’s and DPS’control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult toestimate accurately. These expenses may exceed the costs historically borne by Maple Parent and DPS. These costs could adversely affectthe financial condition and results of operations of Maple Parent and DPS prior to the Transaction and of KDP following the Transaction.The agreements that will govern the indebtedness to be incurred in connection with the Transaction may contain various covenantsthat impose restrictions on KDP and certain of its subsidiaries that may affect its ability to operate its businesses.The agreements that will govern the indebtedness to be incurred in connection with the Transaction will contain various affirmative andnegative covenants that may, subject to certain significant exceptions, restrict the ability of KDP and certain of its subsidiaries to incur debtand the ability of KDP and certain of its subsidiaries to, among other things, have liens on their property, and/or merge or consolidate with anyother person or sell or convey certain of their assets to any one person, and engage in certain sale and leaseback transactions. The ability ofKDP and its subsidiaries to comply with these provisions may be affected by events beyond their control. Failure to comply with thesecovenants could result in an event of default, which, if not cured or waived, could accelerate its repayment obligations and could result in adefault and acceleration under other agreements containing cross-default provisions. Under these circumstances, KDP might not havesufficient funds or other resources to satisfy all of its obligations.The Transaction will expose us to risks inherent in the coffee and appliances business, and risks inherent in those geographieswhere Keurig currently operates.If consummated successfully, the Transaction would represent a significant transformation of our existing business. Upon completion ofthe Transaction, we would be subject to a variety of risks associated with the coffee and small appliances business, in addition to those wealready face in the LRB industry. These risks include changes in consumer preferences, volatility in the prices of raw materials, consumerperceptions of the brands, competition in the retail market place and other risks. In addition, we will be exposed to risks inherent in operatingin geographies in which we have not operated in or have been less present in the past.16Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRISKS RELATED TO OUR CURRENT DPS BUSINESSWe may not effectively respond to changing consumer preferences, trends, health concerns and other factors.Consumers' preferences can change due to a variety of factors, including the age and ethnic demographics of the population, socialtrends, negative publicity, economic downturn or other factors. For example, consumers are increasingly concerned about health andwellness, focusing on the caloric intake associated with regular CSDs, the use of artificial sweeteners in diet CSDs and the use of natural,organic or simple ingredients in LRB products. As such, the demand for CSDs has decreased as consumers have shifted towards NCBs,such as water, ready-to-drink teas and sports drinks. If we do not effectively anticipate these trends and changing consumer preferences andquickly develop new products or partner with an allied brand in that category in response, then our sales could suffer. Developing andlaunching new products can be risky and expensive. We may not be successful in responding to changing markets and consumerpreferences, and some of our competitors may be better able to respond to these changes, either of which could negatively affect ourbusiness and financial performance.Our distribution agreements with our allied brands could be terminated.Approximately 82% of our 2017 Packaged Beverages net sales of branded products came from our owned and licensed brands and ourcontract manufacturing, with the remaining from the distribution of third party brands such as, but not limited to, FIJI mineral water, Big Red,BODYARMOR, Vita Coco coconut water, AriZona tea, Core Hydration, Neuro drinks, High Brew, Hydrive energy drinks and Sparkling Fruit2O.We are subject to a risk of our allied brands, terminating their distribution agreements with us, which could negatively affect our business andfinancial performance. Within each distribution agreement, we have certain protections in case the allied brands terminate the distributionagreements, including a one-time termination payment.Costs for commodities, such as raw materials and energy, may change substantially.The principal raw materials we use in our products are aluminum cans and ends, glass bottles, PET bottles and caps, paperboardpackaging, sweeteners, juice, fruit, water and other ingredients. The cost of such raw materials can fluctuate substantially. Under many of oursupply arrangements, the price we pay for raw materials fluctuates along with certain changes in underlying commodities costs, such asaluminum in the case of cans, natural gas in the case of glass bottles, resin in the case of PET bottles and caps, corn in the case ofsweeteners and pulp in the case of paperboard packaging.In addition, we use a significant amount of energy in our business. We are significantly impacted by changes in fuel costs due to the largetruck fleet we operate in our distribution businesses and our use of third party carriers. Additionally, conversion of raw materials into ourproducts for sale uses electricity and natural gas.Price increases could exert pressure on our costs and we may not be able to effectively hedge or pass along any such increases to ourcustomers or consumers. Price increases we pass along to our customers or consumers could reduce demand for our products. Suchincreases could negatively affect our business and financial performance. Furthermore, price decreases in commodities that we haveeffectively hedged could also increase our cost of goods sold for mark-to-market changes in the derivative instruments.New or proposed beverage taxes or regulations could impact our sales.Over the years, the federal, state and local governments of the U.S. and the federal government of Mexico have imposed or attempted toimpose indirect taxes on the manufacturing and/or the distribution of certain sugar-sweetened beverages, which are commonly referred to asa "beverage tax" or "sugar tax". These regressive taxes were primarily the result of concerns about the public health consequences andhealth care costs associated with obesity. As federal, state and local governments in the U.S., and foreign governments experience significantbudget deficits, some lawmakers continue to single out beverages among a number of revenue-raising items. As such, federal, state, andother local and foreign governments could continue to seek to impose a beverage or sugar tax. Additionally, local and regional governmentsand school boards have enacted, or have proposed to enact, regulations restricting the sale of certain types or sizes of soft drinks inmunicipalities and schools as a result of these concerns. Any changes of regulations or imposed taxes may reduce consumer demand for ourproducts or could cause us to raise our prices, both of which could have a material adverse effect on our profitability and negatively affect ourbusiness and financial performance.If we do not successfully integrate and manage our acquired businesses or brands, our operating results may adversely be affected.From time to time, we acquire businesses, such as Bai Brands, or brands to expand our beverage portfolio and distribution rights. Wemay incur unforeseen liabilities and obligations in connection with the acquisition, integration or management of the acquired businesses orbrands and may encounter unexpected difficulties and costs in integrating them into our operating and internal control structures. We mayalso experience delays in extending our internal control over financial reporting to newly acquired businesses, which may increase the risk offailure to prevent misstatements in their financial records and in our consolidated financial statements. Our financial performance depends inlarge part on how well we can manage and improve the performance of acquired businesses or brands. We cannot assure you, however, thatwe will be able to achieve our strategic and financial objectives for such acquisitions. If we are unable to achieve such objectives, ourconsolidated results could be negatively affected.17Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe depend on third party bottling and distribution companies for a portion of our business.Net sales from our Beverage Concentrates segment represent sales of beverage concentrates to third party bottling companies that wedo not own. The Beverage Concentrates segment's operations generate a significant portion of our overall segment operating profit ("SOP").Some of these bottlers, such as PepsiCo and Coca-Cola, are also our competitors. The majority of these bottlers' business comes from sellingeither their own products or our competitors' products. In addition, some of the products we manufacture are distributed by third parties. Asindependent companies, these bottlers and distributors make their own business decisions. They may have the right to determine whether,and to what extent, they produce and distribute our products, our competitors' products and their own products. They may devote moreresources to other products or take other actions detrimental to our brands. In most cases, they are able to terminate their bottling anddistribution arrangements with us without cause. We may need to increase support for our brands in their territories and may not be able topass price increases through to them. Their financial condition could also be adversely affected by conditions beyond our control, and ourbusiness could suffer as a result. Deteriorating economic conditions could negatively impact the financial viability of third party bottlers. Any ofthese factors could negatively affect our business and financial performance. We depend on a small number of large retailers for a significant portion of our sales.Food and beverage retailers in the U.S. have been consolidating, resulting in large, sophisticated retailers with increased buying power.They are in a better position to resist our price increases and demand lower prices. They also have leverage to require us to provide larger,more tailored promotional and product delivery programs. If we and our bottlers and distributors do not successfully provide appropriatemarketing, product, packaging, pricing and service to these retailers, our product availability, sales and margins could suffer. Certain retailersmake up a significant percentage of our products' retail volume, including volume sold by our bottlers and distributors. Some retailers alsooffer their own private label products that compete with some of our brands. The loss of sales of any of our products by a major retailer couldhave a material adverse effect on our business and financial performance.We operate in highly competitive markets.The LRB industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition is generallybased upon brand recognition, taste, quality, price, availability, selection and convenience. Brand recognition can also be impacted by theeffectiveness of our advertising campaigns and marketing programs, as well as our use of social media. We compete with multinationalcorporations with significant financial resources. Our two largest competitors in the LRB market are Coca-Cola and PepsiCo, which representapproximately 42.4% of the U.S. LRB market by retail sales according to IRi. We also compete against other large companies, includingNestle, Kraft Foods and Campbell Soup. These competitors can use their resources and scale to rapidly respond to competitive pressuresand changes in consumer preferences by introducing new products, changing their route to market, reducing prices or increasingpromotional activities. As a bottler and manufacturer, we also compete with a number of smaller bottlers and distributors and a variety ofsmaller, regional and private label manufacturers, such as Cott. Smaller companies may be more innovative, better able to bring newproducts to market and better able to quickly exploit and serve niche markets. We also compete for contract manufacturing with other bottlersand manufacturers. We have lower exposure to non-premium bottled water and ready-to-drink coffee compared to the overall LRB market. InCanada, Mexico and the Caribbean, we compete with many of these same international companies as well as a number of regionalcompetitors.If we are unable to compete effectively, our sales could decline. As a result, we would potentially reduce our prices or increase ourspending on marketing, advertising and product innovation, which could negatively affect our business and financial performance.Determinations in the future that a significant impairment of the value of our goodwill and other indefinite-lived intangible assets hasoccurred could have a material adverse effect on our results of operations.As of December 31, 2017, we had $10,022 million of total assets, of which approximately $7,342 million were goodwill and otherintangible assets. Intangible assets include both definite and indefinite-lived intangible assets in connection with brands, distribution rightsand customer relationships. We conduct impairment tests on goodwill and all indefinite-lived intangible assets annually, as of October 1, ormore frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of an intangibleasset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We recognized approximately $1 million inimpairment charges for our Aguafiel brand based upon our annual impairment analysis performed as of October 1, 2017. For additionalinformation about these intangible assets, see "Critical Accounting Estimates — Goodwill and Other Indefinite-Lived Intangible Assets" and"Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 7 and Note 2 and Note 4 to our AuditedConsolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data," in this Annual Report on Form 10-K.18Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe impairment tests require us to make an estimate of the fair value of our reporting units and other intangible assets. An impairmentcould be recorded as a result of changes in assumptions, estimates or circumstances, some of which are beyond our control. Factors whichcould result in an impairment include, but are not limited to: (i) reduced demand for our products and/or the product category; (ii) highercommodity prices; (iii) lower prices for our products or increased marketing as a result of increased competition; (iv) significant disruptions toour operations as a result of both internal and external events; and (v) changes in our discount rates. Since a number of factors may influencedeterminations of fair value of intangible assets, we are unable to predict whether impairments of goodwill or other indefinite-lived intangibleswill occur in the future. Any such impairment would result in us recognizing a non-cash charge in our Consolidated Statements of Income,which could adversely affect our results of operations and increase our effective tax rate.Our total indebtedness, excluding capital lease obligations, could affect our operations and profitability.We maintain levels of debt we consider prudent based on our actual and expected cash flows. As of December 31, 2017, our totalindebtedness was $4,479 million.This amount of debt could have important consequences to us and our investors, including requiring a portion of our cash flow fromoperations to make interest payments on this debt and increasing our vulnerability to general adverse economic and industry conditions,which could impact our debt maturity profile.While we believe we will have the ability to service our debt and will have access to additional sources of capital in the future if and whenneeded, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financialmarkets, and other factors that may be beyond our control.In assessing our credit strength, credit rating agencies consider our capital structure and financial policies as well as our results ofoperations and financial position at that time. If our credit ratings were to be downgraded as a result of changes in our capital structure,changes in the credit rating agencies' methodology in assessing our credit strength, the credit agencies' perception of the impact of creditmarket conditions on our current or future results of operations and financial position or for any other reason, our cost of borrowing couldincrease.Fluctuations in foreign currency exchange rates in Mexico and Canada may adversely affect our operating results.While our operations are predominately in the U.S., we are exposed to foreign currency exchange rate risk with respect to our sales,expenses, profits, assets and liabilities denominated in the Mexican peso or the Canadian dollar. We manage a small portion of our exposureto the Canadian dollar and Mexican peso for certain transactions utilizing derivative instruments and are not protected against most foreigncurrency fluctuations. As a result, our financial performance may be affected by changes in foreign currency exchange rates. Moreover, anyfavorable or unfavorable impacts to gross profit, gross margin, income from operations or segment operating profit from fluctuations in foreigncurrency exchange rates are likely to be inconsistent year over year.We depend on key information systems and third party service providers.We depend on key information systems to accurately and efficiently transact our business, provide information to management andprepare financial reports. We rely on third party providers for a number of key information systems and business processing services,including hosting our primary data center and processing various benefit-related accounting and transactional services. These systems andservices are vulnerable to interruptions or other failures resulting from, among other things, natural disasters, terrorist attacks, software,equipment or telecommunications failures, processing errors, computer viruses, other security issues or supplier defaults. Security, backupand disaster recovery measures may not be adequate or implemented properly to avoid such disruptions or failures. Any disruption or failureof these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems orprocess transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financialperformance.As cybersecurity attacks continue to evolve and increase, our information systems could also be penetrated or compromised by internaland external parties intent on extracting confidential information, disrupting business processes or corrupting information. These risks couldarise from external parties or from acts or omissions of internal or service provider personnel. Such unauthorized access could disrupt ourbusiness and could result in the loss of assets, litigation, remediation costs, damage to our reputation and failure to retain or attract customersfollowing such an event, which could adversely affect our business.Increases in our cost of benefits in the future could reduce our profitability.Our profitability is substantially affected by costs for employee health care, pension and other retirement programs and other benefits. Inrecent years, these costs have increased significantly due to factors such as increases in health care costs, increases in participants enrolled,declines in investment returns on pension assets and changes in discount rates used to calculate pension and related liabilities. Thesefactors plus the enactment of the Patient Protection and Affordable Care Act in March 2010 will continue to put pressure on our business andfinancial performance. Although we actively seek to control increases in costs, there can be no assurance that we will succeed in limitingfuture cost increases, and continued upward pressure in costs could have a material adverse effect on our business and financialperformance.19Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsOur financial results may be negatively impacted by recession, financial and credit market disruptions and other economicconditions.Changes in economic and financial conditions in the U.S., Canada, Mexico or the Caribbean may negatively impact consumerconfidence and consumer spending, which could result in a reduction in our sales volume and/or switching to lower price offerings. Similarly,disruptions in financial and credit markets worldwide may impact our ability to manage normal commercial relationships with our customers,suppliers and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us,thus reducing our cash flow, or the ability of our vendors to timely supply materials. Additionally, these disruptions could have a negativeeffect on our ability to raise capital through the issuance of unsecured commercial paper or senior notes.We could also face increased counterparty risk for our cash investments and our hedging arrangements. Declines in the securities andcredit markets could also affect our marketable securities and pension fund, which in turn could increase funding requirements.Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.We are party to various litigation claims and legal proceedings which may include employment, tort, real estate, commercial and otherlitigation. From time to time we are a defendant in class action litigation, including litigation regarding employment practices, product labeling,and wage and hour laws. Plaintiffs in class action litigation may seek to recover amounts which are large and may be indeterminable forsome period of time. We evaluate litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and estimate, ifpossible, the amount of potential losses. We will establish a reserve as appropriate based upon assessments and estimates in accordancewith our accounting policies. We base our assessments, estimates and disclosures on the information available to us at the time and rely onlegal and management judgment. Actual outcomes or losses may differ materially from assessments and estimates. Costs to defend litigationclaims and legal proceedings and the cost of actual settlements, judgments or resolutions of these claims and legal proceedings maynegatively affect our business and financial performance. Any adverse publicity resulting from allegations made in litigation claims or legalproceedings may also adversely affect our reputation, which in turn could adversely affect our results of operations.Certain raw materials we use are available from a limited number of suppliers and shortages could occur.Some raw materials we use, such as aluminum cans and ends, glass bottles, PET bottles, sweeteners, fruit, juice and other ingredients,are sourced from industries characterized by a limited supply base. If our suppliers are unable or unwilling to meet our requirements, wecould suffer shortages or substantial cost increases. Changing suppliers can require long lead times. The failure of our suppliers to meet ourneeds could occur for many reasons, including fires, natural disasters, weather, manufacturing problems, disease, crop failure, strikes,transportation interruption, government regulation, political instability, cybersecurity attacks and terrorism. A failure of supply could also occurdue to suppliers' financial difficulties, including bankruptcy. Some of these risks may be more acute where the supplier or its plant is located inriskier or less-developed countries or regions. Any significant interruption to supply or cost increase could substantially harm our businessand financial performance.Substantial disruption to production at our manufacturing and distribution facilities could occur.A disruption in production at our beverage concentrates manufacturing facility, which manufactures almost all of our concentrates, couldhave a material adverse effect on our business. In addition, a disruption could occur at any of our other facilities or those of our suppliers,bottlers or distributors. The disruption could occur for many reasons, including fire, natural disasters, weather, water scarcity, manufacturingproblems, disease, strikes, transportation or supply interruption, government regulation, cybersecurity attacks or terrorism. Alternative facilitieswith sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production,each of which could negatively affect our business and financial performance.We may fail to comply with applicable government laws and regulations.We are subject to a variety of federal, state and local laws and regulations in the U.S., Canada, Mexico and other countries in which wedo business. These laws and regulations apply to many aspects of our business including the manufacture, safety, labeling, transportation,advertising and sale of our products. See "Regulatory Matters" in Item 1, "Business," of this Annual Report on Form 10-K for more informationregarding many of these laws and regulations.Violations of these laws or regulations in the manufacture, safety, labeling, transportation and advertising of our products could damageour reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in such laws or regulations ortheir interpretation, or the introduction of higher standards or more stringent laws or regulations, could result in increased compliance costs orcapital expenditures. For example, changes in recycling and bottle deposit laws or special taxes on soft drinks or ingredients could increaseour costs. Regulatory focus on the health, safety and marketing of food products is increasing. Certain federal or state regulations or lawsaffecting the labeling of our products, such as California's "Prop 65," which requires warnings on any product with substances that the statelists as potentially causing cancer or birth defects, are or could become applicable to our products.20Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWeather, natural disasters, climate change legislation and the availability of water could adversely affect our business.Unseasonable or unusual weather, natural disasters or long-term climate changes may negatively impact the demand for our products,our ability to produce our products and the price or availability of raw materials, energy and fuel. Unusually cool weather during the summermonths may result in reduced demand for our products and have a negative effect on our business and financial performance.There is growing political and scientific sentiment that increased concentrations of carbon dioxide and other greenhouse gases in theatmosphere are influencing global weather patterns ("global warming"). Concern over climate change, including global warming, has led tolegislative and regulatory initiatives directed at limiting greenhouse gas ("GHG") emissions. For example, proposals that would imposemandatory requirements on GHG emissions continue to be considered by policy makers in the countries in which we operate. Laws enactedthat directly or indirectly affect our production, distribution, packaging, cost of raw materials, fuel, ingredients and water could all negativelyimpact our business and financial results.We also may be faced with water availability risks. Water is the main ingredient in substantially all of our products. Climate change maycause water scarcity and a deterioration of water quality in areas where we maintain operations. The competition for water among domestic,agricultural and manufacturing users is increasing in the countries where we operate, and as water becomes scarcer or the quality of thewater deteriorates, we may incur increased production costs or face manufacturing constraints which could negatively affect our business andfinancial performance. Even where water is widely available, water purification and waste treatment infrastructure limitations could increasecosts or constrain our operations.Our products may not meet health and safety standards or could become contaminated.We have adopted various quality, environmental, health and safety standards. However, our products may not meet these standards orcould become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our bottlers,distributors or suppliers. This could result in expensive production interruptions, recalls, liability claims and negative publicity. Moreover,negative publicity also could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures oroccurrences could negatively affect our business and financial performance.Fluctuations in our effective tax rate may result in volatility in our operating results.We are subject to income taxes in many U.S. and certain foreign jurisdictions. Income tax expense includes a provision for uncertain taxpositions. At any one time, many tax years are subject to audit by various taxing jurisdictions. As these audits and negotiations progress,events may occur that change our expectation about how the audit will ultimately be resolved. As a result, there could be ongoing variabilityin our quarterly and/or annual tax rates as events occur that cause a change in our provision for uncertain tax positions. In addition, oureffective tax rate in any given financial statement period may be significantly impacted by changes in the mix and level of earnings or bychanges to existing accounting rules, tax regulations or interpretations of existing law. In addition, tax legislation may be enacted in the future,domestically or abroad, that impacts our effective tax rate.We may not be able to renew collective bargaining agreements on satisfactory terms, or we could experience strikes.As of December 31, 2017, approximately 7,500 of our employees, many of whom are at our key manufacturing locations, were coveredby collective bargaining agreements. These agreements typically expire every three to four years at various dates. We may not be able torenew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could impairour ability to manufacture and distribute our products and result in a substantial loss of sales. The terms of existing or renewed agreementscould also significantly increase our costs or negatively affect our ability to increase operational efficiency.Our intellectual property rights could be infringed or we could infringe the intellectual property rights of others, and adverse eventsregarding licensed intellectual property, including termination of distribution rights, could harm our business.We possess intellectual property that is important to our business. This intellectual property includes ingredient formulas, trademarks,copyrights, patents, business processes and other trade secrets. See "Intellectual Property and Trademarks" in Item 1, "Business," of thisAnnual Report on Form 10-K for more information. We and third parties, including competitors, could come into conflict over intellectualproperty rights. Litigation could disrupt our business, divert management attention and cost a substantial amount to protect our rights ordefend ourselves against claims. We cannot be certain that the steps we take to protect our rights will be sufficient or that others will notinfringe or misappropriate our rights. If we are unable to protect our intellectual property rights, our brands, products and business could beharmed.We also license various trademarks from third parties and license our trademarks to third parties. In some countries, other companiesown a particular trademark which we own in the U.S., Canada or Mexico. For example, the Dr Pepper trademark and formula is owned byCoca-Cola in certain other countries. Adverse events affecting those third parties or their products could affect our use of these trademarks ornegatively impact our brands.21Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn some cases, we license products from third parties that we distribute. The licensor may be able to terminate the license arrangementupon an agreed period of notice, in some cases without payment to us of any termination fee. The termination of any material licensearrangement could adversely affect our business and financial performance.Our facilities and operations may require substantial investment and upgrading.We have an ongoing program of investment and upgrading in our manufacturing, distribution and other facilities. We expect to incursignificant costs to upgrade or keep up-to-date various facilities and equipment or restructure our operations, including closing existingfacilities or opening new ones. If our investment and restructuring costs are higher than anticipated or our business does not develop asanticipated to appropriately utilize new or upgraded facilities, our costs and financial performance could be negatively affected.We could lose key personnel or may be unable to recruit qualified personnel.Our performance significantly depends upon the continued contributions of our executive officers and key employees, both individuallyand as a group, and our ability to retain and motivate them. Our officers and key personnel have many years of experience with us and in ourindustry and it may be difficult to replace them. If we lose key personnel or are unable to recruit qualified personnel, our operations and abilityto manage our business may be adversely affected. We do not have "key person" life insurance for any of our executive officers or keyemployees.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.22Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 2. PROPERTIESAs of December 31, 2017, we owned or leased 154 office buildings, manufacturing facilities and principal distribution centers and warehouse facilitiesoperating across the Americas. Our corporate headquarters are located in Plano, Texas, in a facility that we own.The following table summarizes our significant properties by geography and by reportable segment: Packaged Beverage Latin America Beverages Concentrates Beverages Owned Leased Owned Leased Owned Leased TotalUnited States: Office buildings(1)1 9 1 — — — 11Manufacturing facilities12 5 1 — — — 18Principal distribution centers and warehouse facilities37 61 — — — — 98 50 75 2 — — — 127Mexico and Canada: Office buildings— 1 — — — 1 2Manufacturing facilities— — — — 4 — 4Principal distribution centers and warehouse facilities— — — — 4 17 21 — 1 — — 8 18 27Total50 76 2 — 8 18 154____________________________(1)The office building owned by our Beverage Concentrates operating segment is our corporate headquarters located in Plano, Texas.We believe our facilities in the U.S. and Mexico are well-maintained and adequate, that they are being appropriately utilized in line with past experienceand that they have sufficient production capacity for their present intended purposes. The extent of utilization of such facilities varies based on seasonaldemand for our products. It is not possible to measure with any degree of certainty or uniformity the productive capacity and extent of utilization of thesefacilities. We periodically review our space requirements, and we believe we will be able to acquire new space and facilities as and when needed onreasonable terms. We also look to consolidate and dispose or sublet facilities we no longer need, as and when appropriate.ITEM 3. LEGAL PROCEEDINGSWe are occasionally subject to litigation or other legal proceedings relating to our business. See Note 15 of the Notes to our Audited ConsolidatedFinancial Statements for more information related to commitments and contingencies, which is incorporated herein by reference.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.23Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESIn the U.S., our common stock is listed and traded on the New York Stock Exchange under the symbol "DPS". Information as to the high and low salesprices of our stock for the two years ended December 31, 2017 and 2016, and the frequency and amount of dividends declared on our stock during theseperiods, is set forth in Item 6 and incorporated herein by reference.As of February 8, 2018, there were approximately 12,000 stockholders of record of our common stock. This figure does not include a substantially greaternumber of beneficial holders whose shares are held of record in "street name."The information that will be included under the principal heading "Equity Compensation Plan Information" in our definitive Proxy Statement for the AnnualMeeting of Stockholders or on an amendment on Form 10-K/A, to be filed with the SEC, is incorporated herein by reference.For the years ended December 31, 2017, 2016 and 2015, we did not sell any equity securities that were not registered under the Securities Act of 1933,as amended (the "Securities Act").DIVIDEND POLICYOur Board declared aggregate dividends of $2.32, $2.12 and $1.92 per share on outstanding common stock during the years ended December 31,2017, 2016 and 2015, respectively.We expect to return our excess cash flow to our stockholders from time to time through our share repurchase program described below or the payment ofdividends. However, there can be no assurance that share repurchases will occur or future dividends will be declared and paid. Under the terms of theMerger Agreement, until the closing of the Transaction or the termination of the Merger Agreement, we are restricted to the quarterly dividend declared to bepaid on April 12, 2018 and the special dividend to be paid upon consummation of the Transaction. Furthermore, during negotiation of the Transaction withMaple Parent, we suspended our share repurchase program and it remains suspended at this time under the terms of the Merger Agreement.The share repurchase program and declaration and payment of future dividends, the amount of any such share repurchases or dividends and theestablishment of record and payment dates for dividends, if any, are subject to final determination by our Board after its review of our then-current strategyand financial performance and position, among other things.COMMON STOCK REPURCHASESOur share repurchase activity for the quarter ended December 31, 2017 was as follows:(in thousands, except per share data) Number of SharesPurchased Average Price Paidper Share Total Number of SharesPurchased as Part ofPublicly Announced Plansor Programs (1) Maximum Dollar Value ofShares that May Yet bePurchased Under PubliclyAnnounced Plans orPrograms (1)Period October 1, 2017 – October 31, 2017 308 $86.96 308 $784,086November 1, 2017 – November 30, 2017 597 85.60 597 732,988December 1, 2017 – December 31, 2017 — — — 732,988For the quarter ended December 31, 2017 905 86.06 905 ____________________________(1)As of December 31, 2017, the Board has authorized us to repurchase an amount of up to $5 billion of our outstanding common stock. This authorization has no expirationdate.24Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCOMPARISON OF TOTAL STOCKHOLDER RETURNThe following performance graph compares our cumulative total returns with the cumulative total returns of the Standard & Poor's 500 and a peer groupindex. The graph assumes that $100 was invested on December 31, 2012, with dividends reinvested quarterly.Comparison of Total ReturnsAssumes Initial Investment of $100The Peer Group Index consists of the following companies: Coca-Cola, PepsiCo, Monster Beverage Corporation, Cott Corporation and NationalBeverage Corp. We believe that these companies help to convey an accurate assessment of our performance as compared to the industry.25Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following table presents selected historical financial data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013. All the selectedhistorical financial data has been derived from our Audited Consolidated Financial Statements and is stated in millions of dollars except for per shareinformation.You should read this information along with the information included in Item 7, "Management's Discussion and Analysis of Financial Condition andResults of Operations," and our Audited Consolidated Financial Statements and the related Notes thereto included elsewhere in this Annual Report onForm 10-K. Year Ended December 31, (in millions, except per share data)2017 2016 2015 2014 2013Statements of Income Data: Net sales$6,690 $6,440 $6,282 $6,121 $5,997Gross profit3,995 3,858 3,723 3,630 3,498Income from operations1,388 1,433 1,298 1,180 1,046Net income(5)1,076 847 764 703 624Basic earnings per share(1)(5)$5.91 $4.57 $4.00 $3.59 $3.08Diluted earnings per share(1)(5)5.89 4.54 3.97 3.56 3.05Dividends declared per share2.32 2.12 1.92 1.64 1.52Statements of Cash Flows Data: Cash provided by (used in): Operating activities(4)$1,038 $961 $1,014 $1,033 $872Investing activities(3)(1,763) (189) (194) (185) (195)Financing activities(2)(4)(907) 108 (137) (758) (886) As of December 31, (in millions)2017 2016 2015 2014 2013Balance Sheet Data: Goodwill and other intangible assets, net(3)$7,342 $5,649 $5,651 $5,674 $5,682Total assets(2)10,022 9,791 8,869 8,265 8,191Short-term borrowings and current portion of long-term obligations79 10 507 3 66Long-term obligations(2)4,400 4,468 2,875 2,580 2,498Other non-current liabilities1,933 2,138 2,228 2,353 2,386Total stockholders’ equity2,451 2,134 2,183 2,294 2,277____________________________(1)The weighted average number of shares of common stock outstanding used in the calculation of earnings per share ("EPS") was impacted by the repurchase andretirement of DPS common stock. For the years ended December 31, 2017, 2016, 2015, 2014 and 2013, we repurchased and retired 4.4 million shares, 5.7 million shares,6.5 million shares, 6.8 million shares and 8.7 million shares, respectively.(2)For the year ended December 31, 2016, financing activities, total assets, and long-term obligations were impacted by the issuance of senior unsecured notes with anaggregate principal amount of $1,550 million, which were issued in December 2016 in anticipation of the Bai Brands Merger.(3)For the year ended December 31, 2017, investing activities and goodwill and other intangible assets, net were impacted as a result of the Bai Brands Merger. Refer toNote 3 of the Notes to our Audited Consolidated Financial Statements for additional information.(4)For the years ended December 31, 2016, 2015, 2014 and 2013, excess tax benefits on stock based compensation were reclassified from financing activities to operatingactivities to conform to the current year presentation as a result of the adoption of Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic718): Improvements to Employee Share Based Payment Accounting. Refer to Note 2 of the Notes to our Audited Consolidated Financial Statements for further information.(5)For the year ended December 31, 2017, net income, basic earnings per share, and diluted earnings per share were impacted by the legislation commonly referred to asthe Tax Cuts and Jobs Act of 2017. Refer to Note 5 of the Notes to our Audited Consolidated Financial Statements for further information.26Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe following table summarizes the Company's information on net sales, gross profit, net income, earnings per share and other quarterly financial databy quarter for the years ended December 31, 2017 and 2016. This data, with the exception of the common stock prices, was derived from the Company'sunaudited consolidated financial statements.(in millions, except per share data)First Second Third FourthFor the Year Ended December 31,Quarter Quarter Quarter Quarter2017 Net sales$1,510 $1,797 $1,740 $1,643Gross profit903 1,079 1,033 980Net income(1)177 188 203 508Earnings per common share — basic(1)$0.97 $1.02 $1.12 $2.82Earnings per common share — diluted(1)0.96 1.02 1.11 2.81Weighted average common shares outstanding — basic183.4 183.2 181.4 180.1Weighted average common shares outstanding — diluted184.6 183.7 182.1 180.8Dividend declared per share$0.58 $0.58 $0.58 $0.58Common stock price High$98.17 $99.47 $93.77 $97.84Low89.06 89.88 87.28 81.702016 Net sales$1,487 $1,695 $1,680 $1,578Gross profit885 1,025 997 951Net income182 260 240 165Earnings per common share — basic$0.97 $1.40 $1.30 $0.90Earnings per common share — diluted0.96 1.39 1.29 0.90Weighted average common shares outstanding — basic187.6 185.7 184.8 183.6Weighted average common shares outstanding — diluted189.0 186.5 185.7 184.7Dividend declared per share$0.53 $0.53 $0.53 $0.53Common stock price High$95.87 $96.65 $98.80 $91.14Low87.18 86.03 89.45 81.05____________________________(1)Net income and basic and diluted earnings per share in the fourth quarter of the year ended December 31, 2017 were impacted by the legislation commonly referred to asthe Tax Cuts and Jobs Act.27Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS You should read the following discussion in conjunction with our Audited Consolidated Financial Statements and the related Notes thereto includedelsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on management's current expectations,estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in suchforward-looking statements as a result of various factors including the factors we describe under "Special Note Regarding Forward-Looking Statements","Risk Factors" and elsewhere in this Annual Report on Form 10-K, including documents incorporated by reference.References in the following discussion to "we", "our", "us", "DPS" or "the Company" refer to Dr Pepper Snapple Group, Inc. and all entities included in ourAudited Consolidated Financial Statements.The periods presented in this section are the years ended December 31, 2017, 2016 and 2015, which we refer to as "2017", "2016" and "2015",respectively.The following discussion does not reflect the Company's expectations with respect to its business, operations and financial performance following thecompletion of the Transaction. The Transaction is expected to have a material effect on such business, operations and financial performance. Accordingly,past performance may not be indicative of expected future results.OVERVIEWWe are a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico with a diverseportfolio of flavored (non-cola) CSDs and NCBs, including ready-to-drink teas, juices, juice drinks, water and mixers. Our brand portfolio includes popularCSD brands such as Dr Pepper, Canada Dry, Peñafiel, Squirt, 7UP, Crush, A&W, Sunkist soda and Schweppes, and NCB brands such as Snapple, HawaiianPunch, Mott's, Clamato, Bai, Mr & Mrs T mixers and Rose's. Our largest brand, Dr Pepper, is a leading flavored CSD in the U.S. according to IRi. We havesome of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotionalconnections with consumers. We operate as an integrated brand owner, manufacturer and distributor through our three segments. We believe our integrated business modelstrengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brandownership and our manufacturing and distribution businesses through both our DSD system and our WD delivery system. Our integrated business modelenables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reducecosts by creating greater geographic manufacturing and distribution coverage.We operate primarily in the U.S., Mexico and Canada and we also distribute our products in the Caribbean. In 2017, 90% of our net sales weregenerated in the U.S., 7% in Mexico and the Caribbean and 3% in Canada.UNCERTAINTIES AND TRENDS AFFECTING OUR BUSINESSWe believe the North American LRB market is influenced by certain key trends and uncertainties. Some of these items, such as increased healthconsciousness and changes in consumer preferences and economic factors, have created category headwinds for a number of our products during recentyears. The key trends and uncertainties that could affect our business include:•Changes in consumer preferences. We are impacted by shifting consumer demographics and needs. We believe marketing and productinnovations that target fast growing population segments, such as the Hispanic community in the U.S., could drive market growth. Additionally, asmore consumers are faced with a busy and on-the-go lifestyle, sales of single-serve beverages could increase, which typically have higher margins.•Allied brand relationships. Allied brands could terminate their distribution agreements, primarily as a result of ownership changes of these brandcompanies.•Volatility in the costs of raw materials. The costs of a substantial portion of the raw materials used in the beverage industry are dependent oncommodity prices for resin, aluminum, diesel fuel, corn, apple juice concentrate, sucrose, natural gas and other commodities. We are alsodependent on commodity prices for apples related to our applesauce production. Commodity price volatility has, from time to time, exerted pressureon industry margins and operating results.•Increased government regulation. Government agencies, as a result of concerns about the public health consequences and health care costsassociated with obesity, have been proposing and, in some cases, enacting new taxes or regulations on sugar-sweetened and diet beverages. Anychanges of regulations or imposed taxes could reduce demand and/or cause us to raise our prices.28Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents•Increased health consciousness. Consumers are increasingly becoming more concerned about health and wellness, focusing on caloric intake andsugar content in both regular CSDs and juices, the use of artificial sweeteners in diet CSDs and the use of natural, organic or simple ingredients inLRB products. We believe the main beneficiaries of this trend include bottled waters, naturally sweetened, low calorie drinks, all natural and organicbeverages and ready-to-drink teas. Our completion of the Bai Brands Merger on January 31, 2017 will allow us to continue distribution and captureadditional growth as a result of this key trend.•Increased competition in the LRB market. A number of our competitors are large corporations with significant financial resources. These competitorscan use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products,reducing prices or increasing promotional activities, which could reduce the demand for our products.•Fluctuations in foreign exchange rates. We are exposed to foreign currency exchange rate variability in the expected future cash flows associatedwith certain third-party and intercompany transactions denominated in currencies other than our Mexican and Canadian entities' functionalcurrencies. We use derivative instruments such as foreign exchange forward contracts to mitigate a portion of our exposure in these expected futurecash flows to changes in foreign exchange rates. Significant changes in these exchange rates will impact our results of operations.•Product and packaging innovation. We believe brand owners and bottling companies will continue to create new products and packages, such asbeverages with new ingredients and new premium flavors and innovative convenient packaging, that address changes in consumer tastes andpreferences.•Changing retailer landscape. As retailers continue to consolidate, we believe retailers will support consumer product companies that can provide anattractive portfolio of products, a strong value proposition and efficient delivery.Refer to Item 1A, "Risk Factors" of this Annual Report on Form 10-K for additional information about risks and uncertainties facing our Company.SEASONALITYThe beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months and also can beinfluenced by the timing of holidays as well as weather fluctuations.SEGMENTSAs of December 31, 2017, we report our business in four 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. andCanada. Most of the brands in this segment are carbonated soft drink brands.•The Packaged Beverages Excluding Bai segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beveragesand other products, including sales of the Company's own brands and third party brands, through both DSD and WD.•The Bai segment reflects sales of Bai Brands finished goods to third party distributors, primarily in the U.S., as net sales to the Packaged BeveragesExcluding Bai segment are eliminated in consolidation. Refer to Note 3 of the Notes to our Audited Consolidated Financial Statements for furtherinformation regarding the impact of Bai Brands Merger on the Company's net sales presented in the Consolidated Statements of Income.•The Latin America Beverages segment reflects sales in the Mexico, Caribbean, and other international markets from the manufacture anddistribution of concentrates, syrup and finished beverages.The Company has determined that Packaged Beverages Excluding Bai and Bai, which have been identified as operating segments, meet theaggregation criteria under U.S. GAAP. As such, these segments have been aggregated into one reportable segment, Packaged Beverages, based onsimilarities among the operating units including economic characteristics, the nature of the products and services, the nature of the production processes, thetypes or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatoryenvironment.29Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsVOLUMEIn evaluating our performance, we consider different volume measures depending on whether we sell beverage concentrates or finished beverages.Beverage Concentrates Sales VolumeIn our Beverage Concentrates segment, we measure our sales volume in two ways: (1) "concentrate case sales" and (2) "bottler case sales." The unit ofmeasurement for both concentrate case sales and bottler case sales equals 288 fluid ounces of finished beverage, the equivalent of 24 twelve ounceservings.Concentrate case sales represent units of measurement for concentrates sold by us to our bottlers and distributors. A concentrate case is the amount ofconcentrate needed to make one case of 288 fluid ounces of finished beverage. It does not include any other component of the finished beverage other thanconcentrate. Our net sales in our concentrate businesses are based on our sales of concentrate cases.Although net sales in our concentrate businesses are based on concentrate case sales, we believe that bottler case sales are also a significant measureof our performance because they measure sales of packaged beverages into retail channels.Packaged Beverages and Latin America Beverages Sales VolumeIn our Packaged Beverages and Latin America Beverages segments, we measure volume as case sales to customers. A case sale represents a unit ofmeasurement equal to 288 fluid ounces of packaged beverage sold by us. Case sales include both our owned brands and certain brands licensed to and/ordistributed by us.Volume in Bottler Case SalesIn addition to sales volume, we measure volume in bottler case sales ("volume (BCS)") as sales of packaged beverages, in equivalent 288 fluid ouncecases, sold by us and our bottling partners to retailers and independent distributors. Our contract manufacturing sales are not included or reported as part ofvolume (BCS).Bottler case sales and concentrates and packaged beverage sales volumes are not equal during any given period due to changes in bottlerconcentrates inventory levels, which can be affected by seasonality, bottler inventory and manufacturing practices and the timing of price increases and newproduct introductions.30Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsRESULTS OF OPERATIONSExecutive Summary - 2017 Financial Overview and Recent Developments •Net income increased $229 million, driven primarily by the income tax benefits related to the impact of the recent federal tax law change and theadoption of the new accounting standard for stock-based compensation, partially offset by the impact of the Bai Brands Merger, losses on earlyextinguishment of debt completed during the second and third quarter of 2017, and the unfavorable comparison to the gain on the extinguishment ofa multi-employer pension plan withdrawal liability recorded in the prior year.•On December 22, 2017, the federal government enacted the legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). Under theTCJA, our U.S. federal statutory tax rate will be reduced from 35% to 21%, beginning in 2018, with some related business deductions and creditseither reduced or eliminated. As a result, we have recognized an income tax benefit of $297 million, primarily driven by the revaluation of ourdeferred tax liabilities, which increased diluted earnings per share by $1.62 for the year ended December 31, 2017. Beginning in 2018, we believeour effective tax rate will be approximately 26%-27%.•On January 31, 2017, we completed the Bai Brands Merger. For the year ended December 31, 2017, the primary impacts of the Bai Brands Mergerdecreased diluted earnings per share in total by $0.26.The drivers of this change include:◦The interest expense associated with the financing to complete the Bai Brands Merger, which decreased diluted earnings per share by$0.18 for the year ended December 31, 2017;◦The operations of Bai Brands, which decreased diluted earnings per share by $0.17 for the year ended December 31, 2017;◦The associated transaction and integration expenses, which decreased diluted earnings per share by $0.08 for the year ended December31, 2017;◦The gain on the step-acquisition of Bai Brands, which increased diluted earnings per share by $0.10 for the year ended December 31,2017; and31Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents◦The $21 million benefit as a result of the renegotiation of a manufacturing contract acquired during the Bai Brands Merger, which increaseddiluted earnings per share by $0.07 for the year ended December 31, 2017.The impact of the operations of Bai Brands includes:◦The incremental profit margin benefit we experienced in the year ended December 31, 2017 as the brand owner for Bai Brands;◦The acquired Bai Brands operations, which includes the shipments to third parties since the Bai Brands Merger, partially offset by the $9million initial profit in stock adjustment recorded during the first quarter of 2017 related to Bai Brands inventories; and◦The associated purchase accounting adjustments (refer to Note 3 of the Notes to our Audited Consolidated Financial Statements for furtherinformation).•During the years ended December 31, 2017, 2016, and 2015, we repurchased 4.4 million, 5.7 million, and 6.5 million shares of our common stock,respectively, valued at approximately $399 million in 2017, $519 million in 2016, and $521 million in 2015.•On January 5, 2018, the Company acquired a 5.4% equity interest in Core Organics LLC ("Core") for $18 million.•On January 29, 2018, DPS and Keurig announced that the companies have entered into the Merger Agreement to create Keurig Dr Pepper, a newbeverage company of scale with a portfolio of iconic consumer brands and expanded distribution capability to reach virtually every point-of-sale inNorth America. Under the terms of the Merger Agreement, which has been unanimously approved by our Board, DPS shareholders will receive$103.75 per share in a special cash dividend and retain their shares in DPS.•During the first quarter of 2018, our Board declared a dividend of $0.58 per share, which will be paid on April 12, 2018, to shareholders of record asof March 21, 2018.References in the financial tables to percentage changes that are not meaningful are denoted by "NM."Year Ended December 31, 2017 Compared to Year Ended December 31, 2016Consolidated OperationsThe following table sets forth our consolidated results of operations for the years ended December 31, 2017 and 2016: For the Year Ended December 31, 2017 2016 Dollar Percentage(dollars in millions, except per share data)Dollars Percent Dollars Percent Change ChangeNet sales$6,690 100.0 % $6,440 100.0 % $250 4 %Cost of sales2,695 40.3 2,582 40.1 113 4Gross profit3,995 59.7 3,858 59.9 137 4Selling, general and administrative expenses2,556 38.2 2,329 36.2 227 10Other operating (income) expense, net(51) (0.8) (3) — (48) NMIncome from operations1,388 20.7 1,433 22.3 (45) (3)Interest expense164 2.5 147 2.3 17 12Loss on early extinguishment of debt62 0.9 31 0.5 31 NMOther income, net(8) (0.1) (25) (0.4) 17 NMProvision for income taxes95 1.4 434 6.7 (339) (78)Net income1,076 16.1 % 847 13.2 % 229 27 %Effective tax rate8.1% NM 33.8% NM NM NMVolume (BCS). Volume (BCS) increased 1% for the year ended December 31, 2017 compared with the year ended December 31, 2016. In the U.S. andCanada, volume was 1% higher, and in Mexico and the Caribbean, volume increased 3% compared with the prior year. Branded CSD volume was 1%higher, while NCB volume increased 4% over the prior year.32Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsIn branded CSDs, Canada Dry increased 5% due to continued growth in the ginger ale category. Peñafiel increased 5% due to distribution gains,increased promotional activity and product innovation, partially offset by increased competition, in our Latin America Beverages segment, and Squirtincreased 3%. Schweppes also grew by 3% due to continued growth in the ginger ale category. These increases were partially offset by a 2% decline in 7UPand a 2% decrease in A&W. Our other CSD brands were also 2% lower, led by Rockstar as a result of the loss of distribution rights beginning in April 2017.Dr Pepper was flat compared to the year ago period as increases in our fountain business were fully offset by declines in TEN and diet.In branded NCBs, Bai increased 99% driven by the acquired Bai Brands shipments to third parties since the Bai Brands Merger and continued growth inour existing distribution as a result of distribution gains and product innovation. Our growth allied brands gained 40% due primarily to distribution gains forBODYARMOR, Core and Fiji, and product innovation for BODYARMOR. Clamato increased 3% compared with the year ago period. Mott's grew 1% asgrowth in our sauce products were partially offset by declines in juice. These increases were partially offset by a 3% decline in Snapple due to competitiveheadwinds, the de-emphasis on our value products, and lower promotional activity, partially offset by the launch of our new PET packaging for our 16 oz.bottles and the Takes 2 to Mango flavor innovation. Our other NCB brands were 4% lower compared to the prior period, led by Hawaiian Punch and AriZona.Net Sales. Net sales increased $250 million, or approximately 4%, for the year ended December 31, 2017, compared with the year ended December 31,2016. The primary drivers of the increase in net sales included:•Increase in shipments, excluding the loss of the Rockstar distribution rights, which grew net sales by 2.0%;•Favorable product and package mix, which increased net sales by 1.5%;•$64 million of acquired Bai Brands shipments to third parties since the Bai Brands Merger, which raised net sales by 1.0%;•Higher pricing and lower discounts as a result of a favorable comparison of the annual true-up of our estimated customer incentive liability, whichincreased net sales by 0.5%;•Unfavorable segment mix, which reduced our net sales by 0.5%; and•The loss of the Rockstar distribution rights, which lowered net sales by 0.5%.Gross Profit. Gross profit increased $137 million, or approximately 4%, for the year ended December 31, 2017 compared with the year ended December31, 2016. Gross margin was 59.7% for the year ended December 31, 2017 compared to the gross margin of 59.9% for the year ended December 31, 2016.The following drivers impacted the gross margin:•Unfavorable product and package mix, which reduced our gross margin by 0.5%;•Increase in our other manufacturing costs, which includes the impact of a $6 million default by a supplier of resin to our operations in Mexico, reducedour gross margin by 0.4%.•The unfavorable change in our last-in, first-out ("LIFO") inventory provision, driven primarily by apples, combined with higher commodity costs, led bypackaging, reduced our gross margin by 0.4%;•Unfavorable foreign currency effects, which decreased our gross margin by 0.1%; and•Increase in our gross margin of 0.7% related to the incremental profit margin benefit we experienced as a result of becoming the brand owner for BaiBrands and the acquired Bai Brands shipments to third parties since the Bai Brands Merger, partially offset by the $9 million initial profit in stockadjustment as a result of the Bai Brands Merger recorded during the first quarter of 2017;•Favorable segment mix, which raised our gross margin by 0.2%;•Higher pricing and lower discounts as a primary result of a favorable comparison of the annual true-up of our estimated customer incentive liability,which raised our gross margin by 0.2%; and•Ongoing productivity improvements, which increased our gross margin by 0.2%.Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses increased $227 million for the year endedDecember 31, 2017 compared with the prior year. The primary driver of the increase in SG&A expenses was the impact of the Bai Brands Merger, whichincludes $114 million of acquired operating costs, primarily $59 million of marketing investments as well as people costs, and $20 million in transactionexpenses. Other drivers of the increase include higher people costs, driven by inflationary increases and additional frontline labor investment, a $31 millionunfavorable comparison in the mark-to-market activity on commodity derivative contracts, and an $11 million increase in planned organic marketinginvestments. These increases were partially offset by lower incentive compensation.33Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsThe unfavorable mark-to-market comparison on commodity derivative contracts within SG&A expenses, which is included in unallocated corporate costs,was driven by no unrealized gains or losses for the year ended December 31, 2017, versus $31 million in unrealized gains in the year ago period.Other Operating (Income) Expense, Net. Other operating (income) expense, net had a favorable change of $48 million due primarily to the $28 milliongain on the step-acquisition of Bai Brands and the $21 million benefit as a result of the renegotiation of a manufacturing contract acquired during the BaiBrands Merger. Refer to Note 3 of the Notes to our Audited Consolidated Financial Statements for further information.Income from Operations. Income from operations decreased $45 million to $1,388 million for the year ended December 31, 2017, due primarily to theincrease in SG&A expenses, partially offset by the increase in gross profit and the favorable change in other operating (income) expense, net.Interest Expense. Interest expense increased $17 million for the year ended December 31, 2017 compared with the year ended December 31, 2016, dueprimarily to the higher average debt balance associated with the senior unsecured notes issued late in the fourth quarter of 2016 to fund the Bai BrandsMerger, partially offset by interest savings associated with the tender offer for the 6.82% senior notes due May 1, 2018 ("2018 Notes") and the 7.45% seniornotes due May 1, 2038 (the "2038 Notes") during the second quarter of 2017 and the redemption of the remaining 2018 Notes during the third quarter of2017. These transactions were effectively refinanced by the issuance of other senior unsecured notes at a lower interest rate.Loss on Early Extinguishment of Debt. In June 2017, we completed a tender offer on a portion of our 2038 Notes and 2018 Notes and retired, at apremium, an aggregate principal amount of $125 million of the 2038 Notes and $63 million of the 2018 Notes. The loss on early extinguishment of the 2038and 2018 Notes was $49 million, which was comprised of $62 million for the tender offer consideration, the early tender premium and write off of deferredfinancing costs, partially offset by a $13 million gain on the termination of an interest rate swap related to the 2038 Notes.In July 2017, we recognized a $13 million loss on early extinguishment of debt as we completed a redemption of our remaining 2018 Notes and retired,at a premium, an aggregate principal amount of $301 million of the 2018 Notes. The $13 million loss on early extinguishment of debt was comprised of themake-whole premium and write off of deferred financing costs.In October 2016, we redeemed a portion of the 2018 Notes and retired, at a premium, an aggregate principal amount of approximately $360 million withthe proceeds from the issuance of our 2.55% senior notes due on September 15, 2026 (the "2026 Notes"). The loss on early extinguishment of the 2018Notes, which primarily represented the redemption premium, was approximately $31 million.Other Income, Net. Other income, net decreased $17 million for the year ended December 31, 2017 compared with the year ended December 31, 2016as a result of the unfavorable comparison to a $21 million gain on the extinguishment of a multi-employer pension plan withdrawal liability recorded in theprior year.Effective Tax Rate. The effective tax rates for the year ended December 31, 2017 and 2016 were 8.1% and 33.8%, respectively. For the year endedDecember 31, 2017, the provision for income taxes included an income tax benefit of $297 million driven by the impact of the recent U.S. federal tax lawchange and an income tax benefit of $19 million due to the adoption of the new accounting standard for stock-based compensation. Refer to Note 5 andNote 2 of the Notes to our Audited Consolidated Financial Statements for further information on the impact of the recent federal tax law change and adoptionof the new accounting standard. For the year ended December 31, 2016, the provision for income taxes included an income tax benefit of $17 million drivenprimarily by a restructuring of the ownership of our Canadian business.34Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsResults of Operations by SegmentThe following tables set forth net sales and SOP for our segments for the years ended December 31, 2017 and 2016, as well as the other amountsnecessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP: For the Year Ended December 31, (in millions)2017 2016Segment Results — Net sales Beverage Concentrates$1,332 $1,284Packaged Beverages4,871 4,696Latin America Beverages487 460Net sales$6,690 $6,440 For the Year Ended December 31,(in millions)2017 2016Segment Results — SOP Beverage Concentrates$865 $834Packaged Beverages691 771Latin America Beverages62 78Total SOP1,618 1,683Unallocated corporate costs281 253Other operating (income) expense, net(51) (3)Income from operations1,388 1,433Interest expense, net161 144Loss on early extinguishment of debt62 31Other income, net(8) (25)Income before provision for income taxes and equity in (loss) earnings of unconsolidated subsidiaries$1,173 $1,283BEVERAGE CONCENTRATESThe following table details our Beverage Concentrates segment's net sales and SOP for the years ended December 31, 2017 and 2016: For the Year Ended December 31, Dollar Percentage(in millions)2017 2016 Change ChangeNet sales$1,332 $1,284 $48 4%SOP865 834 31 4Net Sales. Net sales increased $48 million for the year ended December 31, 2017, compared with the year ended December 31, 2016. The increasewas due to higher pricing, a 2% increase in concentrate case sales and lower discounts primarily as a result of a favorable comparison of the annual true-upof our estimated customer incentive liability.SOP. SOP increased $31 million for the year ended December 31, 2017, compared with the year ended December 31, 2016, primarily driven by anincrease in net sales which was partially offset by higher SG&A expenses. The increase in SG&A expenses was primarily the result of a $13 million increasein marketing investments and higher people costs, partially offset by lower incentive compensation.35Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsVolume (BCS). Volume (BCS) increased 1% for the year ended December 31, 2017, compared with the year ended December 31, 2016. Canada Dryand Schweppes had gains of 4% and 2%, respectively, due to continued growth in the ginger ale category for both brands and the sparkling water categoryfor Canada Dry. These increases were partially offset by decreases in A&W and 7UP, which declined 2% and 1%, respectively, compared to the prior year.Our other brands declined 1% in total, primarily as a result of discontinuing the distribution of Country Time in 2016. Dr Pepper was flat compared to the prioryear driven by increases in our fountain business fully offset by declines in TEN and diet.PACKAGED BEVERAGESThe following table details our Packaged Beverages segment's net sales and SOP for the years ended December 31, 2017 and 2016: For the Year Ended December 31, Dollar Percentage(in millions)2017 2016 Change ChangeNet sales$4,871 $4,696 $175 4 %SOP691 771 (80) (10)Volume. Branded CSD volumes were flat for the year ended December 31, 2017 compared with the year ended December 31, 2016. Canada Dryincreased 5% due to continued growth in the ginger ale category. This increase was fully offset by a 2% decrease in 7UP, a 2% decline in A&W and a 2%decline in other CSD brands. Dr Pepper was flat as growth in regular was fully offset by declines in TEN and diet.Branded NCB volumes increased 4% for the year ended December 31, 2017 compared with the year ended December 31, 2016. Bai increased 99%driven by the acquired Bai Brands shipments to third parties since the Bai Brands Merger and continued growth in our existing distribution as a result ofdistribution gains and product innovation. Our growth allied brands gained 40% due primarily to distribution gains for BODYARMOR, Core and Fiji, andproduct innovation for BODYARMOR. Mott's increased 1% compared to the prior year as growth in our sauce products was partially offset by declines in juice.Clamato increased 3%. These increases were partially offset as Snapple declined 3% due to competitive headwinds, the de-emphasis on our value products,and lower promotional activity partially offset by the launch of our new PET packaging for our 16 oz. bottles and the Takes 2 to Mango flavor innovation. OtherNCB brands were 5% lower, led by Rockstar, AriZona and Hawaiian Punch. The decline in Rockstar is due to the loss of distribution rights beginning in April2017.Contract manufacturing increased 1% for the year ended December 31, 2017 compared with the year ended December 31, 2016.Net Sales. Net sales increased $175 million for the year ended December 31, 2017 compared with the year ended December 31, 2016. Net salesincreased due to favorable product and package mix, as a result of our NCBs, including our allied brands, $64 million in acquired Bai Brands shipments tothird parties since the Bai Brands Merger, and higher organic sales volumes. These increases were partially offset by the loss of the Rockstar distribution.SOP. SOP decreased $80 million for the year ended December 31, 2017, compared with the year ended December 31, 2016, as increases in SG&Aexpenses and cost of sales more than offset the increase in net sales.Cost of sales increased as a primary result of higher costs associated with product and package mix, as a result of our NCBs, including our allied brands,and an increase in costs associated with the acquired Bai Brands shipments to third parties since the Bai Brands Merger and the initial $9 million profit instock adjustment as a result of the Bai Brands Merger. Cost of sales was additionally impacted by the increase in other manufacturing costs and theunfavorable change in our LIFO inventory provision. These increases were partially offset by the incremental profit margin benefit we experienced as a resultof becoming the brand owner for Bai Brands and ongoing productivity improvements.SG&A expenses increased driven primarily by the Bai Brands Merger, which includes the acquired operating costs, primarily marketing and peoplecosts, as well as transaction and integration expenses. SG&A expenses further increased due to higher people costs, driven by inflationary increases andadditional frontline labor investment.36Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLATIN AMERICA BEVERAGESThe following table details our Latin America Beverages segment's net sales and SOP for the years ended December 31, 2017 and 2016: For the Year Ended December 31, Dollar Percentage(in millions)2017 2016 Change ChangeNet sales$487 $460 $27 6 %SOP62 78 (16) (21)Volume. Sales volume increased 3% for the year ended December 31, 2017 as compared with the year ended December 31, 2016. The increase insales volume was primarily driven by a 5% increase in Peñafiel as a result of distribution gains, increased promotional activity and product innovation,partially offset by increased competition. Squirt had a 2% gain due to increased sales to third party bottlers and product innovation. Clamato increased 2%due to product innovation, distribution gains and increased promotional activity. Our other brands increased approximately 3%, driven by Crush.Net Sales. Net sales increased $27 million for the year ended December 31, 2017 compared with the year ended December 31, 2016. Net salesincreased as a result of increased sales volume and higher pricing, partially offset by unfavorable package and product mix, unfavorable foreign currencytranslation of $3 million and higher discounts.SOP. SOP decreased $16 million for the year ended December 31, 2017 compared with the year ended December 31, 2016, driven by increases in costof sales and SG&A expenses, partially offset by an increase in net sales.Cost of sales increased compared to the prior year as a result of higher commodity costs, led by packaging, increased costs associated with gains insales volume, unfavorable foreign currency effects and the $6 million default by a supplier of resin to our operations in Mexico during the third quarter of2017. These increases were partially offset by favorable package and product mix.SG&A expenses increased compared to the prior year as a result of higher people costs, increased logistic costs driven by higher rates and gains insales volumes, and increases in other operating costs. These drivers were partially offset by the favorable comparison to the $4 million arbitration awardrelated to our former Mexican joint venture in the prior year and favorable foreign currency effects.The impact of the net unfavorable foreign currency effects on costs of sales and SG&A expenses, totaled $8 million.Non-GAAP Financial InformationWe report our financial results in accordance with U.S. GAAP. However, we believe that certain non-GAAP measures that reflect the way managementevaluates the business may provide investors with additional information regarding our results, trends and ongoing performance on a comparable basis.Core results is defined as reported results adjusted for the unrealized mark-to-market impact of commodity derivatives and interest rate derivatives notdesignated as hedges in accordance with U.S. GAAP and certain items that are excluded for comparison to prior year periods. Management believes thatcore results provide a comparable basis to evaluate our results period over period, which is also used as the basis for incentive compensation for ouremployees.The certain items excluded for the year ended December 31, 2017, are (i) the impact of transaction and integration expenses associated with the BaiBrands Merger and (ii) restructuring charges associated with a limited workforce reduction, which will primarily be paid during 2018. For the Year Ended December 31, 2017 Reported Mark to Market Workforce ReductionCosts Transition and IntegrationExpenses CoreIncome from operations$1,388 $(23) $3 $23 $1,39137Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsYear Ended December 31, 2016 Compared to Year Ended December 31, 2015Consolidated OperationsThe following table sets forth our consolidated results of operations for the years ended December 31, 2016 and 2015: For the Year Ended December 31, 2016 2015 Dollar Percentage(dollars in millions, except per share data)Dollars Percent Dollars Percent Change ChangeNet sales$6,440 100.0 % $6,282 100.0 % $158 3 %Cost of sales2,582 40.1 2,559 40.7 23 1Gross profit3,858 59.9 3,723 59.3 135 4Selling, general and administrative expenses2,329 36.2 2,313 36.8 16 1Other operating (income) expense, net(3) — 7 0.1 (10) (143)Income from operations1,433 22.3 1,298 20.7 135 10Interest expense147 2.3 117 1.9 30 26Loss on early extinguishment of debt31 0.8 — — 31 NMOther income, net(25) (0.4) (1) — (24) NMIncome before provision for income taxes and equity in(loss) earnings of unconsolidated subsidiaries1,283 19.9 1,184 18.8 99 NMProvision for income taxes434 6.7 420 6.7 14 3Net income847 13.2 764 12.2 83 11 %Effective tax rate33.8% NM 35.5% NM NM NMVolume (BCS). Volume (BCS) increased 1% for the year ended December 31, 2016 compared with the year ended December 31, 2015. In the U.S. andCanada, volume was 1% higher, and in Mexico and the Caribbean, volume increased 5%, compared with the prior year. Both Branded CSD and NCBvolume increased 1% compared to the prior year.In branded CSDs, Squirt increased 6% primarily driven by increased sales to third-party bottlers and product innovation in our Latin America Beveragessegment and our Hispanic strategy in the U.S. Schweppes grew 8% reflecting distribution gains in our sparkling water and growth in the ginger ale category.Dr Pepper had gains of 1% driven primarily by increases in our fountain business. Regular Dr Pepper increased compared to the prior year, which waspartially offset by declines in diet. Peñafiel increased 3% in our Latin America Beverages segment as a result of distribution gains, increased promotionalactivity and product innovation, partially offset by increased competition. Crush grew 3% in the current year. These gains were partially offset by a 2% declinein our other CSD brands compared to the prior year. Canada Dry, 7UP, A&W and Sunkist soda (our "Core 4 brands") were flat compared to the prior year,driven by an 6% increase in Canada Dry fully offset by a 5% decline in 7UP, a 2% decrease in A&W and a 1% decline in Sunkist soda.In branded NCBs, our water category increased 18% primarily due to incremental promotional activity behind Bai primarily in our club channel,distribution gains for Bai, Fiji and Core Hydration, and an increase in Aguafiel due to category growth in Mexico. Clamato increased 10% primarily due toincreased promotional activity, distribution gains, and product innovation in our Latin America Beverages segment and increased promotional activity in theU.S.. These increases were partially offset by declines in Hawaiian Punch, Mott's and our other NCB brands in total. Hawaiian Punch declined 6% due tocategory headwinds and higher pricing for our single-serve packages while Mott's decreased 3% due to declines in the juice category and higher pricing forour single-serve packages, partially offset by gains in our sauce products. Our other NCB brands in total declined 8%. Snapple was flat compared to prioryear.Net Sales. Net sales increased $158 million, or approximately 3%, for the year ended December 31, 2016, compared with the year ended December 31,2015. The primary drivers of the increase in net sales included:•favorable product and package mix, which increased net sales by about 2.5%;•increase in shipments, which increased net sales by 1.0%;•higher pricing, which increased net sales by 1.0%;•unfavorable foreign currency translation of $79 million, which decreased net sales by 1.0%; and•unfavorable segment mix, which decreased net sales by 0.5%.38Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsGross Profit. Gross profit increased $135 million, or approximately 4%, for the year ended December 31, 2016 compared with the year ended December31, 2015. Gross margin was 59.9% for the year ended December 31, 2016 compared to the gross margin of 59.3% for the year ended December 31, 2015.The following drivers impacted the gross margin:•favorable comparison in our mark-to-market activity on commodity derivative contracts, which increased our gross margin by 0.5%.•lower commodity costs, led by packaging, and the change in our LIFO inventory provision, which increased our gross margin by 0.5%;•increase in our net pricing, which increased our gross margin by 0.4%;•ongoing productivity improvements, which increased our gross margin by 0.4%;•unfavorable product, package and segment mix, which decreased our gross margin by 0.7%;•unfavorable foreign currency effects, which decreased our gross margin by 0.3%; and•increase in our other manufacturing costs, which decreased our gross margin by 0.2%.The favorable mark-to-market activity on commodity derivative contracts for the year ended December 31, 2016 was $21 million in unrealized gainsversus $13 million in unrealized losses in the prior year.SG&A Expenses. SG&A expenses increased $16 million for the year ended December 31, 2016 compared with the prior year. The increase wasprimarily driven by higher people costs, a $4 million arbitration award related to our Mexican joint venture, increased professional fees, a non-recurringcharge of $4 million related to the transition of a certain employee benefit program and increases in other miscellaneous expenses. These increases werepartially offset by lower logistics costs, driven by fuel rates, the impact of favorable foreign currency effects, which decreased SG&A expenses by $27 million,and a $23 million favorable comparison in the mark-to-market activity on commodity derivative contracts. For the year ended December 31, 2016, werecognized $31 million in unrealized gains related to the mark-to-market activity on commodity derivative contracts versus $8 million in unrealized gains inthe year ago period.Other Operating (Income) Expense, Net. Other operating (income) expense, net had a favorable change of $10 million due primarily to the favorablecomparison related to the brand value impairment of Garden Cocktail recognized in the prior year and a $7 million gain on the step-acquisition of IndustriaEmbotelladora de Bebidas Mexicanas ("IEBM") and Embotelladora Mexicana de Agua, S.A. de C.V. ("EMA").Income from Operations. Income from operations increased $135 million to $1,433 million for the year ended December 31, 2016, due primarily to theincrease in gross profit, the favorable change in other operating (income) expense, net and the decrease in depreciation and amortization, driven by certainfully depreciated fixed assets. These drivers were partially offset by the increase in SG&A expenses.Interest Expense. Interest expense increased $30 million for the year ended December 31, 2016 compared with the year ended December 31, 2015,primarily driven by:•$12 million of mark-to-market activity recorded during the fourth quarter of 2016 for four derivative instruments, as the hedging relationships betweenthe four outstanding interest rate swaps and our 2.70% senior notes due November 15, 2022 were de-designated on October 1, 2016;•$5 million of amortization of deferred financing costs associated with the 364-day bridge loan facility (the "Bridge Facility");•higher average debt balance and higher average interest rates attributable to the issuance of our 3.40% senior notes due November 15, 2025 (the"2025 Notes") and 4.50% senior notes due November 15, 2045 (the "2045 Notes") during the fourth quarter of 2015; and•the issuance of the senior unsecured notes during the fourth quarter of 2016 for the Bai Brands Merger.Loss on Early Extinguishment of Debt. In October 2016, we redeemed a portion of the 2018 Notes and retired, at a premium, an aggregate principalamount of approximately $360 million with the proceeds from the issuance of our 2.55% senior notes due on September 15, 2026 (the "2026 Notes"). Theloss on early extinguishment of the 2018 Notes, which primarily represented the redemption premium, was approximately $31 million. There was no loss onearly extinguishment of debt in 2015.Other Income, Net. Other income, net increased $24 million for the year ended December 31, 2016 compared with the year ended December 31, 2015driven primarily by a $21 million gain on the extinguishment of a multi-employer pension plan withdrawal liability.39Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsEffective Tax Rate. The effective tax rates for the year ended December 31, 2016 and 2015 were 33.8% and 35.5%, respectively. For the year endedDecember 31, 2016, the provision for income taxes included an income tax benefit of $17 million driven primarily by a restructuring of the ownership of ourCanadian business. The income tax benefit includes a valuation allowance release of $11 million.Results of Operations by SegmentThe following tables set forth net sales and SOP for our segments for the years ended December 31, 2016 and 2015, as well as the other amountsnecessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP: For the Year Ended December 31,(in millions)2016 2015Segment Results — Net sales Beverage Concentrates$1,284 $1,241Packaged Beverages4,696 4,544Latin America Beverages460 497Net sales$6,440 $6,282 For the Year Ended December 31,(in millions)2016 2015Segment Results — SOP Beverage Concentrates$834 $807Packaged Beverages771 709Latin America Beverages78 88Total SOP1,683 1,604Unallocated corporate costs253 299Other operating (income) expense, net(3) 7Income from operations1,433 1,298Interest expense, net144 115Loss on early extinguishment of debt31 —Other income, net(25) (1)Income before provision for income taxes and equity in (loss) earnings of unconsolidated subsidiaries$1,283 $1,184BEVERAGE CONCENTRATESThe following table details our Beverage Concentrates segment's net sales and SOP for the years ended December 31, 2016 and 2015: For the Year Ended December 31, Dollar Percentage(in millions)2016 2015 Change ChangeNet sales$1,284 $1,241 $43 3%SOP834 807 27 3Net Sales. Net sales increased $43 million for the year ended December 31, 2016, compared with the year ended December 31, 2015. The increasewas due to higher pricing, a 1% increase in concentrate case sales, favorable product mix and lower discounts. These drivers were partially offset by $3million of unfavorable foreign currency translation. The lower discounts were a result of a favorable comparison of the annual true-up of our estimatedcustomer incentive liability partially offset by higher discounts driven by our fountain business.40Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSOP. SOP increased $27 million for the year ended December 31, 2016, compared with the year ended December 31, 2015, driven primarily by anincrease in net sales partially offset by higher SG&A expenses. The increase in SG&A expenses was the result of a $6 million increase in planned marketinginvestments, higher people costs and increases in other operating costs.Volume (BCS). Volume (BCS) increased 1% for the year ended December 31, 2016, compared with the year ended December 31, 2015. Schweppeshad gains of 8% driven by distribution gains in our sparkling water and growth in the ginger ale category. Dr Pepper increased 1%, driven primarily by ourfountain business. Regular Dr Pepper increased compared to the prior year, which was partially offset by declines in diet. Our Core 4 brands grew 1%compared to the prior year as a result of a 6% increase in Canada Dry, partially offset by a 6% decrease in 7UP, a 3% decline in Sunkist soda and a 2%decrease in A&W. Crush increased 3% for the current year. These increases were partially offset by a 7% decline in our other brands.PACKAGED BEVERAGESThe following table details our Packaged Beverages segment's net sales and SOP for the years ended December 31, 2016 and 2015: For the Year Ended December 31, Dollar Percentage(in millions)2016 2015 Change ChangeNet sales$4,696 $4,544 $152 3%SOP771 709 62 9Volume. Sales volume was flat for the year ended December 31, 2016 as compared with the year ended December 31, 2015 as increases in ourbranded NCB volumes were fully offset by declines in our branded CSD volumes and contract manufacturing.Branded CSD volumes decreased 1% for the year ended December 31, 2016 compared with the year ended December 31, 2015. Volume for our Core 4brands decreased 1%, led by a 4% decrease in 7UP, a 3% decrease in A&W and a 1% decline in Sunkist soda, partially offset by a 6% increase in CanadaDry. Our other CSD brands decreased 6%. The decreases were partially offset by a 5% gain in Squirt. Dr Pepper was flat compared to the prior year asincreases in regular were fully offset by declines in diet.Branded NCB volumes increased 2% for the year ended December 31, 2016 compared with the year ended December 31, 2015. Our water categoryincreased 23% primarily due to distribution gains for Bai, Fiji and Core Hydration, and incremental promotional activity behind Bai primarily in our clubchannel. Clamato and Snapple increased 5% and 1%, respectively. Our other NCB brands increased 3%, led by Body Armor and Venom. These increaseswere partially offset by a 5% decline in Hawaiian Punch due to category headwinds and higher pricing for our single-serve packages and a 3% decrease inMott's due to declines in the juice category and higher pricing for our single-serve packages, partially offset by gains in our sauce products.Contract manufacturing decreased 3% for the year ended December 31, 2016 compared with the year ended December 31, 2015.Net Sales. Net sales increased $152 million for the year ended December 31, 2016 compared with the year ended December 31, 2015. Net salesincreased due to favorable product and package mix, as a result of our NCBs, including our allied brands, and higher pricing.SOP. SOP increased $62 million for the year ended December 31, 2016, compared with the year ended December 31, 2015, as a result of an increase innet sales partially offset by increases in cost of sales and SG&A expenses. Cost of sales increased due to higher costs associated with product mix, as aresult of our NCBs, including our allied brands, partially offset by lower commodity costs, led by packaging, and ongoing productivity improvements. SG&Aexpenses increased due primarily to higher people costs, increased planned marketing investments, a non-recurring charge of $4 million related to thetransition of a certain employee benefit program and increases in other operating costs. These increases were partially offset by reductions in our logisticscosts, driven primarily by lower fuel rates, and lower incentive compensation.41Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsLATIN AMERICA BEVERAGESThe following table details our Latin America Beverages segment's net sales and SOP for the years ended December 31, 2016 and 2015: For the Year Ended December 31, Dollar Percentage(in millions)2016 2015 Change ChangeNet sales$460 $497 $(37) (7)%SOP78 88 (10) (11)Volume. Sales volume increased 5% for the year ended December 31, 2016 as compared with the year ended December 31, 2015. The increase insales volume was primarily driven by a 7% gain in Squirt, due to increased sales to third party bottlers and product innovation. Peñafiel increased 3% as aresult of distribution gains, increased promotional activity and product innovation, partially offset by increased competition. Clamato increased 20% due toincreased promotional activity, distribution gains, and product innovation. Aguafiel and Crush increased 7% and 11%, respectively. Our other brandsincreased approximately 1%. These increases were partially offset by a decline in 7UP of 4%, driven by declines in Puerto Rico.Net Sales. Net sales decreased $37 million for the year ended December 31, 2016 compared with the year ended December 31, 2015. Net salesdecreased as a result of unfavorable foreign currency translation of $72 million, which was partially offset by increased sales volume and higher pricing.SOP. SOP decreased $10 million for the year ended December 31, 2016 compared with the year ended December 31, 2015, driven by a decrease in netsales, partially offset by decreases in cost of sales and SG&A expenses. Cost of sales decreased in the current year primarily as a result of favorable foreigncurrency effects, ongoing productivity improvements, and lower commodity costs, led by sweeteners and packaging, which were partially offset by highercosts associated with increased sales volumes. SG&A expenses decreased in the current year primarily due to favorable foreign currency effects, which werepartially offset by higher people costs, a $4 million arbitration award related to our former Mexican joint venture, increased professional fees, highermarketing investments, and increases in other operating costs. The impact of the favorable foreign currency effects, which decreased cost of sales and SG&Aexpenses, totaled $44 million.LIQUIDITY AND CAPITAL RESOURCESTrends and Uncertainties Affecting LiquidityCustomer and consumer demand for our products may be impacted by various risk factors discussed in Item 1A, "Risk Factors", including recession orother economic downturn in the U.S., Mexico and the Caribbean or Canada, which could result in a reduction in our sales volume. Similarly, disruptions infinancial and credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. These disruptionscould have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors totimely supply materials.We believe that the following events, trends and uncertainties may also impact liquidity:•upon consummation of the Transaction, we will incur substantial third party indebtedness;•our ability to issue unsecured commercial paper notes ("Commercial Paper") on a private placement basis up to a maximum aggregate amountoutstanding at any time of $500 million, which has been limited to $200 million subject to Keurig's approval upon execution of the Merger Agreement;•continued payment of dividends;•continued capital expenditures;•fluctuations in our tax obligations;•seasonality of our operating cash flows could impact short-term liquidity;•our integration of Bai Brands following completion of the Bai Brands Merger;•future equity investments in allied brands; and•future mergers or acquisitions of regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage.42Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsFinancing ArrangementsRefer to Note 7 of the Notes to our Audited Consolidated Financial Statements for management's discussion of financing arrangements.LiquidityBased on our current and anticipated level of operations, without giving effect to the Transaction, we believe that our operating cash flows and cash onhand will be sufficient to meet our anticipated obligations for the next twelve months. To the extent that our operating cash flows are not sufficient to meet ourliquidity needs, we may utilize amounts available under our financing arrangements, if necessary.The following table summarizes our cash activity for the years ended December 31, 2017, 2016 and 2015: For the Year Ended December 31,(in millions)2017 2016 2015Net cash provided by operating activities$1,038 $961 $1,014Net cash used in investing activities(1,763) (189) (194)Net cash provided by (used in) financing activities(907) 108 (137)NET CASH PROVIDED BY OPERATING ACTIVITIESNet cash provided by operating activities increased $77 million for the year ended December 31, 2017, as compared to the year ended December 31,2016, primarily due to the impact of certain reconciling adjustments to net cash provided by operating activities, partially offset by a unfavorable change inworking capital.Net cash provided by operating activities decreased $53 million for the year ended December 31, 2016, as compared to the year ended December 31,2015, primarily due to our $35 million multi-employer pension plan settlement payment.NET CASH USED IN INVESTING ACTIVITIES2017Cash used in investing activities for the year ended December 31, 2017 consisted primarily of cash paid in connection with our Bai Brands Merger of$1,556 million and purchases of property, plant and equipment of $202 million.2016Cash used in investing activities for the year ended December 31, 2016 consisted primarily of purchases of property, plant and equipment of $180million, the step acquisition of IEBM and EMA of $15 million and an additional investment in BA Sports Nutrition, LLC ("BA Sports") of $6 million, partiallyoffset by cash received in the step acquisition of IEBM and EMA of $17 million.2015Cash used in investing activities for the year ended December 31, 2015 consisted primarily of purchases of property, plant and equipment of $179million and investments in BA Sports and Bai Brands of $20 million and $15 million, respectively, partially offset by $20 million of proceeds from disposals ofproperty, plant and equipment.43Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsNET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES2017Net cash used in financing activities for the year ended December 31, 2017 primarily consisted of:•the repayment of the Company's 2018 Notes and a portion of the 2038 Notes of $562 million, which includes both the aggregate principal amountsof approximately $364 million of the 2018 Notes and $125 million of the 2038 Notes, as well as the tender offer premium of $60 million and the makewhole premium of $13 million;•dividend payments of $414 million; and•stock repurchases of $399 million; which was partially offset by•the proceeds from the issuance of our 3.43% Senior Notes due June 15, 2027 (the "2027 Notes") and our 4.50% Senior Notes due November 15,2045 (the "2045 Notes"), with an aggregate principal amount of $400 million and a premium of $16 million; and•the proceeds from the net issuance of commercial paper of $66 million.2016Net cash provided by financing activities for the year ended December 31, 2016 primarily consisted of proceeds from our issuances of senior unsecurednotes, partially offset by stock repurchases of $519 million and dividend payments of $386 million, the repayment at maturity of our 2.90% Notes due January15, 2016 of $500 million, and our partial redemption of our 2018 Notes, which included $360 million for principal repayments and $31 million related to theredemption premium.On September 16, 2016, we completed the issuance of $400 million aggregate principal amount of our 2026 Notes.On December 14, 2016, we issued an additional $1,550 million of senior unsecured notes consisting of $250 million aggregate principal amount of our2.53% Senior Notes due November 15, 2021, 3.13% aggregate principal amount of our 3.13% Senior Notes due December 15, 2023, $500 millionaggregate principal amount of our 2027 Notes, and $400 million aggregate principal amount of our 4.42% Senior Notes due December 15, 2046.2015Net cash used in financing activities for the year ended December 31, 2015 primarily consisted of stock repurchases of $521 million and dividendpayments of $355 million, largely offset by proceeds from our issuance of senior unsecured notes.On November 9, 2015, we completed the issuance of two tranches of senior unsecured notes, consisting of $500 million aggregate principal amount ofour 3.40% Senior Notes due November 15, 2025 and $250 million aggregate principal amount of our 2045 Notes.Debt RatingsAs of December 31, 2017, our debt ratings were as follows:Rating AgencyLong-Term Debt Rating(1)Commercial Paper RatingOutlookDate of Last ChangeMoody'sBaa1P-2StableMay 18, 2011S&PBBB+A-2StableNovember 13, 2013____________________________(1)Subsequent to December 31, 2017, and as a result of the Transaction, Moody's and S&P have changed their outlook. Moody's has placed DPS ratings under review fordowngrade and S&P has placed DPS as Creditwatch Negative.These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or both of our debt andcommercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.Capital ExpendituresCapital expenditures were $202 million, $180 million, and $179 million for the years ended December 31, 2017, 2016 and 2015, respectively.Capital expenditures for the year ended December 31, 2017 primarily related to machinery and equipment, building and improvements, IT investments,replacement of existing cold drink equipment, and our distribution fleet.44Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCapital expenditures for the year ended December 31, 2016 primarily related to machinery and equipment, our distribution fleet, and costs associatedwith a new manufacturing plant in Mexico.Capital expenditures for the year ended December 31, 2015 primarily related to machinery and equipment including production improvements in ourMexico facilities, distribution fleet and buildings and improvements.Cash and Cash EquivalentsAs a result of the above items, cash, cash equivalents, restricted cash and restricted cash equivalents decreased $1,629 million since December 31,2016 to $158 million as of December 31, 2017 primarily driven by the Bai Brands Merger.Our cash balances are used to fund working capital requirements, scheduled debt and interest payments, capital expenditures, income tax obligations,dividend payments and repurchases of our common stock. Cash generated by our foreign operations is generally repatriated to the U.S. periodically exceptwhen required to fund working capital requirements in those jurisdictions. Foreign cash balances were $46 million and $51 million as of December 31, 2017and 2016, respectively. We accrue tax costs for repatriation, as applicable, as cash is generated in those foreign jurisdictions.Acquisitions and InvestmentsWe have shown a disciplined approach to strategic investments in certain allied brands to enhance our position in premium and high growth categoriesand strengthen our existing distribution partnerships. On January 31, 2017, we completed the Bai Brands Merger. Refer to Note 3 of the Notes to our AuditedConsolidated Financial Statements for additional information on the Bai Brands Merger, other acquisitions and investments in unconsolidated subsidiaries.We may continue to make future equity investments in allied brands and/or acquisitions of regional bottling companies, distributors and/or distributionrights to further extend our geographic coverage. Any acquisitions may require additional funding for future capital expenditures and possibly restructuringexpenses. Refer to Note 20 of the Notes to our Audited Consolidated Financial Statements for additional information on our subsequent investment in Core.Total Shareholder DistributionsOur Board declared aggregate dividends per share during the yearsended December 31, 2017, 2016 and 2015 of $2.32, $2.12 and $1.92,respectively, and we continued common stock repurchases based uponauthorizations from our Board. The following chart details these paymentsduring the years ended December 31, 2017, 2016 and 2015.Refer to Part II, Item 5 "Market for Registrant's Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities" ofthis Annual Report on Form 10-K for additional information regardingthese repurchases.45Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsContractual Commitments and ObligationsWe enter into various contractual obligations that impact, or could impact, our liquidity. Based on our current and anticipated level of operations, webelieve that our proceeds from operating cash flows and cash on hand will be sufficient to meet our anticipated obligations. To the extent that our operatingcash flows and cash on hand are not sufficient to meet our liquidity needs, we may utilize amounts available under our financing arrangements, if necessary.Refer to Note 7 of the Notes to our Audited Consolidated Financial Statements for additional information regarding the senior unsecured notes paymentsdescribed in this table.The following table summarizes our contractual obligations and contingencies as of December 31, 2017: Payments Due in Year(in millions)Total 2018 2019 2020 2021 2022 After 2022Senior unsecured notes(1)$4,225 $— $250 $250 $500 $250 $2,975Commercial paper66 66 — — — — —Bai Brands Merger consideration(2)7 7 — — — — —Capital leases(3)220 24 24 23 22 22 105Operating leases(4)260 39 35 31 28 23 104Purchase obligations(5)(6)1,002 645 159 96 36 28 38Interest payments(7)1,986 141 142 135 134 117 1,317Payable to Mondelēz International, Inc.22 6 16 — — — —Total$7,788 $928 $626 $535 $720 $440 $4,539____________________________(1)Amounts represent payment for the senior unsecured notes issued by us. Please refer to Note 7 of the Notes to our Audited Consolidated Financial Statements for furtherinformation.(2)Amount represents consideration for the Bai Brands Merger held in the holdback liability that is fixed in amount and timing. Please refer to Note 3 of the Notes to our AuditedConsolidated Financial Statements for further information.(3)Amounts represent our contractual payment obligations for our lease arrangements classified as capital leases. These amounts exclude renewal options not yet executedbut were included in the lease term to determine the capital lease obligation as the lease imposes a penalty on us in such amount that the renewal appeared reasonablyassured at lease inception.(4)Amounts represent minimum rental commitments under non-cancelable operating leases.(5)Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital obligationsand long-term contractual obligations. Long-term contractual obligations include, but are not limited to, commodity commitments and marketing commitments includingsponsorships. Amounts exclude any gain or loss upon settlement of commodity derivative instruments. Refer to Note 8 of the Notes to our Audited Consolidated FinancialStatements for further information.(6)Subsequent to December 31, 2017, we executed a new arrangement that committed us to $253 million of additional purchase obligations over a six year term beginning in2020.(7)Amounts represent our estimated interest payments based on specified interest rates for fixed rate debt and the impact of interest rate swaps that effectively convert fixedinterest rates to variable interest rates. Amounts exclude any gain or loss upon settlement of related interest rate swaps. Refer to Note 8 of the Notes to our AuditedConsolidated Financial Statements for further information.Amounts excluded from our tableAs of December 31, 2017, we had $10 million of non-current unrecognized tax benefits, related interest and penalties classified as a long-term liability.The table above does not reflect any payments related to these amounts as it is not possible to make a reasonable estimate of the amount or timing of thepayment. Refer to Note 5 of the Notes to our Audited Consolidated Financial Statements for further information.The total accrued benefit liability representing the underfunded position for pension and other postretirement benefit plans recognized as ofDecember 31, 2017 was approximately $17 million. This amount is impacted by, among other items, funding levels, plan amendments, changes in planassumptions and the investment return on plan assets. We did not include estimated payments related to our total accrued benefit liability in the table above.The Pension Protection Act of 2006 was enacted in August 2006 and established, among other things, new standards for funding of U.S. defined benefitpension plans. We generally expect to fund all future contributions with cash flows from operating activities. Our international pension plans are generallyfunded in accordance with local laws and income tax regulations. We did not include our estimated contributions to our various single employer plans in thetable above.Refer to Note 6 of the Notes to our Audited Consolidated Financial Statements for further information regarding our single employer plans discussedabove.46Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsWe have a deferred compensation plan where the assets are maintained in a rabbi trust and the corresponding liability related to the plan is recorded inother non-current liabilities. We did not include estimated payments related to the deferred compensation liability as the timing and payment of these amountsare determined by the participants and outside our control. Refer to Note 2 and Note 6 of the Notes to our Audited Consolidated Financial Statements forfurther information.In general, we are covered under conventional insurance programs with high deductibles or are self-insured for large portions of many different types ofclaims. Our accrued liabilities for our losses related to these programs is estimated through actuarial procedures of the insurance industry and by usingindustry assumptions, adjusted for our specific expectations based on our claim history. As of December 31, 2017, our accrued liabilities for our lossesrelated to these programs totaled approximately $94 million. Refer to Note 2 and Note 14 of the Notes to our Audited Consolidated Financial Statements forfurther information. We did not include estimated payments related to our insurance liability in the table above.OFF-BALANCE SHEET ARRANGEMENTSWe currently participate in three multi-employer pension plans. In the event that we withdraw from participation in one of these plans, the plan willultimately assess us a withdrawal liability for exiting the plan, and U.S. GAAP would require us to record the withdrawal charge as an expense in ourconsolidated statements of income and as a liability on our consolidated balance sheets once the multi-employer pension withdrawal charge is probable andestimable. Refer to Note 6 of the Notes to our Audited Consolidated Financial Statements for additional information regarding our multi-employer pensionplans.There are no other off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our results ofoperations, financial condition, liquidity, capital expenditures or capital resources other than letters of credit outstanding. Refer to Note 7 of the Notes to ourAudited Consolidated Financial Statements for additional information regarding outstanding letters of credit.CRITICAL ACCOUNTING ESTIMATESThe process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect thereported amounts of assets, liabilities, revenue and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financialcondition and results and require difficult, subjective or complex estimates and assessments. These estimates and judgments are based on historicalexperience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates andjudgments are reviewed on an ongoing basis and revised when necessary. We have not made any material changes in the accounting methodology we useto assess or measure our critical accounting estimates. We have identified the items described below as our critical accounting estimates. We do not believethere is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use in our critical accounting estimates.However, if actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material to ourconsolidated financial statements. See Note 2 of the Notes to our Audited Consolidated Financial Statements for a discussion of these and other accountingpolicies.47Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDescription Judgments and Uncertainties Effect if Actual Results Differ from AssumptionsGoodwill and Other Indefinite Lived Intangible Assets For goodwill and other indefinite lived intangibleassets, we conduct tests for impairmentannually, as of October 1, or more frequently ifevents or circumstances indicate the carryingamount may not be recoverable. We usepresent value and other valuation techniquesto make this assessment. If the carryingamount of goodwill or an intangible assetexceeds its fair value, an impairment loss isrecognized in an amount equal to that excess.For purposes of impairment testing we assigngoodwill to the reporting unit that benefits fromthe synergies arising from each businesscombination and also assign indefinite livedintangible assets to our reporting units. Wedefine reporting units as BeverageConcentrates, Latin America Beverages, andPackaged Beverages' three reporting units,DSD, WD and Bai.The impairment test for indefinite livedintangible assets encompasses calculating afair value of an indefinite lived intangible assetand comparing the fair value to its carryingvalue. If the carrying value exceeds theestimated fair value, impairment is recorded.The impairment tests for goodwill includecomparing a fair value of the respectivereporting unit with its carrying value, includinggoodwill and considering any indefinite livedintangible asset impairment charges ("Step1"). If the carrying value exceeds theestimated fair value, impairment is indicatedand a second step ("Step 2") analysis must beperformed. For our detailed impairment analysis, we used anincome based approach to determine the fairvalue of our assets, as well as an overallconsideration of market capitalization and ourenterprise value. These types of analyses containuncertainties because they require managementto make assumptions and to apply judgment toestimate industry and economic factors and theprofitability of future business strategies. Theseassumptions could be negatively impacted byvarious risks discussed in "Risk Factors" in thisAnnual Report on Form 10-K.Critical assumptions include revenue growth andprofit performance, as well as an appropriatediscount rate. Discount rates are based on aweighted average cost of equity and cost of debt,adjusted with various risk premiums. For 2017,such discount rates ranged from 5.00% to 8.00%. The carrying values of goodwill and indefinite lived intangible assets asof December 31, 2017, were $3,561 million and $3,781 million,respectively.As of October 1, 2017, we recorded a $1 million impairment charge forour Aguafiel brand, which was the value acquired in the step-acquisitionof IEBM and EMA in 2016. As of October 1, 2015, we recorded a $7million impairment charge for our Garden Cocktail brand. We have notidentified any other impairments in goodwill or other indefinite livedintangible assets during 2017, 2016 or 2015.Holding all other assumptions in the analysis constant, including therevenue and profit performance assumption, the effect of a 0.50%increase in the discount rate used to determine the fair value of thereporting units as of October 1, 2017 would not change our conclusion,except for Bai. As of January 1, 2018, the Bai and WD reporting units were aggregatedinto one reporting unit for purposes of impairment testing. Referto Note 20 of the Notes to our Audited Consolidated FinancialStatements for further information about the change in our reportingunits. As a result of this change, the Bai sensitivity was not provided asit will no longer be measured as a separate reporting unit.Holding all other assumptions in the analysis constant, including therevenue and profit performance assumption, the effect of a 0.50%increase in the discount rate used to determine the fair value of ourbrands as of October 1, 2017 would reduce the fair value of our brandsbut would not change our conclusion except for Bai. The result of thiseffect would impact the amount of headroom over the carrying value ofour brands as follows (in millions): Fair Value Carrying Value HeadroomPercentage Result +0.50% Result +0.50% Potentialimpairment $— $990 $— $1,073 0 - 10% 1,122 — 1,073 — 11 - 20% — — — — 21 - 50% — 919 — 655 51 - 100% 1,011 — 655 — >100% 16,508 14,943 1,971 1,971 $18,641 $16,852 $3,699 $3,699 Furthermore, during 2018, if actual results do not achieve the revenueand profit performance assumptions used in our impairment analysis asof October 1, 2017, the Bai brand could also become impaired. Revenue Recognition We recognize revenue, net of the costs of ourcustomer incentives, at the time risk of losshas been transferred to our customer.Accruals for customer incentives andmarketing programs are established for theexpected payout based on contractual terms,volume-based metrics and/or historical trends. Our customer incentives and marketing accrualmethodology contains uncertainties because itrequires management to make assumptions andto apply judgment to estimate our customerparticipation and volume performance levelswhich impact the expense recognition. Ourestimates are based primarily on a combination ofknown or historical transaction experiences.Differences between estimated expenses andactual costs are normally insignificant and arerecognized to earnings in the period differencesare determined.Further judgment is required to ensure theclassification of the spend is correctly recordedas either a reduction from gross sales oradvertising and marketing expense. A 10% change in the accrual for our customer incentives and marketingprograms as of December 31, 2017, would have affected our net salesand SG&A expenses by $27 million and $3 million for the year endedDecember 31, 2017.48Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDescription Judgments and Uncertainties Effect if Actual Results Differ from AssumptionsPension Benefits We have several pension plans coveringemployees who satisfy age and length ofservice requirements. Depending on the plan,pension benefits are based on a combinationof factors, which may include salary, age andyears of service.Our largest U.S. defined benefit pension plan,which is a cash balance plan, was suspendedand the accrued benefit was frozen effectiveDecember 31, 2008. Participants in this planno longer earn additional benefits for futureservices or salary increases.Employee benefit plan obligations andexpenses included in our ConsolidatedFinancial Statements are determined fromactuarial analyses based on planassumptions, employee demographic data,years of service, compensation, benefits paidand employer contributions. The calculation of pension plan obligations andrelated expenses is dependent on severalassumptions used to estimate the present valueof the benefits earned while the employee iseligible to participate in the plans.The key assumptions we use in the actuarialmethods to determine the plan obligations andrelated expenses include: (1) the discount rateused to calculate the present value of the planliabilities; (2) retirement age and mortality; and(3) the expected return on plan assets. Ourassumptions reflect our historical experience andour best judgment regarding future performance.Refer to Note 6 of the Notes to our AuditedConsolidated Financial Statements for furtherinformation about the key assumptions. The effect of a 1% increase or decrease in the weighted-averagediscount rate used to determine the pension benefit obligations forU.S. plans would change the benefit obligation as of December 31, 2017by approximately a $25 million decrease and a $31 million increase,respectively.The effect of a 1% increase or decrease in the weighted-averagediscount rate used to determine the net periodic pension costs wouldchange the costs for the year ended December 31, 2017 byapproximately $2 million decrease and a $3 million increase,respectively.The effect of a 1% increase or decrease in the expected return on planassets used to determine the net periodic pension costs would changethe costs for the year ended December 31, 2017 by approximately $2million. Risk Management Programs We retain selected levels of property,casualty, workers' compensation, health andother business risks. Many of these risks arecovered under conventional insuranceprograms with high deductibles or self-insuredretentions. We believe the use of actuarial methods toestimate our future losses provides a consistentand effective way to measure our self-insuredliabilities. However, the estimation of our liability isjudgmental and uncertain given the nature ofclaims involved and length of time until theirultimate cost is known.Accrued liabilities related to the retained casualtyand health risks are calculated based on lossexperience and development factors, whichcontemplate a number of variables including claimhistory and expected trends. These lossdevelopment factors are established inconsultation with actuaries. We do not believe there is a reasonable likelihood that there will be amaterial change in the estimates or assumptions we use to calculate ourself-insured liabilities as compared to prior periods. The final settlementamount of claims can differ materially from our estimate as a result ofchanges in factors such as the frequency and severity of accidents,medical cost inflation, legislative actions, uncertainty around juryverdicts and awards and other factors outside of our control.A 10% change in our accrued liabilities related to the retained risks, netof associated receivables, as of December 31, 2017 would haveaffected income from operations by approximately $8 million for the yearended December 31, 2017. Income Taxes We establish income tax liabilities to removesome or all of the income tax benefit of any ofour income tax positions based upon one ofthe following: (1) the tax position is not “morelikely than not” to be sustained, (2) the taxposition is “more likely than not” to besustained, but for a lesser amount, or (3) thetax position is “more likely than not” to besustained , but not in the financial period inwhich the tax position was originally taken.We assess the likelihood of realizing ourdeferred tax assets. Valuation allowancesreduce deferred tax assets to the amountmore likely than not to be realized. Our liability for uncertain tax positions containsuncertainties because management is required tomake assumptions and to apply judgment toestimate the exposures associated with ourvarious tax positions.We base our judgment of the recoverability of ourdeferred tax asset primarily on historical earnings,our estimate of current and expected futureearnings and prudent and feasible tax planningstrategies. Our income tax returns, like those of most companies, are periodicallyaudited by domestic and foreign tax authorities. These audits includequestions regarding our tax positions, including the timing and amount ofdeductions and the allocation of income among various tax jurisdictions.As these audits progress, events may occur that cause us to changeour liability for uncertain tax positions.To the extent we prevail in matters for which a liability for uncertain taxpositions has been established, or are required to pay amounts inexcess of our established liability, our effective tax rate in a givenfinancial statement period could be materially affected. An unfavorabletax settlement generally would require use of our cash and may result inan increase in our effective tax rate in the period of resolution. Afavorable tax settlement may be recognized as a reduction in oureffective tax rate in the period of resolution.If results differ from our assumptions, a valuation allowance againstdeferred tax assets may be increased or decreased which would impactour effective tax rate.49Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDescription Judgments and Uncertainties Effect if Actual Results Differ from AssumptionsBusiness Combinations We record acquisitions using the purchasemethod of accounting. All of the assetsacquired and liabilities assumed are recordedat fair value as of the acquisition date. Theexcess of the purchase price over theestimated fair values of the net tangible andintangible assets acquired is recorded asgoodwill. The application of the purchase method ofaccounting for business combinations requiresmanagement to make significant estimates andassumptions in the determination of the fair valueof assets acquired and liabilities assumed, inorder to properly allocate purchase priceconsideration between assets that aredepreciated and amortized from goodwill. The fairvalue assigned to tangible and intangible assetsacquired and liabilities assumed are based onmanagement’s estimates and assumptions, aswell as other information compiled bymanagement, including valuations that utilizecustomary valuation procedures and techniques.Significant assumptions and estimates include, butare not limited to, the cash flows that an asset isexpected to generate in the future, the appropriateweighted-average cost of capital, and the costsavings expected to be derived from acquiring anasset, if applicable. If the actual results differ from the estimates and judgments used inthese estimates, the amounts recorded in the financial statements maybe exposed to potential impairment of the intangible assets and goodwill,as discussed in the Goodwill and Other Indefinite Lived IntangibleAssets critical accounting estimate section.EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTSRefer to Note 2 of the Notes to our Audited Consolidated Financial Statements for management's discussion of the effect of recent accountingpronouncements.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest ratesand commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enterinto derivative instruments for speculation, investment or trading.Foreign Exchange RiskThe majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreignexchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and Mexican peso against the U.S. dollar. Exchange rategains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As ofDecember 31, 2017, the impact to our income from operations of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease ofapproximately $21 million on an annual basis.We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. Asof December 31, 2017, we had derivative contracts outstanding with a notional value of $48 million maturing at various dates through December 17, 2018.Interest Rate RiskWe centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable rate debt. As ofDecember 31, 2017, the carrying value of our fixed-rate debt, excluding capital leases, was $4,230 million, $1,070 million of which has been swapped tofloating rates and exposed to variability in interest rates.The following table is an estimate of the impact to the interest rate swaps that could result from hypothetical interest rate changes during the term of thefinancial instruments, based on debt levels as of December 31, 2017:Sensitivity AnalysisHypothetical Change in Interest Rates Annual Impact to Interest Expense Change in Fair Value (2)1-percent decrease(1) $11 million decrease $49 million increase1-percent increase $11 million increase $46 million decrease____________________________(1)We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of interest rate swaps on certain debt instruments. SeeNote 8 of the Notes to our Audited Consolidated Financial Statements for further information.(2)See Note 2 and Note 8 of the Notes to our Audited Consolidated Financial Statements for additional information on classification and quantification of these derivativepositions.50Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsCommodity RisksWe are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by thecompetitive environment in which we operate. Our principal commodities risks relate to our purchases of resin (for PET), aluminum, diesel fuel, corn (for highfructose corn syrup), apple juice concentrate, apples, sucrose and natural gas (for use in processing and packaging).We utilize commodities forward and future contracts and supplier pricing agreements to hedge the risk of adverse movements in commodity prices forlimited time periods for certain commodities. The fair market value of these contracts as of December 31, 2017 was a net asset of $44 million.As of December 31, 2017, the impact of a 10% change (up or down) in market prices for these commodities where the risk of adverse movements has notbeen hedged is estimated to be an increase or decrease of approximately $21 million to our income from operations for the year ending December 31, 2018.51Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAAudited Consolidated Financial Statements:PageNumberReports of Independent Registered Public Accounting Firm53Consolidated Statements of Income55Consolidated Statements of Comprehensive Income56Consolidated Balance Sheets57Consolidated Statements of Cash Flows58Consolidated Statements of Changes in Stockholders' Equity59Notes to Audited Consolidated Financial Statements601. Business and Basis of Presentation602. Significant Accounting Policies613. Acquisitions and Investments in Unconsolidated Subsidiaries694. Goodwill and Other Intangible Assets735. Income Taxes756. Employee Benefit Plans787. Long-Term Obligation and Borrowing Arrangements858. Derivatives889. Stock-Based Compensation9210. Earnings Per Share9611. Property, Plant and Equipment9712. Leases9713. Inventories9814. Other Assets and Liabilities9915. Commitments and Contingencies10016. Accumulated Other Comprehensive Loss10017. Supplemental Cash Flow Information10118. Segments10219. Guarantor and Non-Guarantor Financial Information10520. Subsequent Events11452Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the stockholders and Board of Directors ofDr Pepper Snapple Group, Inc.Plano, TexasOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Dr Pepper Snapple Group, Inc. and subsidiaries (the "Company") as of December 31,2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of thethree years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operationsand its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in theUnited States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'sinternal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2018 expressed an unqualified opinion onthe Company’s internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Dallas, TexasFebruary 14, 2018We have served as the Company’s auditor since 2006.53Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the stockholders and Board of Directors ofDr Pepper Snapple Group, Inc.Plano, TexasOpinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of Dr Pepper Snapple Group, Inc. and subsidiaries (the "Company") as of December 31, 2017,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements as of and for the year ended December 31, 2017 of the Company and our report dated February 14, 2018 expressed an unqualifiedopinion on those financial statements.As described in Management’s Annual Report on Internal Control over Financial Reporting, appearing under Item 9A, management excluded from itsassessment the internal control over financial reporting at Bai Brands LLC, which was acquired on January 31, 2017 and whose financial statementsconstitute 17% and 1% of total assets and net sales, respectively, of the consolidated financial statement amounts as of and for the year ended December 31,2017. Accordingly, our audit did not include the internal control over financial reporting at Bai Brands LLC.Basis for OpinionThe Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, appearingunder Item 9A. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Dallas, TexasFebruary 14, 201854Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.CONSOLIDATED STATEMENTS OF INCOMEFor the Years Ended December 31, 2017, 2016 and 2015 For the Year Ended December 31,(in millions, except per share data)2017 2016 2015Net sales$6,690 $6,440 $6,282Cost of sales2,695 2,582 2,559Gross profit3,995 3,858 3,723Selling, general and administrative expenses2,556 2,329 2,313Depreciation and amortization102 99 105Other operating (income) expense, net(51) (3) 7Income from operations1,388 1,433 1,298Interest expense164 147 117Interest income(3) (3) (2)Loss on early extinguishment of debt62 31 —Other income, net(8) (25) (1)Income before provision for income taxes and equity in loss of unconsolidatedsubsidiaries1,173 1,283 1,184Provision for income taxes95 434 420Income before equity in loss of unconsolidated subsidiaries1,078 849 764Equity in loss of unconsolidated subsidiaries, net of tax(2) (2) —Net income$1,076 $847 $764Earnings per common share: Basic$5.91 $4.57 $4.00Diluted5.89 4.54 3.97Weighted average common shares outstanding: Basic182.0 185.4 190.9Diluted182.8 186.6 192.4The accompanying notes are an integral part of these consolidated financial statements.55Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the Years Ended December 31, 2017, 2016 and 2015 For the Year Ended December 31,(in millions)2017 2016 2015Net income$1,076 $847 $764Other comprehensive income (loss), net of tax: Foreign currency translation adjustments16 (39) (64)Net change in pension and post-retirement liability, net of tax of $3, $0 and $15 (1) 4Net change in cash flow hedges, net of tax of $4, $4 and $16 6 2Total other comprehensive income (loss), net of tax27 (34) (58)Comprehensive income$1,103 $813 $706The accompanying notes are an integral part of these consolidated financial statements.56Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.CONSOLIDATED BALANCE SHEETSAs of December 31, 2017 and 2016 December 31, December 31,(in millions, except share and per share data)2017 2016AssetsCurrent assets: Cash and cash equivalents$61 $1,787Restricted cash and restricted cash equivalents18 —Accounts receivable: Trade, net668 595Other42 51Inventories229 202Prepaid expenses and other current assets99 101Total current assets1,117 2,736Property, plant and equipment, net1,198 1,138Investments in unconsolidated subsidiaries24 23Goodwill3,561 2,993Other intangible assets, net3,781 2,656Other non-current assets279 183Deferred tax assets62 62Total assets$10,022 $9,791Liabilities and Stockholders' EquityCurrent liabilities: Accounts payable$365 $303Deferred revenue64 64Short-term borrowings and current portion of long-term obligations79 10Income taxes payable11 4Other current liabilities719 670Total current liabilities1,238 1,051Long-term obligations4,400 4,468Deferred tax liabilities614 812Non-current deferred revenue1,055 1,117Other non-current liabilities264 209Total liabilities7,571 7,657Commitments 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, 179,743,028 and 183,119,843 sharesissued and outstanding as of December 31, 2017 and December 31, 2016, respectively2 2Additional paid-in capital— 95Retained earnings2,651 2,266Accumulated other comprehensive loss(202) (229)Total stockholders' equity2,451 2,134Total liabilities and stockholders' equity$10,022 $9,791The accompanying notes are an integral part of these consolidated financial statements.57Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2017, 2016 and 2015 For the Year Ended December 31,(in millions)2017 2016 2015Operating activities: Net income$1,076 $847 $764Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense198 191 192Amortization expense31 33 35Amortization of deferred revenue(64) (64) (64)Impairment of intangible asset1 — 7Employee stock-based compensation expense36 45 44Deferred income taxes(201) 29 29Loss on early extinguishment of debt62 31 —Gain on step acquisition of unconsolidated subsidiaries(28) (5) —Gain on extinguishment of multi-employer plan withdrawal liability— (21) —Unrealized (gains) losses on economic hedges(24) (40) 5Other, net(4) 13 8Changes in assets and liabilities, net of effects of acquisition: Trade accounts receivable(47) (31) (26)Other accounts receivable9 3 1Inventories— 3 (11)Other current and non-current assets(20) (50) 8Other current and non-current liabilities(19) (53) (11)Trade accounts payable24 32 (9)Income taxes payable8 (2) 42Net cash provided by operating activities1,038 961 1,014Investing activities: Acquisition of business(1,556) (15) —Cash acquired in step acquisition of unconsolidated subsidiaries4 17 —Purchase of property, plant and equipment(202) (180) (179)Purchase of intangible assets(6) (2) (1)Investment in unconsolidated subsidiaries(3) (6) (20)Purchase of cost method investments— (1) (15)Proceeds from disposals of property, plant and equipment3 6 20Other, net(3) (8) 1Net cash used in investing activities(1,763) (189) (194)Financing activities: Proceeds from issuance of senior unsecured notes400 1,950 750Repayment of senior unsecured notes(562) (891) —Net issuance of commercial paper66 — —Repurchase of shares of common stock(399) (519) (521)Dividends paid(414) (386) (355)Tax withholdings related to net share settlements of certain stock awards(30) (31) (27)Proceeds from stock options exercised20 14 30Premium (discount) on issuance of senior unsecured notes16 (1) (4)Proceeds from termination of interest rate swap13 — —Deferred financing charges paid(5) (19) (6)Capital lease payments(12) (9) (5)Other, net— — 1Net cash provided by (used in) financing activities(907) 108 (137)Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from: Operating, investing and financing activities(1,632) 880 683Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents3 (4) (9)Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of year1,787 911 237Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year$158 $1,787 $911Refer to Note 17 for supplemental cash flow disclosures.The accompanying notes are an integral part of these consolidated financial statements.58Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYFor the Years Ended December 31, 2017, 2016 and 2015 Accumulated Common Stock Additional Other Issued Paid-In Retained Comprehensive Total(in millions, except per share data)Shares Amount Capital Earnings Loss EquityBalance as of January 1, 2015193.0 $2 $658 $1,771 $(137) $2,294Shares issued under employee stock-basedcompensation plans and other1.4 — — — — —Net income— — — 764 — 764Other comprehensive loss— — — — (58) (58)Dividends declared, $1.92 per share— — 4 (370) — (366)Stock options exercised and stock-basedcompensation, net of tax of ($23)— — 70 — — 70Common stock repurchases(6.5) — (521) — — (521)Balance as of December 31, 2015187.9 2 211 2,165 (195) 2,183Shares issued under employee stock-basedcompensation plans and other0.9 — — — — —Net income— — — 847 — 847Other comprehensive loss— — — — (34) (34)Dividends declared, $2.12 per share— — 3 (396) — (393)Stock options exercised and stock-basedcompensation, net of tax of ($22)— — 50 — — 50Common stock repurchases(5.7) — (169) (350) — (519)Balance as of December 31, 2016183.1 2 95 2,266 (229) 2,134Shares issued under employee stock-basedcompensation plans and other1.0 — — — — —Net income— — — 1,076 — 1,076Other comprehensive income— — — — 27 27Dividends declared, $2.32 per share— — 4 (424) — (420)Deemed capital contribution from formershareholders of Bai Brands LLC— — 6 — — 6Stock options exercised and stock-basedcompensation— — 27 — — 27Common stock repurchases(4.4) — (132) (267) — (399)Balance as of December 31, 2017179.7 $2 $— $2,651 $(202) $2,451The accompanying notes are an integral part of these consolidated financial statements.59Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS1.Business and Basis of PresentationReferences in the Notes to Audited Consolidated Financial Statements to "DPS" or "the Company" refer to Dr Pepper Snapple Group, Inc. and all entitiesincluded in the Audited Consolidated Financial Statements.The Notes to Audited Consolidated Financial Statements refer to some of DPS' owned or licensed trademarks, trade names and service marks, which arereferred 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.Nature of OperationsDPS is a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the United States ("U.S."), Mexico and Canada witha diverse portfolio of flavored (non-cola) carbonated soft drinks ("CSDs") and non-carbonated beverages ("NCBs"), including ready-to-drink teas, juices, juicedrinks, water and mixers. The Company's brand portfolio includes popular CSD brands such as Dr Pepper, Canada Dry, Peñafiel, Squirt, 7UP, Crush, A&W,Sunkist soda and Schweppes, and NCB brands such as Snapple, Bai, Hawaiian Punch, Mott's and Clamato.The Company was incorporated in Delaware on October 24, 2007. In 2008, Cadbury plc separated its beverage business in the U.S., Canada, Mexicoand the Caribbean (the "Americas Beverages business") from its global confectionery business by contributing the subsidiaries that operated its AmericasBeverages business to the Company.Principles of ConsolidationDPS consolidates all wholly-owned subsidiaries. Investments in entities in which DPS does not have a controlling financial interest are accounted forunder either the equity method or cost method of accounting, as appropriate. Judgment regarding the level of influence over each equity method or costmethod investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-makingdecisions 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 aremade in assessing whether the Company is the primary beneficiary, including determination of the activities that most significantly impact the VIE’s economicperformance.The Company eliminates from its financial results all intercompany transactions between entities included in the consolidated financial statements andthe intercompany transactions with its equity method investees.Basis of PresentationThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the UnitedStates of America ("U.S. GAAP").ReclassificationsDiscounts on the issuance of senior unsecured notes have been reclassified from other, net to the premium (discount) on senior unsecured notes captionwithin the financing activities section in the Consolidated Statements of Cash Flows, as well as the Condensed Consolidating Statements of Cash Flowswithin Note 19, for prior years to conform to the current year's presentation, with no impact to total cash provided by (used in) operating, investing or financingactivities.Excess tax benefit on stock-based compensation in the Consolidated Statements of Cash Flows and the Condensed Consolidating Statements of CashFlows within Note 19 has been reclassified from financing activities to other, net within operating activities for the prior period to conform to the current year'spresentation as a result of the adoption of Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation (Topic 718): Improvementsto Employee Share Based Payment Accounting ("ASU 2016-09"). Refer to Note 2 for additional information on the impact of the adoption of ASU 2016-09 onthe Company's consolidated financial statements.60Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)2.Significant Accounting PoliciesUse of EstimatesThe process of preparing DPS' consolidated financial statements 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 assumptionsthe Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised whennecessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.Fair ValueFair 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 participantsat the measurement date. Based upon the transparency of inputs to the valuation of an asset or liability, a three-level hierarchy has been established for fairvalue measurements. 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 orliabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable inactive markets.Level 3 - Valuations with one or more unobservable significant inputs that reflect the reporting entity's own assumptions.The fair value of senior unsecured notes and marketable securities as of December 31, 2017 and 2016 are based on quoted market prices for publiclytraded securities.The Company estimates fair values of financial instruments measured at fair value in the financial statements on a recurring basis to ensure they arecalculated based on market rates to settle the instruments. These values represent the estimated amounts DPS would pay or receive to terminateagreements, taking into consideration current market rates and creditworthiness.As of December 31, 2017 and 2016, the Company did not have any assets or liabilities measured on a recurring basis without observable market valuesthat would require a high level of judgment to determine fair value (Level 3).Transfers between levels are recognized at the end of each reporting period. There were no transfers of financial instruments between the three levels offair value hierarchy during the years ended December 31, 2017, 2016 and 2015.Refer to Notes 4, 6, 7 and 8 for additional information.Cash and Cash EquivalentsCash and cash equivalents include cash and investments in short-term, highly liquid securities, with original maturities of three months or less.The Company is exposed to potential risks associated with its cash and cash equivalents. DPS places its cash and cash equivalents with high creditquality financial institutions. Deposits with these financial institutions may exceed the amount of insurance provided; however, these deposits typically areredeemable upon demand and, therefore, the Company believes the financial risks associated with these financial instruments are minimal.Trade Accounts Receivable and Allowance for Doubtful AccountsTrade accounts receivable are recorded at the invoiced amount and do not bear interest.The Company is exposed to potential credit risks associated with its accounts receivable, as it generally does not require collateral on its accountsreceivable. The Company determines the required allowance for doubtful collections using information such as its customer credit history and financialcondition, industry and market segment information, economic trends and conditions and credit reports. Allowances can be affected by changes in theindustry, customer credit issues or customer bankruptcies. Account balances are charged against the allowance when it is determined that the receivable willnot be recovered. The Company has not experienced significant credit-related losses.61Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Activity in the allowance for doubtful accounts during the years ended December 31, 2017, 2016 and 2015 was as follows: For the Year Ended December 31,(in millions)2017 2016 2015Balance, beginning of the year$3 $2 $2Charges to bad debt expense2 1 2Write-offs and adjustments(3) — (2)Balance, end of the year$2 $3 $2As of December 31, 2017 and 2016, WalMart Stores, Inc. ("Walmart") accounted for approximately $78 million and $69 million of trade receivables,respectively, which exceeded 10% of the Company's total trade accounts receivable.InventoriesInventories as of December 31, 2017 are stated at the lower of cost or net realizable value. Inventories as of December 31, 2016 are stated at the lowerof cost or market value. Cost is primarily determined for inventories of the Company's U.S. subsidiaries by the last-in, first-out ("LIFO") valuation method. Thecosts for inventories of the Company's foreign subsidiaries are determined by the first-in, first-out ("FIFO") valuation method. The costs of finished goodsinventories include raw materials, direct labor and indirect production and overhead costs. Reserves for excess and obsolete inventories are based on anassessment of slow-moving and obsolete inventories, determined by historical usage and demand. Excess and obsolete inventory reserves were $4 millionand $2 million as of December 31, 2017 and 2016, respectively. Refer to Note 13 for additional information.Property, Plant and Equipment, NetProperty, plant and equipment is stated at cost plus capitalized interest on borrowings during the actual construction period of major capital projects, netof accumulated depreciation. Significant improvements which substantially extend the useful lives of assets are capitalized. The costs of major rebuilds andreplacements of plant and equipment are capitalized and expenditures for repairs and maintenance which do not improve or extend the life of the assets areexpensed as incurred. The Company capitalizes certain computer software and software development costs incurred in connection with developing orobtaining computer software for internal use, which are included in property, plant and equipment. When property, plant and equipment is sold or retired, thecosts and the related accumulated depreciation are removed from the accounts, and any net gain or loss is recorded in other operating (income) expense,net in the Consolidated Statements of Income. Refer to Note 11 for additional information.For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful asset lives as follows: Type of AssetUseful LifeBuildings and improvements7to40 yearsMachinery and equipment3to25 yearsCold drink equipment3to7 yearsComputer software3to8 yearsLeasehold improvements, which are primarily considered building improvements, are depreciated over the shorter of the estimated useful life of theassets or the lease term. Estimated useful lives are periodically reviewed and, when warranted, are updated.The Company periodically reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. In order to assess recoverability, DPS compares the estimated undiscounted future pre-tax cash flows from the use of the asset orgroup of assets, as defined, to the carrying amount of such assets. Measurement of an impairment loss is based on the excess of the carrying amount of theasset or group of assets over the long-lived asset's fair value. During the years ended December 31, 2017, 2016 and 2015, no impairment was recorded.Investments The Company holds investment securities under a deferred compensation plan, which consist of readily marketable equity securities and included inother non-current assets caption on the Consolidated Balance Sheets. Gains or losses from investments classified as trading, if any, are charged to earnings.62Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The Company also holds non-controlling investments in certain privately held entities which are accounted for as equity method or cost methodinvestments. The companies over which we exert significant influence, but do not control the financial and operating decisions, are accounted for as equitymethod investments. The Company's proportionate share of the net income (loss) resulting from these investments are reported under the line item captionedequity in loss of unconsolidated subsidiaries, net of tax, in the Consolidated Statements of Income. The carrying value of our equity method investments isreported in investments in unconsolidated subsidiaries in our Consolidated Balance Sheets. The Company classifies distributions received from equity-method investments using the cumulative earnings approach on the Consolidated Statements of Cash Flows. Refer to Note 3 for additional information onour equity method investments.Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the costmethod and reported in other non-current assets in our Consolidated Balance Sheets. Refer to Note 14 for additional information.The Company's equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s income or loss anddividends paid, if any, while cost method investments are carried at cost. The entities do not have a readily determinable fair value and are periodicallyevaluated for impairment. An impairment loss would be recorded whenever a decline in value of an investment below its carrying amount is determined to beother than temporary.Goodwill and Other Intangible Assets The Company classifies intangible assets into two categories: (1) intangible assets with definite lives subject to amortization and (2) intangible assetswith indefinite lives not subject to amortization. The majority of the Company's intangible asset balance is made up of brands which the Company hasdetermined to have indefinite useful lives. In arriving at the conclusion that a brand has an indefinite useful life, management reviews factors such as size,diversification and market share of each brand. Management expects to acquire, hold and support brands for an indefinite period through consumermarketing and promotional support. The Company also considers factors such as its ability to continue to protect the legal rights that arise from these brandnames indefinitely or the absence of any regulatory, economic or competitive factors that could truncate the life of the brand name. If the criteria are not met toassign an indefinite life, the brand is amortized over its expected useful life. Identifiable intangible assets deemed by the Company to have determinable finite useful lives are amortized either on a straight-line basis over theirestimated useful lives (customer relationships and distribution rights), or on a basis more representative of the time pattern over which the benefit is derived(non-compete agreements). The estimated useful lives of the Company's intangible assets with definite lives are as follows: Useful LifeCustomer relationships 7 yearsDistribution rights5to15 yearsNon-compete agreements2to4 years The Company does not amortize goodwill, but tests it at least annually for impairment at the reporting unit level.DPS conducts tests for impairment. For intangible assets with definite lives, tests for impairment are performed if conditions exist that indicate the carryingvalue may not be recoverable. For goodwill and indefinite-lived intangible assets, the Company conducts tests for impairment annually, as of October 1, ormore frequently if events or circumstances indicate the carrying amount may not be recoverable. We use present value and other valuation techniques tomake this assessment.The tests for impairment include significant judgment in estimating the fair value of reporting units and intangible assets primarily by analyzing forecastsof future revenues and profit performance. Fair value is based on what the reporting units and intangible assets would be worth to a third party marketparticipant. Management's estimates of fair value, which fall under Level 3 and are non-recurring, are based on historical and projected operatingperformance and discount rates. Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with various risk premiums. Referto Note 4 for additional information.Capitalized Customer Incentive ProgramsThe Company provides support to certain customers to cover various programs and initiatives to increase net sales, including contributions to customersor vendors for cold drink equipment used to market and sell the Company's products. These programs and initiatives generally directly benefit the Companyover a period of time. Accordingly, costs of these programs and initiatives are recorded in prepaid expenses and other current assets and other non-currentassets in the Consolidated Balance Sheets. The costs for these programs are amortized over the period to be directly benefited based upon a methodologyconsistent with the Company's contractual rights under these arrangements.63Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)These programs and initiatives recorded in the current and non-current assets within the Consolidated Balance Sheets were $92 million and $81 million,net of accumulated amortization, as of December 31, 2017 and 2016, respectively. The following table summarizes the location of amortization expenserelated to these programs and initiatives within the Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015: For the Year Ended December 31,(in millions) 2017 2016 2015Net sales $10 $10 $9Selling, general and administrative ("SG&A") expenses 2 3 4 $12 $13 $13DerivativesThe Company formally designates and accounts for certain interest rate contracts and foreign exchange ("FX") forward contracts that meet establishedaccounting criteria as either fair value or cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effectiveportion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in Accumulated Other Comprehensive Loss ("AOCL"), acomponent of Stockholders' Equity in the Consolidated Balance Sheets. When net income is affected by the variability of the underlying transaction, theapplicable offsetting amount of the gain or loss from the derivative instrument deferred in AOCL is reclassified to net income and is reported as a componentof the Consolidated Statements of Income. For derivative instruments that are designated and qualify as fair value hedges, the effective change in the fairvalue 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-periodearnings. For derivatives that are not designated as a hedging instrument, which creates an economic hedge, or de-designated as a hedging instrument, thegain or loss on the instrument is recognized in earnings in the period of change. Certain interest rate swap agreements qualify for the shortcut method of accounting for hedges. Under the shortcut method, the hedges are assumed tobe perfectly effective and no ineffectiveness is recorded in earnings. For all other designated hedges, the Company assesses at the time the derivativecontract is entered into, and at least quarterly thereafter, whether the derivative instrument is effective in offsetting the changes in fair value or cash flows. DPSalso measures hedge ineffectiveness on a quarterly basis throughout the designated period. For fair value hedges, changes in the fair value of the derivativeinstrument that do not effectively offset changes in the fair value of the underlying hedged item throughout the designated hedge period are recorded inearnings each period. For cash flow hedges, ineffectiveness, if any, related to the Company's changes in estimates about the forecasted transaction would berecognized directly in earnings during the period incurred.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 sheetat fair value until settled, but hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associatedamounts reported in long term obligations or AOCL, respectively, are reclassified to earnings at that time. Refer to Note 8 for additional information.Pension and Postretirement BenefitsThe Company has U.S. and foreign pension and postretirement benefit ("PRMB") plans which provide benefits to a defined group of employees whosatisfy age and length of service requirements at the discretion of the Company. As of December 31, 2017, the Company has several stand-alone non-contributory defined benefit plans and PRMB plans. Depending on the plan, pension and PRMB are based on a combination of factors, which may includesalary, age and years of service.Employee pension and PRMB plan obligations and the associated expense included in the Consolidated Financial Statements are determined fromactuarial analyses based on plan assumptions, employee demographic data, years of service, compensation, benefits and claims paid and employercontributions. Non-cash settlement charges occur when the total amount of lump sum payments made to participants of various U.S. defined pension plansexceed the estimated annual interest and service costs.The Company's objective with respect to the funding of our pension plans is to provide adequate assets for the payment of future benefits. Pursuant tothis objective, the Company will fund the pension plans as required by governmental regulations and may consider discretionary contributions as conditionswarrant.The Company participates in three multi-employer pension plans and makes contributions to those plans, which are recorded in either cost of sales orSG&A expenses.Refer to Note 6 for additional information regarding our pension and PRMB plans.64Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Risk Management ProgramsThe Company retains selected levels of property, casualty, workers' compensation, health and other business risks. Many of these risks are coveredunder conventional insurance programs with high deductibles or self-insured retentions. Accrued liabilities related to the retained casualty and health risksare calculated based on loss experience and development factors, which contemplate a number of variables including claim history and expected trends. Asof December 31, 2017 and 2016, the Company had accrued liabilities related to the retained risks of $94 million and $103 million, respectively, includingboth other current and long-term liabilities. As of December 31, 2017 and 2016, the Company recorded receivables of $11 million and $13 million,respectively, for insurance recoveries related to these retained risks.Income TaxesIncome taxes are accounted for using the asset and liability approach, which involves determining the temporary differences between assets andliabilities recognized for financial reporting and the corresponding amounts recognized for tax purposes and computing the tax-related carryforwards at theenacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Theresulting amounts are deferred tax assets or liabilities. The total of taxes currently payable per the tax return, the deferred tax expense or benefit and theimpact of uncertain tax positions represents the income tax expense or benefit for the year for financial reporting purposes.The Company periodically assesses the likelihood of realizing its deferred tax assets based on the amount that the Company believes is more likely thannot to be realized. The Company bases its judgment of the recoverability of its deferred tax assets primarily on historical earnings, its estimate of current andexpected future earnings and prudent and feasible tax planning strategies. Refer to Note 5 for additional information.The Company establishes income tax liabilities to remove some or all of the income tax benefit of any of the Company's income tax positions at the timeDPS determines that the positions become uncertain based upon one of the following: (1) the tax position is not "more likely than not" to be sustained, (2) thetax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in thefinancial period in which the tax position was originally taken. The Company's evaluation of whether or not a tax position is uncertain is based on thefollowing: (1) DPS presumes the tax position will be examined by the relevant taxing authority such as the Internal Revenue Service ("IRS") that has fullknowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent,regulations, rulings and case law and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated withoutconsiderations of the possibility of offset or aggregation with other tax positions taken. The Company adjusts these income tax liabilities when the Company'sjudgment changes as a result of new information. Any change will impact income tax expense in the period in which such determination is made.DPS' effective tax rate may fluctuate on a quarterly and/or annual basis due to various factors, including, but not limited to, total earnings and the mix ofearnings by jurisdiction, the timing of changes in tax laws and the amount of tax provided for uncertain tax positions.Common Stock Share RepurchasesThe Company repurchases shares of DPS common stock under a program authorized by the Board of Directors, including plans meeting therequirements of Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934. Shares repurchased are retired and not displayed separately as treasury stock onthe financial statements. Instead, the par value of repurchased shares is deducted from common stock and the excess repurchase price over par value isdeducted from additional paid-in capital and subsequently from retained earnings, once additional paid-in capital is depleted.Revenue RecognitionThe Company recognizes sales revenue when all of the following have occurred: (1) delivery; (2) persuasive evidence of an agreement exists; (3) pricingis fixed or determinable; and (4) collection is reasonably assured. Delivery is not considered to have occurred until the title and the risk of loss passes to thecustomer. Net sales are reported net of costs associated with customer marketing programs and incentives, as described below, as well as sales taxes andother similar taxes.Multiple deliverables were included in the arrangements entered into with PepsiCo, Inc. ("PepsiCo") and The Coca-Cola Company ("Coca-Cola") during2010. As the sale of the manufacturing and distribution rights and the ongoing sales of concentrate would not have stand-alone value to the customer, bothdeliverables were determined to represent a single element of accounting for purposes of revenue recognition. The one-time nonrefundable cash receiptsfrom PepsiCo and Coca-Cola were therefore recorded as deferred revenue and are recognized as net sales ratably over the estimated 25-year life of thecustomer relationship.65Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Customer Marketing Programs and IncentivesThe Company offers a variety of incentives and discounts to bottlers, customers and consumers through various programs to support the distribution of itsproducts. These incentives and discounts include cash discounts, price allowances, volume based rebates, product placement fees and other financialsupport for items such as trade promotions, displays, new products, consumer incentives and advertising assistance. These incentives and discounts arereflected as a reduction of gross sales to arrive at net sales. The aggregate deductions from gross sales recorded in relation to these programs wereapproximately $4,266 million, $4,082 million and $3,844 million during the years ended December 31, 2017, 2016 and 2015, respectively. Accruals areestablished for the expected payout based on contractual terms, volume-based metrics and/or historical trends and require management judgment withrespect to estimating customer participation and performance levels.Cost of SalesCost of goods sold includes all costs to acquire and manufacture our products including raw materials, direct and indirect labor, manufacturing overhead,including depreciation expense, and all other costs incurred to bring the product to salable condition. All other costs incurred after this condition is met areconsidered selling costs and included in SG&A expenses.Transportation and Warehousing CostsThe Company incurred $843 million, $792 million and $806 million of transportation and warehousing costs during the years ended December 31, 2017,2016 and 2015, respectively. These amounts, which primarily relate to shipping and handling costs are recorded in SG&A expenses in the ConsolidatedStatements of Income.Advertising and Marketing ExpenseAdvertising and marketing production costs related to television, print, radio and other marketing investments are expensed as of the first date theadvertisement takes place. All other advertising and marketing costs are expensed as incurred. Advertising and marketing expense was approximately $547million, $477 million and $473 million during the years ended December 31, 2017, 2016 and 2015, respectively. These expenses are recorded in SG&Aexpenses in the Consolidated Statements of Income. As of December 31, 2017 and 2016, prepaid advertising and marketing costs of approximately $12million and $10 million, respectively, were recorded as other current and non-current assets in the Consolidated Balance Sheets.Research and Development CostsResearch and development costs are expensed when incurred and amounted to $20 million, $20 million and $19 million for the years endedDecember 31, 2017, 2016 and 2015, respectively. These expenses are recorded in SG&A expenses in the Consolidated Statements of Income.Stock-Based Compensation ExpenseThe Company recognizes compensation expense in the Consolidated Statements of Income related to the fair value of employee stock-based awards.Compensation cost is based on the grant-date fair value, which is estimated using the Black-Scholes option pricing model for stock options. The fair value ofrestricted stock units ("RSUs") is determined based on the number of units granted and the grant date price of common stock. The fair value of theperformance stock units ("PSUs"), which includes a market condition, is estimated at the date of grant using a Monte-Carlo simulation. Stock-basedcompensation expense is recognized ratably, less estimated forfeitures, over the vesting period in the Consolidated Statements of Income. Stock-basedcompensation expense for PSUs is adjusted quarterly based on the current estimate of performance compared to the target metrics.The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from thoseestimates. The Company uses historical data to estimate pre-vesting option, RSU and PSU forfeitures and record stock-based compensation expense onlyfor those awards that are expected to vest.Refer to Note 9 for additional information .Deferred Compensation PlanEmployee and employer matching contributions under the Supplemental Savings Plan ("SSP") are maintained in a rabbi trust and are not readilyavailable to us. Participants can direct the investment of their deferred compensation plan accounts in the same investment funds offered by the DPS' SavingsIncentive Plan (the "SIP"). Refer to Note 6 for additional information.Foreign Currency Translation and TransactionThe functional currency of the Company's operations outside the U.S. is generally the local currency of the country where the operations are located. Thebalance sheets of operations outside the U.S. are translated into U.S. dollars at the end of year rates. The results of operations are translated into U.S. dollarsat a monthly average rate, calculated using daily exchange rates.66Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following table sets forth exchange rate information for the periods and currencies indicated:Mexican Peso to U.S. Dollar Exchange RateEnd of Year Rates Annual AverageRates201719.66 18.92201620.62 18.68201517.25 15.87Canadian Dollar to U.S. Dollar Exchange RateEnd of Year Rates Annual AverageRates20171.25 1.3020161.34 1.3320151.38 1.28Differences arising from the translation of opening balance sheets of these entities to the rate ruling at the end of the financial year are recognized inAOCL. The differences arising from the translation of foreign results at the average rate are also recognized in AOCL. Such translation differences arerecognized as income or expense in the period in which the Company disposes of the operations.Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. Assets and liabilities resulting from thesetransactions are translated at the rate of exchange in effect at the balance sheet date. All such differences are recorded in results of operations.Recently Issued Accounting StandardsEffective in 2018In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The new guidance sets forth a newfive-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 orother organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to beentitled to in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions thatwere 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 theeffective date of ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted earlyadoption of the standard, but not before the original effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versusagent considerations for the new model. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): IdentifyingPerformance Obligations and Licensing, which clarifies the implementation guidance related to identifying performance obligations and licensing for the newmodel. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and PracticalExpedients, which improves guidance on assessing collectibility, presentation of sales taxes, non-cash consideration, and completed contracts and contractmodifications at transition. These updates are effective concurrently with Topic 606 (ASU 2014-09).The Company intends to adopt the above standards using the modified retrospective approach for the quarter ending March 31, 2018 by recognizing thecumulative effect of initially applying the new standard, driven predominantly by the acceleration of customer incentives, as a decrease to the openingbalance of retained earnings, with an immaterial impact to our net income on an ongoing annual basis. The Company does expect that it could have animpact on its net sales in interim periods due to timing. The Company has evaluated the disclosure requirements under these standards and is implementingcontrols to support these new disclosure requirements, which will include additional disclosures of disaggregated net sales.67Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic PensionCost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). ASU 2017-07 requires employers who offer defined benefit pension plans or other post-retirement benefit plans to report the service cost component within the same income statement caption as other compensation costs arising from servicesrendered by employees during the period. The ASU also requires the other components of net periodic benefit cost to be presented separately from theservice cost component, in a caption outside of a subtotal of income from operations. The Company intends to adopt ASU 2017-07 for the quarter endingMarch 31, 2018 and expects to reclassify $7 million of pension and other PRMB plan expenses for each of the years ended December 31, 2017 and 2016,respectively, from SG&A expenses to other nonoperating income, net.Effective in 2019In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). The ASU replaces the prior lease accounting guidance in itsentirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with anexception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. ASU 2016-02 iseffective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The standard requires a modifiedretrospective approach, which includes several optional practical expedients. The Company intends to adopt the standard during the quarter ending March31, 2019. The Company has assembled a cross functional project management team, selected a software provider and have begun the implementation ofthe software. The Company anticipates the impact of the standard to be significant to its Consolidated Balance Sheet due to the amount of the Company'slease commitments. See Note 12 for further information regarding leases. The Company is currently evaluating the other impacts that ASU 2016-02 will haveon the consolidated financial statements.In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities("ASU 2017-12"). The objective of the ASU is to improve the financial reporting of hedging relationships in order to better portray the economic results of anentity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of hedge accountingguidance. ASU 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. TheCompany is currently evaluating the impact of ASU 2017-12 on the Company's consolidated financial statements.Effective in 2020In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments("ASU 2016-13"). The standard provides for a new impairment model which requires measurement and recognition of expected credit losses for mostfinancial assets held. The ASU is effective for public companies for annual periods, and interim periods within those annual periods, beginning afterDecember 15, 2019. The Company does not anticipate ASU 2016-13 to have a material impact on the consolidated financial statements.Effective in 2021In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The standard provides for the elimination of Step 2 from the goodwill impairment test. If impairment charges are recognized, the amount recorded will bethe amount by which the carrying amount exceeds the reporting unit’s fair value with certain limitations. The ASU is effective for public companies for annualperiods, and interim periods within those annual periods, beginning after December 15, 2020, and early adoption is permitted. The Company does notcurrently anticipate ASU 2017-04 to have a material impact on the consolidated financial statements.Recently Adopted Provisions of U.S. GAAPAs of January 1, 2017, the Company adopted ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory ("ASU 2015-11"). ASU2015-11 requires inventories measured under any methods other than last-in, first-out ("LIFO") or the retail inventory method to be subsequently measured atthe 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 inventorymethod is unchanged by ASU 2015-11. The adoption of ASU 2015-11 did not have a material impact on the Company's consolidated financial statements.As of January 1, 2017, the Company adopted ASU 2016-09, which is part of the FASB's simplification initiative. The new standard provides for changesto accounting for stock compensation including 1) excess tax benefits and tax deficiencies related to share based payment awards will be recognized asincome tax benefit or expense in the reporting period in which they occur; 2) excess tax benefits will be classified as an operating activity in the statement ofcash flow; 3) the option to elect to estimate forfeitures or account for them when they occur; and 4) an increase in the tax withholding requirements thresholdto qualify for equity classification. Beginning in 2017, the primary impact of adoption was the recognition of excess tax benefits for our stock awards in theprovision for income taxes rather than additional paid-in capital. Additional amendments to the accounting for income taxes and minimum statutorywithholding tax requirements had no impact to retained earnings. The Company elected to continue to estimate forfeitures expected to occur to determine theamount of compensation cost to be recognized in each period.68Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Adoption of the new standard resulted in the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital of $19 millionfor the year ended December 31, 2017. The presentation of excess tax benefits on stock-based compensation was adjusted retrospectively within theConsolidated Statements of Cash Flows, resulting in a $22 million and $23 million increase in net cash provided by operating activities for the years endedDecember 31, 2016, and 2015, respectively, with a corresponding increase to net cash provided by (used in) financing activities. The presentationrequirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented on the ConsolidatedStatements of Cash Flows as the Company has historically presented them as a financing activity.As of January 1, 2017, the Company early adopted ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash ("ASU 2016-18"), whichrequires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling thebeginning and ending amounts shown on the statement of cash flows. The Company elected to early adopt the provisions of ASU 2016-18 as of January 1,2017 and has revised its Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015, to reflect amounts described asrestricted cash and restricted cash equivalents included with cash and cash equivalents in the reconciliation of beginning of period and end of period totalamounts shown on the Consolidated Statements of Cash Flow. The adoption had no impact on amounts presented in the Consolidated Statements of CashFlows for the years ended December 31, 2016 and 2015. Refer to Note 17 for the reconciliation of cash, cash equivalents, restricted cash and restricted cashequivalents as presented on the Consolidated Balance Sheets to the amounts as shown on the Consolidated Statements of Cash Flows.3.Acquisitions and Investments in Unconsolidated Subsidiaries2017 ACQUISITIONBai Brands MergerOn November 21, 2016, we entered into an Agreement and Plan of Merger (the "Bai Merger Agreement") with Bai Brands LLC ("Bai Brands"), pursuant towhich we agreed to acquire Bai Brands for a cash purchase price of $1.7 billion, subject to certain adjustments in the Bai Merger Agreement (the "Bai BrandsMerger"). The acquisition of Bai Brands will further enable the Company to meet growing consumer demand for better-for-you beverages, as Bai Brands ispositioned for expanding growth in key beverage segments.On January 31, 2017, the Company funded the Bai Brands Merger with the net proceeds from the senior unsecured notes issued in December 2016 andcash on hand. In order to complete the Bai Brands Merger, the Company paid $1,548 million, net of the Company's previous ownership interest, in exchangefor the remaining ownership interests and seller transaction costs. Additionally, $103 million was held back and placed in escrow.As a result of the Bai Brands Merger, our existing 2.63% equity interest in Bai Brands was remeasured to fair value of $43 million, which resulted in again of $28 million that was recognized in the first quarter of 2017 and included in other operating income, net.Two transactions related to the Bai Brands Merger were recognized separately from the acquisition of assets and assumptions of liabilities of Bai Brands:•The Company paid certain seller transaction costs, which included $2 million to reimburse Bai Brands for payments made on behalf of the Companyfor buyer acquisition-related costs, which were recorded as SG&A expenses. The remainder of the seller transaction costs paid by the Companywere accounted for by the Company as part of the consideration transferred.•Bai Brands had an executory contract as of January 31, 2017, which compensated certain counterparties with Profit Interest Units from Bai Brands(the “Predecessor PIUs”). The Predecessor PIUs were based upon the counterparties completing service requirements and various performancecriteria. As a result of the Bai Brands Merger, these Predecessor PIUs have fully vested and were converted into cash as of January 31, 2017 basedupon the consideration paid by the Company to acquire Bai Brands. The cash was placed in escrow and is released from escrow to thecounterparties on certain anniversary dates, as long as the counterparties are not in breach of the executory contract. Although none of the costs ofthese benefits have been paid by the Company, DPS will record SG&A expenses for the deferred compensation amounts payable to thesecounterparties by Bai Brands. For the year ended December 31, 2017, the Company recognized approximately $6 million of compensation expenserelated to performance on the executory contract. As of December 31, 2017, the total unrecognized compensation cost is $7 million and the periodover which these costs are expected to be recognized is 9 months.69Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The Company’s preliminary purchase price, as of December 31, 2017, was $1,636 million, net of the Company's previous ownership interest. Thecomponents of the preliminary purchase price are presented below:(in millions)Preliminary Purchase PriceCash paid to consummate Bai Brands Merger, net of the Company's previous ownership interest and cash acquired inthe step acquisition$1,552Remaining holdback placed in escrow86Less: Seller transaction costs reimbursed to Bai Brands for payments made on behalf of the Company for itsacquisition-related costs(2)Preliminary Purchase Price(1)$1,636___________________________(1)The preliminary purchase price excludes the impact of the Company's pre-existing ownership interest.For the years ended December 31, 2017 and 2016, acquisition and integration-related expenses of $23 million and $3 million, respectively,were recognized in SG&A expenses.Escrow/Holdback LiabilityThe following table provides a rollforward of the holdback placed in escrow from the date of the acquisition to December 31, 2017:(in millions) Indemnification Escrow(One Year)(2) Indemnification Escrow(Four Years)(3) UnrecognizedCompensation Costs Total HoldbackLiabilityBalance as of January 31, 2017 $80 $10 $13 $103Working capital adjustment(1) (11) — — (11)Recognized compensation costs — — (6) (6)Balance as of December 31, 2017 $69 $10 $7 $86___________________________(1)Amounts were initially placed in escrow to secure indemnification obligations of the sellers relating to the accuracy of representations and warranties and a working capitaladjustment. During the year ended December 31, 2017, the Company and the former shareholders of Bai Brands agreed upon a working capital adjustment of $11 million.The Company is currently in arbitration under the terms of the Bai Merger Agreement for one remaining matter related to the working capital adjustment. The $11 millionagreed-upon adjustment will be released back to the Company from escrow upon completion of arbitration.(2)The initial term that these amounts were to be held in escrow was one year from the date of the acquisition. In January 2018, the Company notified the trustee that thefunds should remain in escrow pending resolution of certain indemnification obligations. As a result, the Company has reclassified this portion of the restricted cash and thecorresponding holdback liability to non-current.(3)The escrow and corresponding holdback liability, net of any claims, is anticipated to be released approximately 4 years after the acquisition date, subject to certainadministrative conditions and resolution of certain indemnification obligations.The acquisition consideration held in escrow does not meet the definition of contingent consideration as provided under U.S. GAAP. The amount held inescrow was included in the preliminary purchase price as representations and warranties were expected to be valid as of the acquisition date. The escrow isincluded in restricted cash along with a corresponding amount in the liability section of the Consolidated Balance Sheets, which is allocated between othercurrent liabilities and other non-current liabilities. Refer to Note 17 for additional information on location of the restricted cash on the Consolidated BalanceSheets.70Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Preliminary Purchase Price AllocationThe following table summarizes the preliminary allocation, as of December 31, 2017, of the fair value of the assets acquired and liabilities assumed bymajor class for the Bai Brands Merger:(in millions) Fair Value Useful LifeProperty, plant & equipment $4 5 - 10 yearsCustomer relationships 30 7 yearsNon-compete agreements 22 2 - 4 yearsBrands 1,073 IndefiniteGoodwill 568 IndefiniteAssumed liabilities, net of acquired assets (18) N/ATotal $1,679 The acquisition was accounted for as a business combination, and the identifiable assets acquired and liabilities assumed were recorded at theirestimated fair values at the date of acquisition. We have completed our preliminary valuation to determine the fair value of the identifiable assets acquiredand liabilities assumed. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fairvalue measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair valuemeasurements and disclosure framework. Key assumptions include cash flow projections of Bai Brands and the discount rate applied to those cash flows.The excess of the purchase price over the estimated fair values was recorded as goodwill.In connection with this acquisition, the Company has now recorded goodwill of $568 million, which is deductible for tax purposes. The goodwillrecognized was attributable to certain tax benefits the Company will realize over time, Bai Brands' management team and growth opportunities in a “better-for-you” beverage segment.The Company recorded $36 million for the fair value of contingent liabilities assumed upon acquisition primarily related to existing manufacturingcontracts. The fair value of the contingent liabilities was determined using discounted cash flows on expected future payments related to these contracts. Thecontingent liabilities will be evaluated each reporting period based on events and circumstances which may impact future payments under these contracts,and any changes in fair value will be recorded in the Company's Consolidated Statements of Income.During the fourth quarter of 2017, the Company renegotiated one of the existing manufacturing contracts assumed upon acquisition. Based on the termsof the amended contract, the Company recognized a $21 million benefit, which was recorded in other operating (income) expense, net.Pro Forma InformationThe Company’s acquisition of Bai Brands is strategically significant to the future growth prospects of the Company; however at the time of the acquisition,the historical results of Bai Brands were immaterial to the Company’s consolidated financial results. Assuming the results of Bai Brands had been included inoperations beginning on January 1, 2016, the estimated pro forma net operating revenues of the Company for the years ended December 31, 2017 and 2016would have been approximately $6,692 million and $6,493 million, respectively. The estimated pro forma net income, which includes the alignment ofaccounting policies, the effect of fair value adjustments related to the Bai Brands Merger, the associated tax effects and the impact of the additional debt tofinance the Bai Brands Merger, for the years ended December 31, 2017 and 2016 would have been approximately $1,058 million and $789 million,respectively. This estimated pro forma information is not necessarily indicative of the results that actually would have occurred had the Bai Brands Mergerbeen completed on the date indicated or the future operating results.71Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Actual Results of Bai BrandsThe following table presents the actual results of Bai Brands since the acquisition date that are included in the year ended December 31, 2017, as wellas a reconciliation to the Company's consolidated results of operations:(in millions)For the Year Ended December 31, 2017Net sales - Bai Brands$222Intercompany sales to Packaged Beverages Excluding Bai(1)(158)Incremental impact to consolidated net sales$64 Net loss - Bai Brands$(17)Impact of intercompany activity with Packaged Beverages Excluding Bai(1)(4)Incremental impact to consolidated net income$(21)___________________________(1)Impact of intercompany activity includes the elimination of intercompany net sales and the deferral of gross profit recognition on shipments of product still in PackagedBeverages Excluding Bai inventory for the year ended December 31, 2017, net of tax.2016 ACQUISITIONIndustria Embotteladora de Bebidas Mexicanas and Embotelladora Mexicana de Agua, S.A. de C.V.On September 13, 2016, Industria Embotelladora de Bebidas Mexicanas ("IEBM") and Embotelladora Mexicana de Agua, S.A. de C.V. ("EMA"),previously 50:50 joint ventures between a subsidiary of the Company and Acqua Minerale San Benedetto S.P.A. ("San Benedetto"), became wholly-ownedsubsidiaries of the Company as a result of the Company's agreement to purchase all of the outstanding shares of IEBM and EMA owned by San Benedetto.The Company paid approximately $15 million in cash for all of the outstanding shares of IEBM and EMA owned by San Benedetto. The Company'sequity interest in IEBM and EMA of $10 million was remeasured to fair value, which resulted in a non-taxable gain of $5 million which was recognized during2016 and included in other operating (income) expense, net.The acquisition was accounted for as a step-acquisition within a business combination, and the identifiable assets acquired and liabilities assumedwere recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair values was recorded asgoodwill.The following table summarizes the preliminary allocation of fair value of the assets acquired and liabilities assumed by major class for the step-acquisition when the Company gained control:(in millions) Fair Value Useful LifeProperty, plant & equipment $2 1 - 5 yearsBrands: indefinite-lived 1 —Goodwill(1) 8 —Cash 17 —All other assets, net of liabilities assumed 2 —Total $30 ___________________________(1)The goodwill associated with this step-acquisition was recorded to the Company's Latin America Beverages reporting unit and is not deductible for tax purposes.Beginning in September 2016, IEBM's and EMA's results of operations were fully consolidated in the Company's Consolidated Statements of Income.Prior to September 2016, the Company's 50% share of IEBM's and EMA's results of operations was reported in equity in earnings of unconsolidatedsubsidiaries, net of tax, in the Company's Consolidated Statements of Income. The Company has not presented pro forma results of operations or amounts ofrevenue and earnings since the acquisition date because the acquisition is not material to the Company's Consolidated Financial Statements.INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIESThe Company has an ownership interest in BA Sports Nutrition, LLC of 15.5%. The investment is accounted for as an equity method investment as theCompany 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 Companyhas no other significant investments in unconsolidated subsidiaries. Refer to Note 20 for additional information on the subsequent investment in CoreNutrition LLC ("Core").72Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)4. Goodwill and Other Intangible AssetsChanges in the carrying amount of goodwill for the years ended December 31, 2017 and 2016, by reporting unit, are as follows:(in millions)BeverageConcentrates WD ReportingUnit(1) DSD ReportingUnit(1) Bai Latin AmericaBeverages TotalBalance as of January 1, 2016 Goodwill$1,733 $1,222 $189 $— $24 $3,168Accumulated impairment losses— — (180) — — (180) 1,733 1,222 9 — 24 2,988Foreign currency translation— — — — (3) (3)Acquisition(2)— — — — 8 8Balance as of December 31, 2016 Goodwill1,733 1,222 189 — 29 3,173Accumulated impairment losses— — (180) — — (180) 1,733 1,222 9 — 29 2,993Foreign currency translation— — — — — —Acquisition(3)— — — 568 — 568Balance as of December 31, 2017 Goodwill1,733 1,222 189 568 29 3,741Accumulated impairment losses— — (180) — — (180) $1,733 $1,222 $9 $568 $29 $3,561____________________________(1)The Packaged Beverages Excluding Bai segment is comprised of two reporting units, the Direct Store Delivery ("DSD") system and the Warehouse Direct ("WD") system.(2)Goodwill was recorded to the Latin America Beverages reporting unit during 2016 as a result of the step acquisition of IEBM and EMA. Refer to Note 3 for additionalinformation.(3)Goodwill was recorded to Bai during 2017 as a result of the Bai Brands Merger. Refer to Note 3 for additional information about the Bai Brands Merger.The net carrying amounts of other intangible assets as of December 31, 2017 and 2016 are as follows: December 31, 2017 December 31, 2016 Gross Accumulated Net Gross Accumulated Net(in millions)Amount Amortization Amount Amount Amortization AmountIntangible assets with indefinite lives: Brands(1)$3,694 $— $3,694 $2,621 $— $2,621Distribution rights(2)32 — 32 27 — 27Intangible assets with finite lives: Customer relationships(1)106 (79) 27 76 (76) —Non-compete agreements(1)22 (2) 20 — — —Distribution rights18 (10) 8 16 (8) 8Brands29 (29) — 29 (29) —Bottler agreements19 (19) — 19 (19) —Total$3,920 $(139) $3,781 $2,788 $(132) $2,656____________________________(1)As a result of the Bai Brands Merger, the Company recorded indefinite lived brand assets of $1,073 million and definite lived customer relationships and non-competeagreements of $30 million and $22 million respectively. Refer to Note 3 for additional information. Indefinite lived brand assets were additionally impacted by a $1 millionincrease due to foreign currency translation, which was offset by the $1 million write-off of the Aguafiel brand as described below in Results of Our Impairment Analyses.(2)In 2017, the Company reacquired certain indefinite lived distribution rights for $5 million.73Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Amortization expense for intangible assets with finite lives was $7 million, $3 million and $6 million for the years ended December 31, 2017, 2016 and2015, respectively.Amortization expense of these intangible assets over the next five years is expected to be the following: For the Years Ended December 31,(in millions)2018 2019 2020 2021 2022Projected amortization expense for intangible assets with finite lives$15 $14 $9 $6 $5In accordance with U.S. GAAP, the Company conducts impairment tests of goodwill and indefinite-lived intangible assets annually, as of October 1, ormore frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of impairment testing, the Companyassigns goodwill to the reporting unit that benefits from the synergies arising from each business combination and also assigns indefinite-lived intangibleassets to its reporting units. The Company defines reporting units as Beverage Concentrates, Latin America Beverages and Packaged Beverages' threereporting units, DSD, WD and Bai.The impairment test for indefinite lived intangible assets encompasses calculating a fair value of an indefinite lived intangible asset and comparing thefair value to its carrying value. If the carrying value exceeds the estimated fair value, impairment is recorded. The impairment tests for goodwill includecomparing a fair value of the respective reporting unit with its carrying value, including goodwill and considering any indefinite lived intangible assetimpairment charges ("Step 1"). If the carrying value exceeds the estimated fair value, impairment is indicated and a second step analysis must be performed.Refer to Note 2 for additional information about the Company's calculations of estimated fair value for indefinite lived intangible assets.The ranges of discount rates used for the impairment analyses for the years ended December 31, 2017, 2016 and 2015 were as follows: 2017 Range 2016 Range 2015 Range Low High Low High Low HighGoodwill 5.00% 8.00% 5.00% 9.00% 5.00% 9.10%Intangible assets - brands 6.70% 8.00% 7.25% 10.25% 7.25% 10.35%Results of our Impairment Analyses2017As of October 1, 2017, the results of the annual impairment tests indicated no impairment of the Company's goodwill or brands was required except for a$1 million non-cash charge to fully impair Aguafiel. The estimated fair value of each reporting unit exceeded the carrying value for all of the Company'sgoodwill by at least 100%, except for Bai, which was 11%.2016As of October 1, 2016, the results of the annual impairment tests indicated no impairment of the Company's goodwill or brands was required. Theestimated fair value of each reporting unit exceeded the carrying value for all of the Company's goodwill by at least 100%.2015As of October 1, 2015, the results of the annual impairment tests indicated no impairment of the Company's goodwill or brands was required, except for a$7 million non-cash charge to fully impair Garden Cocktail, a Canadian brand recorded in the WD reporting unit. The estimated fair value of each reportingunit exceeded the carrying value for all of the Company's goodwill by at least 100%.74Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Comparison of Fair Value to Carrying Value - Indefinite-Lived BrandsThe results of the impairment analysis of our indefinite-lived brands as of October 1, 2017, 2016 and 2015 are shown below:(in millions) 2017 2016 2015Headroom Percentage Fair Value Carrying Value Fair Value Carrying Value Fair Value Carrying Value0 - 10%(1) $1,122 $1,073 $— $— $— $—11 - 20% — — — — — —21 - 50% — — — — — —51 - 100% 1,011 655 — — — —> 100% 16,508 1,971 17,745 2,622 15,647 2,628 $18,641 $3,699 $17,745 $2,622 $15,647 $2,628____________________________(1)The Bai brand was acquired nine months prior to the impairment measurement date.5. Income TaxesU.S. TAX REFORMThe legislation commonly referred to as The Tax Cuts and Jobs Act (the "TCJA") was enacted on December 22, 2017. The TCJA reduced the U.S. federalstatutory tax rate from 35% to 21% effective January 1, 2018, made changes to the international tax rules, repealed the domestic manufacturing deductioneffective January 1, 2018, and allowed for full expensing of certain capital purchases from September 28, 2017 through December 31, 2022.The Company recorded an income tax benefit of $297 million in the fourth quarter as a result of the TCJA, which was comprised of the following:•An income tax benefit of $328 million primarily due to reducing its net U.S. deferred tax liabilities for the 14% decrease in the U.S. federal statutorytax rate.•Income tax expense of $31 million due to the establishment of a valuation allowance for all unused foreign tax credit carryforwards as of December31, 2017 as the Company no longer believes that any benefit will be realized from these foreign tax credit carryforwards due to U.S. Tax Reformchanges including the elimination of tax on foreign dividends.On December 22, 2017, the SEC staff issued Staff Accounting Bulletin ("SAB") 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB118"), which provides guidance on accounting for the impact of the TCJA, in effect allowing an entity to use a methodology similar to the measurement periodin a business combination. Pursuant to the disclosure provisions of SAB 118, as of December 31, 2017 the Company has not completed its accounting for thetax effects of the TCJA. The Company has recorded a reasonable estimate of the impact from the TCJA, but is still analyzing the TCJA and refining ourcalculations. Additionally, future guidance from the IRS, SEC, or the FASB could result in changes to our accounting for the tax effects of the TCJA.Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries was as follows: For the Year Ended December 31,(in millions) 2017 2016 2015U.S. $1,085 $1,169 $1,070Non-U.S. 88 114 114Total$1,173 $1,283 $1,18475Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The provision for income taxes has the following components: For the Year Ended December 31,(in millions) 2017 2016 2015Current: Federal$240 $311 $307State37 50 52Non-U.S. 19 44 32Total current provision296 405 391Deferred: Federal(1)(218) 18 21State14 8 7Non-U.S. 3 3 1Total deferred provision(201) 29 29Total provision for income taxes$95 $434 $420____________________________(1)For the year ended December 31, 2017, the deferred federal provision for income taxes was impacted by the TCJA.The following is a reconciliation of the provision for income taxes computed at the U.S. federal statutory tax rate to the provision for income taxes reportedin the Consolidated Statements of Income: For the Year Ended December 31,(in millions) 2017 2016 2015Statutory federal income tax of 35%$411 $449 $414State income taxes, net(1)34 38 39U.S. federal domestic manufacturing benefit(27) (29) (29)Impact of non-U.S. operations(11) (8) (7)Impact of the TCJA(297) — —Other(2)(3)(15) (16) 3Total provision for income taxes$95 $434 $420Effective tax rate8.1% 33.8% 35.5%____________________________(1)For the year ended December 31, 2017, the provision for income taxes included an income tax benefit of $5 million due primarily to an agreement for an improved filinggroup with a state tax authority.(2)For the year ended December 31, 2017, the provision for income taxes included an income tax benefit of $19 million due to the adoption of ASU 2016-09. Refer to Notes 1and 2 for additional information on the impact of the adoption of ASU 2016-09 on the Company's consolidated financial statements.(3)For the year ended December 31, 2016, the provision for income taxes included an income tax benefit of $17 million driven primarily by a restructuring of the ownership ofour Canadian business.76Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Deferred tax assets (liabilities) were comprised of the following as of December 31, 2017 and 2016: December 31, December 31,(in millions) 2017 2016Deferred income tax assets: Deferred revenue$282 $449Accrued liabilities50 67Net operating loss and credit carryforwards39 37Compensation29 51Pension and PRMB4 14Other20 28 424 646Deferred income tax liabilities: Intangible assets and goodwill(793) (1,174)Fixed assets(123) (189)Other(19) (19) (935) (1,382)Valuation allowance(1)(41) (14)Net deferred income tax liability(2)$(552) $(750)____________________________(1)As of December 31, 2017, the Company's valuation allowance was comprised of $5 million related to a foreign operation which was established as part of the separationtransaction and $36 million of foreign tax credits as the Company does not believe that the benefits will be realized in future years as a result of the TCJA, as discussedabove.(2)As of December 31, 2017, the Company's net deferred income tax liability was impacted by the TCJA.As of December 31, 2017, the Company had $39 million in tax effected credit carryforwards and net operating loss carryforwards. Of the Company's $36million of foreign tax credit carryforwards, $18 million were generated in 2011 and will expire in 2020. The remaining state net operating loss and creditcarryforwards will expire in periods beyond the next five years.The Company previously recorded no deferred income taxes on undistributed earnings from non-U.S. subsidiaries because DPS considered the earningsto be indefinitely reinvested or because the Company’s outside tax basis exceeded book basis. The international tax rules of the TCJA resulted in therecognition of all previously unrecognized and current year earnings and profits determined under U.S. income tax principles ("E&P") of $233 million, the taxeffect of which was entirely offset by foreign tax credits. Prior to the TCJA, the Company had undistributed U.S. GAAP earnings in non-U.S. subsidiaries ofapproximately $198 million and $204 million, and undistributed E&P in non-U.S. subsidiaries of approximately $233 million and $195 million, both as ofDecember 31, 2017 and 2016, respectively.An actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes. The Company has analyzed our globalworking capital and cash requirements and continues to be indefinitely reinvested in its undistributed earnings except for amounts in excess of its workingcapital and cash requirements. The Company has recorded potential tax liabilities attributable to a repatriation and have determined that the provisionalestimate for withholding taxes was not significant as of December 31, 2017.The Company files income tax returns for U.S. federal purposes and in various state jurisdictions. The Company also files income tax returns in variousforeign jurisdictions, principally Canada and Mexico. The U.S. and most state income tax returns for years prior to 2014 are closed to examination byapplicable tax authorities. Mexican income tax returns are generally open for tax years 2008 and forward and Canadian income tax returns are open for auditfor tax years 2010 and forward. The Canada Revenue authority (the "CRA") has completed its audit of the 2010 tax year, and the Company is currentlypursuing U.S. Competent Authority relief through the IRS related to an adjustment proposed by the CRA.77Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits for the years ended December 31, 2017, 2016 and2015: December 31,(in millions) 2017 2016 2015Beginning balance$27 $19 $13Increases related to tax positions taken during the current year— — —Increases related to tax positions taken during the prior year2 12 10Decreases related to tax positions taken during the prior year(4) — (1)Decreases related to settlements with taxing authorities(7) (1) (2)Decreases related to lapse of applicable statute of limitations(1) (3) (1)Ending balance$17 $27 $19The total amount of unrecognized tax benefits that, if recognized, would reduce the effective tax rate is $14 million after considering the federal impact ofstate income taxes. During the next twelve months, the Company does not expect a significant change to its unrecognized tax benefits.The Company accrues interest and penalties on its uncertain tax positions as a component of its provision for income taxes. The Company recognized a$3 million benefit and $1 million of expense related to interest and penalties for uncertain tax positions for the years ended December 31, 2017 and 2015,respectively. The Company recognized no interest and penalties for uncertain tax positions for the year ended December 31, 2016. The Company had a totalof $2 million and $5 million accrued for interest and penalties for its uncertain tax positions reported as part of other non-current liabilities as of December 31,2017 and 2016, respectively.6. Employee Benefit PlansPENSION PLANSOverviewThe Company has U.S. and foreign pension plans which provide benefits to a defined group of employees. The Company has several non-contributorydefined benefit plans, each having a measurement date of December 31. To participate in the defined benefit plans, eligible employees must have beenemployed by the Company for at least one year. Employee benefit plan obligations and expenses included in the Company's Audited Consolidated FinancialStatements are determined using actuarial analyses based on plan assumptions including employee demographic data such as years of service andcompensation, benefits and claims paid and employer contributions, among others. The Company also participates in various multi-employer defined benefitplans.The Company's largest U.S. defined benefit pension plan, which is a cash balance plan, was suspended and the accrued benefit was frozen effectiveDecember 31, 2008. Participants in this plan no longer earn additional benefits for future services or salary increases. The cash balance plans maintainindividual recordkeeping accounts for each participant which are annually credited with interest credits equal to the 12-month average of one-yearU.S. Treasury Bill rates, plus 1%, with a required minimum rate of 5%.78Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Financial Statement ImpactThe following tables set forth amounts recognized in the Company's financial statements and the pension plans' funded status as of December 31, 2017and 2016: As of December 31,(in millions) 2017 2016Projected Benefit Obligations As of beginning of year$216 $206Service cost3 3Interest cost9 10Actuarial losses (gains), net12 9Benefits paid(3) (3)Currency exchange adjustments— (1)Settlements(7) (8)As of end of year$230 $216Fair Value of Plan Assets As of beginning of year$177 $169Actual return on plan assets23 11Employer contributions23 8Benefits paid(3) (3)Currency exchange adjustments— —Settlements(7) (8)As of end of year$213 $177 Funded status of plan / net amount recognized$(17) $(39) Net amount recognized consists of: Current liabilities$(1) $(1)Non-current liabilities(16) (38)Net amount recognized$(17) $(39)The accumulated benefit obligations for the defined benefit pension plans were $227 million and $214 million as of December 31, 2017 and 2016,respectively. The pension plan assets and the projected benefit obligations of DPS' U.S. pension plans represent approximately 93% of the total plan assetsand 91% of the total projected benefit obligation of all plans combined as of December 31, 2017. The following table summarizes key pension planinformation regarding plans whose accumulated benefit obligations exceed the fair value of their respective plan assets: As of December 31,(in millions) 2017 2016Aggregate projected benefit obligation$92 $201Aggregate accumulated benefit obligation91 200Aggregate fair value of plan assets75 16379Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following table summarizes the components of the net periodic benefit cost and changes in plan assets and benefit obligations recognized in OCI forthe stand alone U.S. and foreign plans for the years ended December 31, 2017, 2016 and 2015: For the Year Ended December 31,(in millions) 2017 2016 2015Net Periodic Benefit Costs Service cost$3 $3 $3Interest cost9 10 9Expected return on assets(8) (8) (9)Amortization of net actuarial loss4 3 4Settlements1 2 3Net periodic benefit costs$9 $10 $10Changes Recognized in OCI Settlement effects$(1) $(2) $(3)Current year net actuarial (gain) loss(3) 7 2Recognition of net actuarial loss(4) (4) (4)Total recognized in OCI$(8) $1 $(5)The Company uses the corridor approach for amortization of actuarial gains or losses. The corridor is calculated as 10% of the greater of the plans’projected benefit obligation or assets. The amortization period for plans with active participants is the average future service of covered active employees,and the amortization period for plans with no active participants is the average future lifetime of plan participants. The estimated net actuarial loss for thedefined benefit pension plans that will be amortized from AOCL into periodic benefit cost in 2018 is approximately $3 million. The estimated prior service costfor the defined benefit pension plans that will be amortized from AOCL into periodic benefit costs in 2018 is not significant.The following table summarizes amounts included in AOCL for the plans as of December 31, 2017 and 2016: As of December 31,(in millions) 2017 2016Prior service cost$1 $1Net losses46 54Amounts in AOCL$47 $55 Contributions and Expected Benefit Payments The following table summarizes the contributions made to the Company's pension plans for the years ended December 31, 2017 and 2016, as well as theprojected contributions for the year ending December 31, 2018: Projected For the Year ended December 31, (in millions)2018 2017 2016Pension Plan Contributions(1)$1 $23 $8____________________________(1)The contributions for the years ended December 31, 2017 and 2016 included $22 million and $7 million, respectively, of discretionary contributions.The following table summarizes the expected future benefit payments cash activity for the Company's pension plans for the next ten years: (in millions) 2018 2019 2020 2021 2022 2023-2027Pension plan expected future benefit payments$11 $11 $12 $13 $13 $6680Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Actuarial Assumptions The Company's pension expense was calculated based upon a number of actuarial assumptions including discount rates, retirement age, mortality rates,compensation rate increases and expected long-term rate of return on plan assets for pension benefits.The discount rate utilized to determine the Company's projected benefit obligations as of December 31, 2017 and 2016, as well as projected 2018 netperiodic benefit cost for U.S. plans, reflects the current rate at which the associated liabilities could be effectively settled as of the end of the year. TheCompany set its rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing andamount to settle projected future benefits.For the years ended December 31, 2017, 2016 and 2015, the expected long-term rate of return on U.S. pension fund assets held by the Company'spension trusts was determined based on several factors, including the impact of active portfolio management and projected long-term returns of broad equityand bond indices. The plans' historical returns were also considered. The expected long-term rate of return on the assets in the plans was based on an assetallocation assumption for fixed income and equity are as follows: Fixed Income Equity 2017 2016 2015 2017 2016 2015Asset Allocation Assumption80% 75% 75% 20% 25% 25%Expected rate of long term return4.40% 3.20% 3.70% 7.80% 8.50% 8.70%Expected mortality is a key assumption in the measurement for pension benefit obligations. During the year ended December 31, 2017, the Companyused the RP-2014 mortality tables and the Mortality Improvement Scale MP-2017 published by the Society of Actuaries’ Retirement Plans ExperienceCommittee for the Company's U.S. plans. During the year ended December 31, 2016, the Company used the RP-2014 mortality tables and the MortalityImprovement Scale MP-2016 for the Company's U.S. plans.The following table summarizes the weighted-average assumptions used to determine benefit obligations at the plan measurement dates for U.S. andforeign pension plans: U.S. Pension Plans Foreign Pension Plans 2017 2016 2017 2016Weighted-average discount rate3.70% 4.25% 4.90% 5.25%Rate of increase in compensation levels3.00% 3.00% 3.89% 3.89%The following table summarizes the weighted average actuarial assumptions used to determine the net periodic benefit costs for U.S. and foreignpension plans for the years ended December 31, 2017, 2016 and 2015: U.S. Foreign Pension Plans Pension Plans 2017 2016 2015 2017 2016 2015Weighted-average discount rate4.25% 4.65% 4.33% 7.09% 6.46% 6.66%Expected long-term rate of return on assets4.50% 5.00% 5.25% 7.13% 7.07% 6.72%Rate of increase in compensation levels3.00% 3.00% 3.00% 4.30% 4.32% 4.47%Investment Policy and Strategy DPS has established formal investment policies for the assets associated with defined benefit pension plans. The Company's investment policy andstrategy are mandated by the Company's Investment Committee. The overriding investment objective is to provide for the availability of funds for pensionobligations as they become due, to maintain an overall level of financial asset adequacy and to maximize long-term investment return consistent with areasonable level of risk. DPS' pension plan investment strategy includes the use of actively-managed securities. Investment performance both by investmentmanager and asset class is periodically reviewed, as well as overall market conditions with consideration of the long-term investment objectives. None of theplan assets are invested directly in equity or debt instruments issued by DPS. It is possible that insignificant indirect investments exist through its equityholdings. The equity and fixed income investments under DPS' sponsored pension plan assets are currently well diversified.81Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The plans' asset allocation policy is reviewed at least annually. Factors considered when determining the appropriate asset allocation include changesin plan liabilities, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. The investment policy for the U.S. definedbenefit pension plans contains allowable ranges in asset mix as outlined in the table below: Target RangeAsset Category2017 2016U.S. equity securities5% - 15% 16% - 20%International equity securities 5% - 15% 6% - 8%U.S. fixed income70% - 90% 69% - 81%The asset allocations for the U.S. defined benefit pension plans for December 31, 2017 and 2016 are as follows: Target As of December 31,Asset Category2018 2017 2016Equity securities20% 20% 25%Fixed income80% 80% 75%Total100% 100% 100%POST-RETIREMENT MEDICAL PLANS The Company has several non-contributory defined benefit PRMB plans, each having a measurement date of December 31. The majority of these PRMBplans have been frozen. To participate in the defined benefit plans, eligible employees must have been employed by the Company for at least one year. ThePRMB plans are limited to qualified expenses and are subject to deductibles, co-payment provisions and other provisions.In total, the Company's PRMB plans had a projected benefit obligation of $6 million and $6 million as of December 31, 2017 and 2016, respectively, andthe fair value of PRMB plan assets was $7 million and $6 million as of December 31, 2017 and 2016, respectively. As of December 31, 2017, the net amountrecognized consisted of $4 million of non-current assets and $3 million of non-current liabilities. As of December 31, 2016, the net amount recognizedconsisted of $3 million of non-current assets and $3 million of non-current liabilities.For the years ended December 31, 2017, 2016, and 2015 , the net periodic benefit costs of the PRMB plans had no impact on our ConsolidatedStatements of Income.For the years ended December 31, 2017 and 2015, the total change recognized in OCI related to our PRMB plans was $1 million. For the year endedDecember 31, 2016 there was no change recognized in OCI related to our PRMB plans.FAIR VALUE OF THE PENSION AND POSTRETIREMENT PLAN ASSETSThe fair value hierarchy (refer to Note 2 for further information) is not only applicable to assets and liabilities that are included in our consolidatedbalance sheets, but is also applied to certain other assets that indirectly impact our consolidated financial statements. Assets contributed by the Company topension or other PRMB plans become the property of the individual plans. Even though the Company no longer has control over these assets, DPS isindirectly impacted by subsequent fair value adjustments to these assets. The actual return on these assets impacts the Company's future net periodic benefitcost, as well as amounts recognized in our consolidated balance sheets. As such, the Company uses the fair value hierarchy to measure the fair value ofassets held by our various pension and PRMB plans.82Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following tables present the major categories of plan assets and the respective fair value hierarchy for the pension and post plan assets as ofDecember 31, 2017 and 2016: Fair Value Measurements as of December 31, 2017 Fair Value HierarchyLevel Pension Assets PRMB Assets(in millions) Total Cash and cash equivalentsLevel 1 $2 $2 $—Equity securities(1) U.S. Large-Cap equities(2)Level 2 21 20 1International equities(2)Level 2 17 17 —Fixed income securities International bonds(2)Level 2 16 16 —Fixed income commingled funds(3)Level 2 164 158 6Total assets $220 $213 $7 Fair Value Measurements as of December 31, 2016 Fair Value HierarchyLevel Pension Assets PRMB Assets(in millions) Total Cash and cash equivalentsLevel 1 $4 $4 $—Equity securities(1) U.S. Large-Cap equities(2)Level 2 30 29 1International equities(2)Level 2 14 13 1Fixed income securities International bonds(2)Level 2 13 13 —Fixed income commingled funds(3)Level 2 122 118 4Total assets $183 $177 $6____________________________(1)Equity securities are comprised of actively managed U.S. index funds and Europe, Australia, Far East ("EAFE") index funds.(2)The NAV is based on the fair value of the underlying assets owned by the equity index fund or fixed income investment vehicle per share multiplied by the number of unitsheld as of the measurement date and are classified as Level 2 assets.(3)Fixed income commingled funds are comprised of a diversified portfolio of investment-grade corporate and government securities. Investments are provided by theinvestment managers using a unit price or NAV based on the fair value of the underlying investments of the funds.83Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)MULTI-EMPLOYER PLANS The Company participates in three trustee-managed multi-employer defined benefit pension plans for union-represented employees under certaincollective bargaining agreements. The risks of participating in these multi-employer plans are different from single-employer plans due to the following:•Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.•If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participatingemployers.•If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount basedon the underfunded status of the plan, referred to as a withdrawal liability.Contributions paid into the multi-employer plans are expensed as incurred. Multi-employer plan expense was as follows for the years ended December31, 2017, 2016 and 2015: For the Year Ended December 31, (in millions)2017 2016 2015Multi-employer Plan Expense Contributions to individually significant multi-employer plan$1 $1 $1Contributions to all other multi-employer plans4 3 3Total$5 $4 $4Individually Significant Multi-employer PlanThe Company participates in the following individually significant multi-employer plan as of December 31, 2017:Legal name of the plan Central States, Southeast and Southwest AreasPension Fund ("Central States")Plan's Employer Identification Number 36-6044243Plan Number 001Expiration dates of the collective bargaining agreements February 17, 2018 - May 1, 2020(2)FIP/RP Status Pending/Implemented(1) YesPPA zone status as of December 31, 2016 and 2015 RedSurcharge imposed Yes____________________________(1)FIP/RP Status Pending/Implemented indicates the plan for which a financial improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or implemented.(2)Central States includes eight collective bargaining agreements. The largest agreement, which is set to expire February 29, 2020, covers approximately 50% of theemployees included in Central States. Three of the collective bargaining agreements are set to expire during 2018, covering approximately 11% of the employees includedin Central States.The most recent Pension Protection Act ("PPA") zone status available as of December 31, 2017 and 2016 is for the plan's year-end as of December 31,2016 and 2015. The plan has not utilized any extended amortization provisions that affect the calculation of the zone status.The Company's contributions to the Central States did not exceed 5% of the total contributions made to the Central States for the years endedDecember 31, 2017, 2016 and 2015.Future estimated contributions to the Central States based on the number of covered employees and the terms of the collective bargaining agreementsare as follows: For the Years Ended December 31,(in millions)2018 2019 2020 2021 2022Future estimated contributions to the Central States$1 $1 $— $— $—84Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)DEFINED CONTRIBUTION PLANS The Company sponsors the SIP, which is a qualified 401(k) Retirement Plan that covers substantially all U.S.-based employees who meet certaineligibility requirements. This plan permits both pre-tax and after-tax contributions, which are subject to limitations imposed by Internal Revenue Code (the"Code") regulations. The Company matches employees' contributions up to specified levels. The Company also sponsors the SSP, which is a non-qualified defined contribution plan for employees who are actively enrolled in the SIP and whoseafter-tax contributions under the SIP are limited by the Code compensation limitations. The Company's employer matching contributions to the SIP and SSPplans were approximately $20 million, $19 million and $17 million for the years ended December 31, 2017, 2016 and 2015, respectively.Employee and employer matching contributions under the (SSP) are maintained in a rabbi trust and are not readily available to the Company. Althoughparticipants direct the investment of these funds, the investments are classified as trading securities and are included in other non-current assets. As such, theCompany uses the fair value hierarchy to measure the fair value of these trading securities as follows: Fair Value HierarchyLevel For the Year Ended December 31, (in millions) 2017 2016Marketable securities - tradingLevel 1 $48 $35The corresponding liability related to the deferred compensation plan is recorded in other non-current liabilities. Gains and losses in connection withthese trading securities are recorded in other income, net, with an offset for the same amount recorded in SG&A expenses. There were $7 million and $3million of gains associated with these trading securities for the years ended December 31, 2017 and 2016. No gains or losses were recorded in the yearended December 31, 2015.Additionally, current participants in the SIP and SSP are eligible for an enhanced defined contribution (the "EDC"). Contributions begin accruing for planparticipants after a one-year waiting period for participant entry into the plan and vest after three years of service with the Company. The Company madecontributions of $21 million, $18 million, and $17 million to the EDC for the plan years ended December 31, 2017, 2016 and 2015, respectively.7.Long-term Obligations and Borrowing ArrangementsLONG-TERM OBLIGATIONS The following table summarizes the Company's long-term obligations as of December 31, 2017 and 2016: December 31, December 31,(in millions)2017 2016Senior unsecured notes$4,230 $4,325Capital lease obligations183 153Subtotal4,413 4,478Less — current portion(13) (10)Long-term obligations$4,400 $4,468SHORT-TERM BORROWINGS AND CURRENT PORTION OF LONG-TERM OBLIGATIONS The following table summarizes the Company's short-term borrowings and current portion of long-term obligations as of December 31, 2017 and 2016: Fair ValueHierarchyLevel December 31, 2017 December 31, 2016(in millions) CarryingAmount Fair Value CarryingAmount Fair ValueCommercial paper1 $66 $66 $— $—Current portion of long-term obligations: Capital lease obligations(1)N/A 13 10 Short-term borrowings and current portion of long-termobligations $79 $66 $10 $—____________________________(1)Capital lease obligations are specifically excluded from the calculation of fair value under U.S. GAAP.85Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)SENIOR UNSECURED NOTES The Company's senior unsecured notes (collectively, the "Notes") consisted of the following carrying values and estimated fair values that are notrequired to be measured at fair value in the Consolidated Balance Sheets are as follows:(in millions) Fair ValueHierarchyLevel December 31, 2017 December 31, 2016Issuance Maturity Date Rate CarryingAmount Fair Value CarryingAmount Fair Value2018 Notes(1) May 1, 2018 6.82% 2 $— $— $364 $3892019 Notes January 15, 2019 2.60% 2 250 251 250 2542020 Notes January 15, 2020 2.00% 2 250 248 250 2482021-A Notes November 15, 2021 3.20% 2 250 255 250 2562021-B Notes November 15, 2021 2.53% 2 250 249 250 2482022 Notes November 15, 2022 2.70% 2 250 248 250 2472023 Notes December 15, 2023 3.13% 2 500 504 500 5002025 Notes November 15, 2025 3.40% 2 500 508 500 4982026 Notes September 15, 2026 2.55% 2 400 378 400 3702027 Notes(2) June 15, 2027 3.43% 2 500 501 400 3982038 Notes(1) May 1, 2038 7.45% 2 125 179 250 3472045 Notes(2) November 15, 2045 4.50% 2 550 588 250 2532046 Notes December 15, 2046 4.42% 2 400 424 400 407Principal amount 4,225 4,333 4,314 4,415Adjusted for: Unamortized premiums, discounts, and debt issuance costs (13) (30) Adjustments to carrying value for interest rate swaps(3) 18 41 Carrying amount $4,230 $4,325 ____________________________(1)In June 2017, the Company completed a tender offer for a portion of its 2018 Notes and its 2038 Notes, and in July 2017, the Company redeemed the remainder of its 2018Notes. As a result of these transactions, the Company retired, at a premium, an aggregate principal amount of approximately $364 million of the 2018 Notes andapproximately $125 million of the 2038 Notes. The total loss on early extinguishment of the 2018 Notes and the 2038 Notes was approximately $62 million, comprised of$75 million for the principal amount, the early tender premium, the make-whole premium, and the write off of deferred financing costs, partially offset by a $13 million gain onthe termination of interest rate swap related to the 2038 Notes. Refer to Note 8 for additional information on the termination of the interest rate swap.(2)In June 2017, the Company issued $400 million of senior unsecured notes, consisting of $100 million aggregate principal amount of 2027 Notes and $300 million aggregateprincipal amount of 2045 Notes in a private offering under Rule 144A under the Securities Act of 1933, as amended. The 2027 Notes and 2045 Notes have substantiallyidentical terms, other than with respect to transfer restrictions and registration rights, as the previously issued 2027 Notes and 2045 Notes. A portion of the proceeds fromthe issuance of the 2027 Notes and 2045 Notes was used to complete the June 2017 tender offer and July 2017 redemption described in (1) above.(3)Refer to Note 8 for additional information on the Company's interest rate swaps.The indentures governing the Notes, among other things, limit the Company's ability to incur indebtedness secured by principal properties, to enter intocertain sale and leaseback transactions and to enter into certain mergers or transfers of substantially all of DPS' assets. The Notes are guaranteed by all ofthe Company's existing and future direct and indirect subsidiaries that guarantee any of the Company's other indebtedness. As of December 31, 2017, theCompany was in compliance with all financial covenant requirements of the Notes.The fair value amounts of long term debt were based on current market rates available to the Company. The difference between the fair value and thecarrying value represents the theoretical net premium or discount that would be paid or received to retire all debt and related unamortized costs to beincurred at such date. The carrying amount includes the unamortized discounts and issuance costs on the issuance of debt and impact of interest rate swapsdesignated as fair value hedges and other hedge related adjustments. Refer to Note 8 for additional information regarding the notes subject to fair valuehedges. 86Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)BORROWING ARRANGEMENTSCommercial Paper ProgramOn December 10, 2010, the Company entered into a commercial paper program under which the Company may issue unsecured commercial papernotes (the "Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $500 million. The maturities ofthe Commercial Paper will vary, but may not exceed 364 days from the date of issuance. The Company issues Commercial Paper as needed for generalcorporate purposes. The program is supported by the Revolver, which is discussed below. Outstanding Commercial Paper reduces the amount of borrowingcapacity available under the Revolver and outstanding amounts under the Revolver reduce the Commercial Paper availability. Under this program, theCompany had weighted average Commercial Paper borrowings of $56 million, $1 million and $23 million for the years ended December 31, 2017, 2016 and2015, respectively, with maturities of 90 days or less. These Commercial Paper borrowings had a weighted average interest rate of 1.40%, 0.65% and 0.50%for the years ended December 31, 2017, 2016 and 2015, respectively.Unsecured Credit AgreementIn March 2017, the Company entered into a new five-year unsecured credit agreement (the "Credit Agreement"), which provides for a $500 millionrevolving line of credit (the "Revolver"). This Credit Agreement and Revolver fully replaced the Company's previous unsecured credit agreement andrevolving line of credit, which was due to expire on September 25, 2017 and was terminated on March 16, 2017. There were no principal borrowingsoutstanding under the previous unsecured credit agreement upon termination. The Company incurred debt issuance costs of approximately $1 million inconnection with the Credit Agreement during the year ended December 31, 2017.Borrowings under the Revolver bear interest at a floating rate per annum based upon the alternate base rate ("ABR") or the Eurodollar rate, in each caseplus an applicable margin which varies based upon the Company's debt ratings. Rates range from 0.000% to 0.300% for the ABR loans and from 0.805% to1.300% for Eurodollar loans. The ABR is defined as the greater of (a) JPMorgan Chase Bank's prime rate, (b) the Federal Reserve Bank of New York("NYFRB") rate, as defined below, plus 0.500% and (c) the Adjusted LIBOR, as defined below, for a one month interest period plus 1.000%. The NYFRB rateis the greater of (a) the federal funds effective rate or (b) the overnight bank funding rate. The Adjusted LIBOR is the London interbank offered rate for dollars,adjusted for a statutory reserve rate set by the Board of Governors of the Federal Reserve System of the United States of America.Additionally, the Revolver is available for the issuance of letters of credit, not to exceed $75 million. Letters of credit will reduce, on a dollar for dollarbasis, the amount available under the Revolver.The Credit Agreement further provides that the Company may request at any time, subject to the satisfaction of certain conditions, that the aggregatecommitments under the facility be increased by a total amount not to exceed $250 million. The Credit Agreement's representations, warranties, covenants and events of default are generally customary for investment grade credit and include afinancial covenant that requires the Company to maintain a ratio of consolidated total debt (as defined in the Credit Agreement) to annualized consolidatedEBITDA (as defined in the Credit Agreement) of no more than 3.50 to 1.00, tested quarterly. During the twelve month period following a Material Acquisition(as defined in the Credit Agreement) thereunder, the ratio may increase to no more than 4.00 to 1.00. Upon the occurrence of an event of default, amongother things, amounts outstanding under the Credit Agreement may be accelerated and the commitments may be terminated. The Company's obligationsunder the Credit Agreement are guaranteed by certain of the Company's direct and indirect domestic subsidiaries on the terms set forth in the CreditAgreement. The Credit Agreement has a maturity date of March 16, 2022; however, with the consent of lenders holding more than 50% of the totalcommitments under the Credit Agreement and subject to the satisfaction of certain conditions, the Company may extend the maturity date for up to twoadditional one-year terms.The following table provides amounts utilized and available under the Revolver as of December 31, 2017:(in millions)Amount Utilized Balances AvailableRevolver$— $434Letters of credit— 75As of December 31, 2017, the Company was in compliance with all financial covenant requirements relating to the Credit Agreement.87Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Bridge Financing for Bai Brands MergerOn November 21, 2016, the Company entered into a commitment letter for a 364-day bridge loan facility (the "Bridge Facility") in an aggregate principalamount of up to $1,700 million, in order to ensure that financing would be available for the Bai Brands Merger. On January 31, 2017, in accordance with itsterms, the commitment under the Bridge Facility was automatically terminated upon the Company's funding of the Bai Brands Merger.Shelf Registration StatementThe Company filed a "well-known seasoned issuer" shelf registration statement with the SEC, effective September 2, 2016, which registered anindeterminate amount of securities for future sales. The Company's Board of Directors (the "Board") authorizes the amount of securities that the Companymay issue. As of December 31, 2017, $450 million remained available to be issued under the Board's authorization.Letters of Credit FacilitiesIn addition to the portion of the Revolver available for issuance of letters of credit, the Company has incremental letters of credit facilities. Under thesefacilities, $120 million is available for the issuance of letters of credit, $60 million of which was utilized as of December 31, 2017 and $60 million of whichremains available for use.8. DerivativesDPS is exposed to market risks arising from adverse changes in:•interest rates;•FX 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, FX forward contracts, commodity forwardand future contracts and supplier pricing agreements. DPS does not hold or issue derivative financial instruments for trading or speculative purposes.88Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)INTEREST RATES Fair Value HedgesThe 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 theserisks through the use of receive-fixed, pay-variable interest rate swaps. Any ineffectiveness is recorded as interest during the period incurred. The followingtable presents information regarding these interest rate swaps and the associated hedging relationships:(in millions, except number of instruments) Impact to the carrying value of long-term debtPeriod entered Hedgingrelationship Number ofinstruments Method of measuringeffectiveness Notionalvalue December 31, 2017 December 31, 2016November 2011 2019 Notes 2 Short cut method $100 $— $—November 2011 2021-A Notes 2 Short cut method 150 (1) —November 2012 2020 Notes 5 Short cut method 120 (2) (2)December 2016 2021-B Notes 2 Short cut method 250 (4) (2)December 2016 2023 Notes 2 Short cut method 150 (3) (1)January 2017 2022 Notes(2) 4 Regression 250 17 24June 2017 2038 Notes(1) 1 Regression 50 11 22 $1,070 $18 $41____________________________(1)In June 2017, and in connection with the partial redemption of the 2038 Notes, the Company modified and partially terminated the outstanding interest rate swap on the2038 Notes with a notional amount of $100 million and maturing in May 2038. The modified interest rate swap has identical terms to the original interest rate swap, exceptfor a reduced notional amount of $50 million. The Company received $13 million as settlement for the modification and partial termination of the swap. As a result of thistransaction, the Company de-designated the original hedging relationship. Under the original hedging relationship, the Company recorded $26 million as an increase to thecarrying value of debt due to changes in the fair market value of the debt, pull to par adjustments and ineffectiveness. The Company recognized a $13 million gain intoearnings, which reduced the loss on early extinguishment of debt, as part of the partial redemption of the 2038 Notes. The remaining $13 million increase in the carryingvalue of the outstanding 2038 Notes will be amortized into earnings over the remaining term of the 2038 Notes. The Company then designated the new interest rate swapcontract as a fair value hedge with a notional amount of $50 million and maturing in May 2038 in order to effectively convert a portion of the outstanding 2038 Notes fromfixed-rate debt to floating-rate debt. The Company uses regression analysis to assess the prospective and retrospective effectiveness of this hedging relationship.(2)In October 2016, the Company de-designated the hedging relationships between the four outstanding interest rate swaps and the 2022 Notes. The Company will amortize$25 million into earnings over the remaining term of the 2022 Notes which represents the increase to the carrying value of the debt upon de-designation consisting ofchanges in fair market value of the debt, pull to par adjustments and ineffectiveness recorded under the previous hedging relationship. The Company recorded the changein the fair value of the interest rate swaps after de-designation into interest expense. In January 2017, the Company re-designated the hedging relationships between thefour outstanding interest rate swaps and the 2022 Notes, which were de-designated in 2016. The Company uses regression analysis to assess the prospective andretrospective effectiveness of these hedging relationships.FOREIGN EXCHANGECash Flow HedgesThe Company's Canadian and Mexican businesses purchase certain inventory through transactions denominated and settled in U.S. dollars, a currencydifferent from the functional currency of the Canadian and Mexican business. These inventory purchases are subject to exposure from movements inexchange rates. During the years ended December 31, 2017, 2016 and 2015, the Company utilized FX forward contracts designated as cash flow hedges tomanage exposures resulting from changes in these foreign currency exchange rates. The intent of these FX contracts is to provide predictability in theCompany's overall cost structure. These FX contracts, carried at fair value, have maturities between one and twelve months as of December 31, 2017. TheCompany had outstanding FX forward contracts with notional amounts of $48 million and $7 million as of December 31, 2017 and 2016.89Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)COMMODITIESEconomic HedgesDPS centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through forwardand future contracts. The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure. During the years endedDecember 31, 2017, 2016 and 2015, the Company held forward and future contracts that economically hedged certain of its risks. In these cases, a naturalhedging 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 lineitem of the Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocatedcorporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss isreflected as a component of the respective segment's operating profit ("SOP"). The total notional values of derivatives related to economic hedges of this typewere $199 million and $296 million as of December 31, 2017 and 2016, respectively.FAIR VALUE OF DERIVATIVE INSTRUMENTSThe following table summarizes the fair value hierarchy and the location of the fair value of the Company's derivative instruments designated as hedginginstruments within the Consolidated Balance Sheets as of December 31, 2017 and 2016:(in millions)Fair ValueHierarchyLevel Balance Sheet Location December 31, 2017 December 31, 2016Assets: Interest rate contracts2 Prepaid expenses and other current assets $3 $6FX forward contracts2 Prepaid expenses and other current assets 2 —Interest rate contracts2 Other non-current assets 16 21Liabilities: Interest rate contracts2 Other current liabilities 3 1Interest rate contracts2 Other non-current liabilities 8 7The following table summarizes the fair value hierarchy and the location of the fair value of the Company's derivative instruments not designated ashedging instruments within the Consolidated Balance Sheets as of December 31, 2017 and 2016:(in millions)Fair ValueHierarchyLevel Balance Sheet Location December 31, 2017 December 31, 2016Assets: Interest rate contracts2 Prepaid expenses and other current assets $— $4Commodity contracts2 Prepaid expenses and other current assets 27 9Interest rate contracts2 Other non-current assets — 8Commodity contracts2 Other non-current assets 17 12Liabilities: Commodity contracts2 Other current liabilities — 1The fair values of commodity contracts, interest rate contracts and FX forward contracts are determined based on inputs that are readily available inpublic markets or can be derived from information available in publicly quoted markets. The fair value of commodity contracts are valued using the marketapproach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest ratecontracts are valued using models based primarily on readily observable market parameters, such as LIBOR forward rates, for all substantial terms of theCompany's contracts and credit risk of the counterparties. The fair value of FX forward contracts are valued using quoted forward FX prices at the reportingdate. Therefore, the Company has categorized these contracts as Level 2.90Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)IMPACT OF CASH FLOW HEDGESThe following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S. GAAP to the ConsolidatedStatements of Income and Comprehensive Income for the years ended December 31, 2017, 2016 and 2015:(in millions)Amount of (Loss) GainRecognized in OtherComprehensive Loss ("OCL") Amount of (Loss) GainReclassified from AOCL intoIncome Location of (Loss) GainReclassified from AOCLinto IncomeFor the year ended December 31, 2017: Interest rate contracts$— $(9) Interest expenseForeign exchange forward contracts(8) (9) Cost of salesTotal$(8) $(18) For the year ended December 31, 2016: Interest rate contracts$2 $(8) Interest expenseForeign exchange forward contracts(2) (1) Cost of salesTotal$— $(9) For the year ended December 31, 2015: Interest rate contracts$(5) $(8) Interest expenseForeign exchange forward contracts2 2 Cost of salesTotal$(3) $(6) There was no hedge ineffectiveness recognized in earnings for the years ended December 31, 2017, 2016 and 2015 with respect to derivativeinstruments designated as cash flow hedges. During the next 12 months, the Company expects to reclassify net losses of $7 million from AOCL into income.IMPACT OF FAIR VALUE HEDGESThe following table presents the impact of derivative instruments designated as fair value hedging instruments under U.S. GAAP to the ConsolidatedStatements of Income for the years ended December 31, 2017, 2016 and 2015:(in millions) Amount of Gain (Loss)Recognized in Income Location of Gain (Loss)Recognized in IncomeFor the year ended December 31, 2017: Interest rate contracts(1)(2)(3) $12 Interest expenseInterest rate contracts 13 Loss on early extinguishment of debtTotal $25 For the year ended December 31, 2016: Interest rate contracts(1)(2)(3) $12 Interest expense For the year ended December 31, 2015: Interest rate contracts(1)(3) $17 Interest expense____________________________(1)Includes amortization of the interest rate swap associated with the 2038 Notes which was de-designated in February 2015.(2)Includes amortization of the interest rate swaps associated with the 2022 Notes which were de-designated in October 2016.(3)Includes basis adjustments related to the 2038 Notes and 2022 Notes prior to de-designation.91Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following table presents the hedge ineffectiveness which was recognized in earnings with respect to derivative instruments designated as fair valuehedges: For the Year Ended December 31, (in millions)2017 2016 2015Hedge ineffectiveness recognized in earnings$1 $— $1IMPACT OF ECONOMIC HEDGESThe following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the ConsolidatedStatements of Income for the years ended December 31, 2017, 2016 and 2015:(in millions) Amount of Gain (Loss)Recognized in Income Location of Gain (Loss)Recognized in IncomeFor the year ended December 31, 2017: Commodity contracts(1) $32 Cost of salesCommodity contracts(1) 4 SG&A expensesInterest rate contracts(2) 1 Interest expenseTotal $37 For the year ended December 31, 2016: Commodity contracts(1) $11 Cost of salesCommodity contracts(1) 18 SG&A expensesInterest rate contracts(2) (11) Interest expenseTotal $18 For the year ended December 31, 2015: Commodity contracts(1) $(24) Cost of salesCommodity contracts(1) (14) SG&A expensesTotal $(38) ____________________________(1)Commodity contracts include both realized and unrealized gains and losses.(2)Represents gains and losses on the interest rate contracts related to the 2022 Notes after the hedging relationship was de-designated in October 2016 until it was re-designated in January 2017.The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to theagreements. Historically, DPS has not experienced credit losses as a result of counterparty nonperformance. The Company selects and periodically reviewscounterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programsat least on a quarterly basis.9. Stock-Based CompensationStock-based compensation expense is recorded in SG&A expenses in the Consolidated Statements of Income. The components of stock-basedcompensation expense for the years ended December 31, 2017, 2016 and 2015 are presented below: For the Year Ended December 31, (in millions)2017 2016 2015Total stock-based compensation expense$36 $45 $44Income tax benefit recognized in the income statement(1)(9) (16) (15)Stock-based compensation expense, net of tax$27 $29 $29____________________________(1)The year ended December 31, 2017 income tax benefit recognized related to stock-based compensation expense was impacted by the TCJA.92Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)DESCRIPTION OF STOCK-BASED COMPENSATION PLANOmnibus Stock Incentive Plan of 2009 During 2009, the Company adopted the Omnibus Stock Incentive Plan of 2009 (the "DPS Stock Plan") under which employees, consultants and non-employee directors may be granted stock options, stock appreciation rights, stock awards, RSUs or PSUs. This plan provides for the issuance of up to 20million shares of the Company's common stock. Subsequent to adoption, the Company's Compensation Committee granted RSUs, PSUs and options withthe following vesting schedule detailed below:Stock AwardType Vesting ScheduleRSUs Grants in 2015Vest after three years Grants in 2016 and 2017Executive officers: vest after three yearsAll others: vest ratably on each anniversary date over three yearsPSUs Vest after three yearsStock options Vest ratably on each anniversary date over three yearsEach RSU is to be settled for one share of the Company's common stock on the respective vesting date of the RSU. Each PSU is to be settled for oneshare of the Company's common stock on the respective vesting date of the PSU, adjusted for internal return measurement results and relative stock priceperformance. No other types of stock-based awards have been granted under the DPS Stock Plan. Approximately 9 million shares of the Company's commonstock were available for future grant as of December 31, 2017. The stock options issued under the DPS Stock Plan have a maximum option term of 10 years.STOCK OPTIONSThe tables below summarize information about the Company's stock options granted during the years ended December 31, 2017, 2016 and 2015.The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model. The risk-free interest rate used in theoption valuation model is based on zero-coupon yields implied by U.S. Treasury issues with remaining terms similar to the expected term on the options. Theexpected term of the option represents the period of time that options granted are expected to be outstanding and is derived by analyzing historic exercisebehavior. Expected volatility is based on implied volatilities from traded options on the Company's stock, historical volatility of the Company's stock and otherfactors. The Company's expected dividend yield is based on historical dividends declared.The weighted average assumptions used to value grant options are detailed below: For the Year Ended December 31, 2017 2016 2015Fair value of options at grant date $9.95 $9.92 $9.22Risk free interest rate 1.62% 0.99% 1.28%Expected term of options (in years) 3.6 3.6 3.9Dividend yield 2.55% 2.30% 2.55%Expected volatility 17.19% 18.22% 18.98%93Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The table below summarizes stock option activity for the year ended December 31, 2017: Stock Options Weighted AverageExercise Price Weighted AverageRemainingContractual Term(Years) Aggregate IntrinsicValue (in millions)Outstanding as of January 1, 20171,342,921 $70.83 7.93 $27Granted423,745 94.62 Exercised(379,633) 53.28 16Forfeited or expired(14,427) 90.18 Outstanding as of December 31, 20171,372,606 82.83 7.86 20Exercisable as of December 31, 2017556,704 70.53 6.90 15As of December 31, 2017, there were 1,367,069 stock options vested or expected to vest. The weighted average exercise price of stock options grantedfor the years ended December 31, 2016 and 2015 was $91.98 and $79.20, respectively. The aggregate intrinsic value of the stock options exercised for theyears ended December 31, 2016 and 2015 was $12 million and $27 million, respectively. As of December 31, 2017, there was $5 million of unrecognizedcompensation cost related to unvested stock options granted under the DPS Stock Plan that is expected to be recognized over a weighted average period of0.83 years.RESTRICTED STOCK UNITS The table below summarizes RSU activity for the year ended December 31, 2017. The fair value of RSUs is determined based on the number of unitsgranted and the grant date price of common stock. RSUs Weighted AverageGrant Date FairValue Weighted AverageRemainingContractual Term(Years) Aggregate IntrinsicValue (in millions)Outstanding as of January 1, 20171,218,244 $71.08 0.80 $110Granted412,059 94.41 Vested and released(626,453) 58.43 59Forfeited(61,726) 90.29 Outstanding as of December 31, 2017942,124 88.44 0.82 91The total fair value of RSUs vested for the years ended December 31, 2017, 2016 and 2015 was $37 million, $27 million, and $29 million, respectively.The aggregate intrinsic value of the RSUs vested and released for the years ended December 31, 2016 and 2015 was $55 million and $60 million,respectively. As of December 31, 2017, there was $39 million of unrecognized compensation cost related to unvested RSUs granted under the DPS StockPlan that is expected to be recognized over a weighted average period of 0.80 years.During the year ended December 31, 2017, 626,453 units subject to previously granted RSUs vested. A majority of these vested stock awards were netshare settled. The Company withheld issuance of 196,972 shares based upon the Company's closing stock price on the vesting date to settle the employees'minimum statutory obligation for the applicable income and other employment taxes. Subsequently, the Company remitted the required funds to theappropriate taxing authorities.PERFORMANCE SHARE UNITSIn 2011, the Compensation Committee of the Board approved a PSU plan. Each PSU is equivalent in value to one share of the Company's commonstock. PSUs granted prior to January 1, 2015, will vest three years from the beginning date of a pre-determined performance period to the extent theCompany has met two performance criteria during the performance period: (i) the percentage growth of net income and (ii) the percentage yield fromoperating free cash flow. PSUs granted after January 1, 2015, are subject to an additional market condition, which compares the Company's relative totalshareholder return performance against the total shareholder return of a specified list of peer companies over the term of the award. The maximum payoutpercentage for all PSUs granted by the Company is 200%.94Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The PSUs that are subject to the market condition are valued using a Monte Carlo simulation model, which requires certain assumptions, including therisk-free interest rate, expected volatility, and the expected term of the award. The risk-free interest rate used in the Monte Carlo simulation model is based onzero-coupon yields implied by U.S. Treasury issues with remaining terms similar to the performance period on the PSUs. The performance period of thePSUs represents the period of time between the PSU grant date and the end of the performance period. Expected volatility is based on historical data of theCompany and peer companies over the most recent time period equal to the performance period.For PSU grants during the years ended December 31, 2017, 2016, and 2015 the assumptions used in the Monte Carlo simulation are as follows: For the Year Ended December 31, 2017 2016 2015Risk-free interest rate 1.56% 0.98% 1.00%Expected volatility 17.26% 17.29% 16.29%Performance period (years) 2.8 2.8 2.8The table below summarizes PSU activity for the year ended December 31, 2017: PSUs Weighted AverageGrant Date FairValue Weighted AverageRemainingContractual Term(Years) Aggregate IntrinsicValue (in millions)Outstanding as of January 1, 2017374,618 $64.86 0.89 $34Granted120,373 84.98 Performance adjustment(1)146,313 51.68 Vested and released(296,821) 51.78 28Forfeited(14,993) 80.93 Outstanding as of December 31, 2017329,490 51.69 0.98 32____________________________(1)For PSUs which vested during the year ended December 31, 2017, the Company awarded additional PSUs, as actual results measured at the end of the performanceperiod exceeded target performance levels.As of December 31, 2017, there was $6 million of unrecognized compensation cost related to unvested PSUs granted under the DPS Stock Plan that isexpected to be recognized over a weighted average period of 1.50 years.During the year ended December 31, 2017, 296,821 units subject to previously granted PSUs vested. A majority of these vested PSUs were net sharesettled. The Company withheld issuance of 101,988 shares based upon the Company's closing stock price on the vesting date to settle the employees'minimum statutory obligation for the applicable income and other employment taxes. Subsequently, the Company remitted the required funds to theappropriate taxing authorities.95Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)10. Earnings Per ShareBasic 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 anddiluted shares outstanding for the years ended December 31, 2017, 2016 and 2015: For the Year Ended December 31,(in millions, except per share data) 2017 2016 2015Basic EPS: Net income $1,076 $847 $764Weighted average common shares outstanding 182.0 185.4 190.9Earnings per common share — basic $5.91 $4.57 $4.00Diluted EPS: Net income $1,076 $847 $764Weighted average common shares outstanding 182.0 185.4 190.9Effect of dilutive securities: Stock options 0.2 0.2 0.3RSUs 0.5 0.7 0.9PSUs 0.1 0.3 0.3Weighted average common shares outstanding and common stock equivalents(1) 182.8 186.6 192.4Earnings per common share — diluted $5.89 $4.54 $3.97____________________________(1)For the years ended December 31, 2017, 2016 and 2015, stock options, RSUs, PSUs and associated DEUs totaling 1.0 million, 0.5 million and 0.3 million shares,respectively, were excluded from the diluted weighted average shares outstanding as they were not dilutive.Under the terms of our RSU and PSU agreements, unvested RSU and PSU awards contain forfeitable rights to dividends and DEUs. Because the DEUsare forfeitable, they are defined as non-participating securities. As of December 31, 2017, there were 53,689 DEUs, which will vest at the time that theunderlying RSU and PSU vests.As of December 31, 2017, the Company's Board authorized a total aggregate share repurchase plan of $5 billion. The following table shows the sharesrepurchased and retired during the years ended December 31, 2017, 2016 and 2015: For the Year Ended December 31,(in millions) 2017 2016 2015Shares repurchased and retired 4.4 5.7 6.5Dollar value of shares repurchased and retired $399 $519 $521As of December 31, 2017, $733 million remains available for share repurchases under the Board's authorization.96Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)11.Property, Plant and Equipment Net property, plant and equipment consisted of the following as of December 31, 2017 and 2016: December 31, December 31,(in millions)2017 2016Land$81 $73Buildings and improvements576 533Machinery and equipment1,664 1,569Cold drink equipment273 268Software261 253Construction in progress48 26Gross property, plant and equipment2,903 2,722Less: accumulated depreciation and amortization(1,705) (1,584)Net property, plant and equipment$1,198 $1,138Net property, plant and equipment in the above table includes the following assets under capital lease as of December 31, 2017 and 2016: December 31, December 31,(in millions)2017 2016Buildings and improvements$53 $49Machinery and equipment153 116Gross property, plant and equipment under capital lease206 165Less: accumulated depreciation and amortization(39) (26)Net property, plant and equipment under capital lease$167 $139The following table summarizes the location of depreciation expense within the Consolidated Statements of Income for the years ended December 31,2017, 2016 and 2015: For the Year Ended December 31,(in millions) 2017 2016 2015Cost of sales $103 $95 $93Depreciation and amortization 95 96 99 $198 $191 $192The depreciation expense above also includes the charge to income resulting from amortization of assets recorded under capital leases.12. LeasesThe Company has leases for certain facilities, fleet and equipment which expire at various dates through 2044. Some lease agreements containstandard renewal provisions that allow us to renew the lease at rates equivalent to fair market value at the end of the lease term. Under lease agreementsthat contain escalating rent provisions, operating lease expense is recorded on a straight-line basis over the lease term. Under lease agreements that containrent holidays, rent expense is recorded on a straight-line basis over the entire lease term, including the period covered by the rent holiday. Operating leaseexpense was $58 million, $55 million and $60 million for the years ended December 31, 2017, 2016 and 2015, respectively.97Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Future minimum lease payments under operating leases with initial or remaining noncancellable lease terms in excess of one year and capital leases asof December 31, 2017 are as follows: (in millions) Operating Leases Capital Leases2018 $39 $242019 35 242020 31 232021 28 232022 23 23Thereafter 104 201Total minimum lease payments $260 $318Less imputed interest (135)Present value of minimum lease payments $18313.InventoriesInventories as of December 31, 2017 and 2016 consisted of the following: December 31, December 31,(in millions)2017 2016Raw materials$81 $77Spare parts24 22Work in process7 5Finished goods149 130Inventories at FIFO cost261 234Reduction to LIFO cost(32) (32)Inventories$229 $202Approximately $177 million and $158 million of the Company's inventory was accounted for under the LIFO method of accounting as of December 31,2017 and 2016, respectively. The reduction to LIFO cost reflects the excess of the current cost of LIFO inventories as of December 31, 2017 and 2016 overthe amount at which these inventories were valued on the Consolidated Balance Sheets. For the years ended December 31, 2017 and 2015, there was noLIFO inventory liquidation. For the year ended December 31, 2016, LIFO inventory liquidation increased the Company's earnings by $5 million.98Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)14. Other Assets and LiabilitiesThe table below details the components of other current and non-current assets and liabilities as of December 31, 2017 and 2016: December 31, December 31,(in millions)2017 2016Prepaid expenses and other current assets: Customer incentive programs$16 $24Derivative instruments32 19Prepaid income taxes7 18Current assets held for sale— 1Other44 39Total prepaid expenses and other current assets$99 $101Other non-current assets: Customer incentive programs$76 $57Marketable securities - trading48 35Derivative instruments33 41Cost method investments(1)1 16Non-current restricted cash and restricted cash equivalents(2)79 —Other42 34Total other non-current assets$279 $183 Other current liabilities: Customer rebates and incentives$299 $280Accrued compensation130 134Insurance liability34 36Interest accrual20 24Dividends payable103 97Derivative instruments3 2Holdback liability to former Bai Brands shareholders(2)7 —Acquired contingent liabilities(2)14 —Other109 97Total other current liabilities$719 $670Other non-current liabilities: Long-term payables due to Mondelēz International, Inc.$16 $21Long-term pension and PRMB liability19 41Insurance liability60 67Derivative instruments8 7Deferred compensation liability48 35Holdback liability to former Bai Brands shareholders(2)79 —Acquired contingent liabilities(2)5 —Other29 38Total other non-current liabilities$264 $209____________________________(1)The decrease in cost method investments resulted from our consummation of the Bai Brands Merger, as we had a cost method investment in Bai Brands as of December31, 2016. Refer to Note 3 for additional information regarding the Bai Brands Merger and treatment of our previously held interest in Bai Brands.(2)Refer to Note 3 for additional information on non-current restricted cash and restricted cash equivalents, the corresponding holdback liability to former Bai Brandsshareholders, and the acquired contingent liabilities, as of December 31, 2017.99Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)15. Commitments and ContingenciesLEGAL MATTERSThe Company is occasionally subject to litigation or other legal proceedings. 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 results of operations, financial condition or liquidity of theCompany.ENVIRONMENTAL, HEALTH AND SAFETY MATTERSThe Company operates many manufacturing, bottling and distribution facilities. In these and other aspects of the Company's business, it is subject to avariety of federal, state and local environmental, health and safety laws and regulations. The Company maintains environmental, health and safety policiesand a quality, environmental, health and safety program designed to ensure compliance with applicable laws and regulations. However, the nature of theCompany's business exposes it to the risk of claims with respect to environmental, health and safety matters, and there can be no assurance that materialcosts 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 statelaws, generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard tofault or the legality of the original conduct. In October 2008, DPS was notified by the Environmental Protection Agency that it is a potentially responsible partyfor study and cleanup costs at a Superfund site in New Jersey. Investigation and remediation costs are yet to be determined, therefore no reasonableestimate exists on which to base a loss accrual. Through December 31, 2017, the Company has paid approximately $1 million since the notification for DPS'allocation of costs related to the study for this site.16. Accumulated Other Comprehensive LossThe following table provides a summary of changes in the balances of each component of AOCL, net of taxes, for the years ended December 31, 2017,2016 and 2015:(in millions)Foreign CurrencyTranslationAdjustments Net Change inPension and PRMBLiability Net Change in CashFlow Hedges Accumulated OtherComprehensive LossBalance as of January 1, 2015$(61) $(40) $(36) $(137)OCI before reclassifications(64) — (2) (66)Amounts reclassified from AOCL— 4 4 8Net current year OCI(64) 4 2 (58)Balance as of December 31, 2015(125) (36) (34) (195)OCI before reclassifications(39) (5) — (44)Amounts reclassified from AOCL— 4 6 10Net current year OCI(39) (1) 6 (34)Balance as of December 31, 2016(164) (37) (28) (229)OCI before reclassifications16 1 (7) 10Amounts reclassified from AOCL— 4 13 17Net current year OCI16 5 6 27Balance as of December 31, 2017$(148) $(32) $(22) $(202)100Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following table presents the amount of loss reclassified from AOCL into the Consolidated Statements of Income for the years ended December 31,2017, 2016 and 2015: Location of (Loss) Gain Reclassified from AOCL into NetIncome For the Year Ended December 31,(in millions) 2017 2016 2015(Loss) Gain on cash flow hedges: Interest rate contractsInterest expense $(9) $(8) $(8)Foreign exchange forward contractsCost of sales (9) (1) 2Total (18) (9) (6)Income tax expense (5) (3) (2)Total $(13) $(6) $(4) Defined benefit pension and PRMB planitems: Amortization of actuarial losses, netSG&A expenses $(4) $(4) $(4)Settlement lossSG&A expenses (1) (2) (3)Total (5) (6) (7)Income tax expense (1) (2) (3)Total $(4) $(4) $(4)Total reclassifications $(17) $(10) $(8)17. Supplemental Cash Flow InformationCash equivalents are composed of certificates of deposit, time deposits and other interest-bearing investments with original maturity dates of threemonths or less. Cash equivalents are recorded at cost, which approximates fair value. The Company's cash and cash equivalents are not required to bemeasured at fair value in the Consolidated Balance Sheets. The following table provides a reconciliation of the carrying value and estimated fair value of theCompany's cash, cash equivalents, restricted cash and restricted cash equivalents reported with the Consolidated Balance Sheets to the total of the sameamounts shown in the Consolidated Statements of Cash Flows: Fair ValueHierarchy December 31, 2017 December 31, 2016 (in millions) CarryingAmount Fair Value CarryingAmount Fair ValueCash and cash equivalentsLevel 1 $61 $61 $1,787 $1,787Restricted cash and restricted cash equivalents(1)Level 1 18 18 — —Non-current restricted cash and restricted cash equivalents included in Othernon-current assets(1)Level 1 79 79 — —Total cash, cash equivalents, restricted cash and restricted cashequivalents shown in the Consolidated Statement of Cash Flows $158 $158 $1,787 $1,787____________________________(1)Amounts included in restricted cash and restricted cash equivalents represent the holdback held in escrow in connection with the Bai Brands Merger. Refer to Note 3 foradditional information on the Bai Brands Merger.101Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)The following table details supplemental cash flow disclosures of non-cash investing and financing activities for the years ended December 31, 2017,2016 and 2015: For the Year Ended December 31,(in millions)2017 2016 2015Supplemental cash flow disclosures of non-cash investing and financing activities: Dividends declared but not yet paid$103 $97 $90Capital expenditures included in accounts payable and other current liabilities18 11 14Holdback liability for acquisition of business86 — —Capital lease additions42 26 55Supplemental cash flow disclosures: Interest paid$143 $117 $94Income taxes paid291 431 34618. SegmentsAs of December 31, 2017 and for the year ended December 31, 2017, the Company's operating structure consisted of the following four operatingsegments:•The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third party bottlers primarily in the U.S. andCanada. Most of the brands in this segment are carbonated soft drink brands.•The Packaged Beverages Excluding Bai segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beveragesand other products, including sales of the Company's own brands and third party brands, through both DSD and WD.•The Bai segment reflects sales of Bai Brands finished goods to third party distributors, primarily in the U.S., as net sales to the Packaged BeveragesExcluding Bai segment are eliminated in consolidation. Refer to Note 3 for additional information regarding the impact of Bai Brands on theCompany's net sales presented in the Consolidated Statements of Income.•The Latin America Beverages segment reflects sales in the Mexico, Caribbean, and other international markets from the manufacture anddistribution of concentrates, syrup and finished beverages.The Company has determined that Packaged Beverages Excluding Bai and Bai, which have been identified as operating segments, meet theaggregation criteria under U.S. GAAP. As such, these segments have been aggregated into one reportable segment, Packaged Beverages, based onsimilarities among the operating units including economic characteristics, the nature of the products and services, the nature of the production processes, thetypes or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatoryenvironment.As of December 31, 2016 and for the years ended December 31, 2016 and 2015, the Company's operating structure consisted of the three operatingsegments identified prior to the Bai Brands Merger.Segment results are based on management reports. Net sales and SOP are the significant financial measures used to assess the operating performanceof the Company's operating segments. Intersegment sales are recorded at cost and are eliminated in the Consolidated Statements of Operations.“Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include stock-based compensation expense,unrealized commodity derivative gains and losses, and certain general corporate expenses.102Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)Information about the Company's operations by operating segment as of December 31, 2017 and 2016 and for the years ended December 31, 2017,2016 and 2015 is as follows: For the Year Ended December 31, (in millions)2017 2016 2015Segment Results – Net sales Beverage Concentrates$1,332 $1,284 $1,241Packaged Beverages4,871 4,696 4,544Latin America Beverages487 460 497Net sales$6,690 $6,440 $6,282 For the Year Ended December 31, (in millions)2017 2016 2015Segment Results – SOP Beverage Concentrates$865 $834 $807Packaged Beverages691 771 709Latin America Beverages62 78 88Total SOP1,618 1,683 1,604Unallocated corporate costs281 253 299Other operating income, net(51) (3) 7Income from operations1,388 1,433 1,298Interest expense, net161 144 115Loss on early extinguishment of debt62 31 —Other income, net(8) (25) (1)Income before provision for income taxes and equity in loss of unconsolidatedsubsidiaries$1,173 $1,283 $1,184 For the Year Ended December 31,(in millions) 2017 2016 2015Amortization expense Beverage Concentrates$12 $13 $12Packaged Beverages8 4 7Latin America Beverages— — —Segment total20 17 19Corporate and other11 16 16Total amortization expense$31 $33 $35 For the Year Ended December 31,(in millions) 2017 2016 2015Depreciation expense Beverage Concentrates$8 $8 $7Packaged Beverages160 158 161Latin America Beverages19 14 14Segment total187 180 182Corporate and other11 11 10Total depreciation expense$198 $191 $192103Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) As of December 31,(in millions) 2017 2016Identifiable operating assets Beverage Concentrates$4,152 $4,108Packaged Beverages(1)5,295 3,474Latin America Beverages339 312Segment total9,786 7,894Corporate and other(1)212 1,874Total identifiable operating assets9,998 9,768Investments in unconsolidated subsidiaries24 23Total assets$10,022 $9,791____________________________(1)The increase in Package Beverages segment primarily resulted from the inclusion of operating assets recognized from the Bai acquisition, and the decrease in Corporateand other segment was primarily a result of the cash paid in respect to the Bai acquisition. Refer to Note 3 for additional information regarding the Bai Brands Merger.GEOGRAPHIC DATA The Company utilizes separate legal entities for transactions with customers outside of the United States. Information about the Company's operations bygeographic region as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 is below: For the Year Ended December 31,(in millions) 2017 2016 2015Net sales U.S.$5,978 $5,768 $5,575International712 672 707Total net sales$6,690 $6,440 $6,282 As of December 31,(in millions) 2017 2016Property, plant and equipment, net U.S.$1,062 $1,007International136 131Total property, plant and equipment, net$1,198 $1,138MAJOR CUSTOMERWalmart represents one of the Company's major customers and accounted for more than 10% of total net sales for the years ended December 31, 2017,2016 and 2015. For the years ended December 31, 2017, 2016 and 2015, DPS recorded net sales for direct shipments to Walmart of $838 million, $779million and $779 million, respectively.Additionally, customers in the Company's Beverage Concentrates segment buy concentrate from DPS which is used in finished goods sold by theCompany's third party bottlers to Walmart. These indirect sales further increase the concentration of risk associated with DPS' consolidated net sales as itrelates to Walmart.104Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)19. Guarantor and Non-Guarantor Financial InformationThe Company's Notes are fully and unconditionally guaranteed by substantially all of the Company's existing and future direct and indirect domesticsubsidiaries (except one immaterial subsidiary associated with charitable purposes) (the "Guarantors"), as defined in the indentures governing the Notes.The Guarantors are 100% owned either directly or indirectly by the Company and jointly and severally guarantee, subject to the release provisions describedbelow, the Company's obligations under the Notes. None of the Company's subsidiaries organized outside of the U.S. or immaterial subsidiaries used forcharitable purposes (collectively, the "Non-Guarantors") guarantee the Notes. The subsidiary guarantees with respect to the Notes are subject to releaseupon the occurrence of certain events, including the sale of all or substantially all of a subsidiary's assets, the release of the subsidiary's guarantee of otherindebtedness of the Company, the Company's exercise of its legal defeasance option with respect to the Notes and the discharge of the Company'sobligations under the applicable indenture.The following schedules present the financial information for Dr Pepper Snapple Group, Inc. (the "Parent"), Guarantors and Non-Guarantors. Theconsolidating schedules are provided in accordance with the reporting requirements for guarantor subsidiaries. Condensed Consolidating Statements of Income For the Year Ended December 31, 2017(in millions)Parent Guarantors Non-Guarantors Eliminations TotalNet sales$— $6,156 $680 $(146) $6,690Cost of sales— 2,466 375 (146) 2,695Gross profit— 3,690 305 — 3,995Selling, general and administrative expenses7 2,342 207 — 2,556Depreciation and amortization— 94 8 — 102Other operating (income) expense, net— (52) 1 — (51)Income from operations(7) 1,306 89 — 1,388Interest expense279 84 — (199) 164Interest income(73) (128) (1) 199 (3)Loss on early extinguishment of debt62 — — — 62Other income, net(9) (2) 3 — (8)Income before provision for income taxes andequity in loss of unconsolidated subsidiaries(266) 1,352 87 — 1,173Provision for income taxes(94) 169 20 — 95Income before equity in loss of unconsolidatedsubsidiaries(172) 1,183 67 — 1,078Equity in earnings of consolidated subsidiaries1,248 67 — (1,315) —Equity in loss of unconsolidated subsidiaries, net of tax— (2) — — (2)Net income$1,076 $1,248 $67 $(1,315) $1,076105Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Statements of Income For the Year Ended December 31, 2016(in millions)Parent Guarantors Non-Guarantors Eliminations TotalNet sales$— $5,936 $633 $(129) $6,440Cost of sales— 2,392 319 (129) 2,582Gross profit— 3,544 314 — 3,858Selling, general and administrative expenses3 2,127 199 — 2,329Depreciation and amortization— 92 7 — 99Other operating (income) expense, net— 2 (5) — (3)Income from operations(3) 1,323 113 — 1,433Interest expense242 69 — (164) 147Interest income(55) (105) (7) 164 (3)Loss on early extinguishment of debt31 — ——— 31Other income, net(5) (27) 7 — (25)Income before provision for income taxes andequity in loss of unconsolidated subsidiaries(216) 1,386 113 — 1,283Provision for income taxes(69) 470 33 — 434Income before equity in loss of unconsolidatedsubsidiaries(147) 916 80 — 849Equity in earnings of consolidated subsidiaries994 81 — (1,075) —Equity in loss of unconsolidated subsidiaries, net oftax— (3) 1 — (2)Net income$847 $994 $81 $(1,075) $847106Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Statements of Income For the Year Ended December 31, 2015(in millions)Parent Guarantors Non-Guarantors Eliminations TotalNet sales$— $5,668 $633 $(19) $6,282Cost of sales— 2,280 298 (19) 2,559Gross profit— 3,388 335 — 3,723Selling, general and administrative expenses— 2,105 208 — 2,313Depreciation and amortization— 99 6 — 105Other operating (income) expense, net— (1) 8 — 7Income from operations— 1,185 113 — 1,298Interest expense228 56 — (167) 117Interest income(42) (120) (7) 167 (2)Other income, net(1) (6) 6 — (1)Income before provision for income taxes andequity in loss of unconsolidated subsidiaries(185) 1,255 114 — 1,184Provision for income taxes(85) 472 33 — 420Income before equity in loss of unconsolidatedsubsidiaries(100) 783 81 — 764Equity in earnings of consolidated subsidiaries864 81 — (945) —Equity in loss of unconsolidated subsidiaries, net oftax— — — — —Net income$764 $864 $81 $(945) $764107Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Statements of Comprehensive Income For the Year Ended December 31, 2017(in millions)Parent Guarantors Non-Guarantors Eliminations TotalNet income$1,076 $1,248 $67 $(1,315) $1,076Other comprehensive (loss) income, net of tax: Other comprehensive income impact fromconsolidated subsidiaries22 17 — (39) —Foreign currency translation adjustments— — 16 — 16Net change in pension liability, net of tax— 5 — — 5Net change in cash flow hedges, net of tax5 — 1 — 6Total other comprehensive (loss) income, net of tax27 22 17 (39) 27Comprehensive income (loss)$1,103 $1,270 $84 $(1,354) $1,103 Condensed Consolidating Statements of Comprehensive Income For the Year Ended December 31, 2016(in millions)Parent Guarantors Non-Guarantors Eliminations TotalNet income$847 $994 $81 $(1,075) $847Other comprehensive (loss) income, net of tax: Other comprehensive income impact fromconsolidated subsidiaries(40) (29) — 69 —Foreign currency translation adjustments(1) (11) (27) — (39)Net change in pension liability, net of tax— — (1) — (1)Net change in cash flow hedges, net of tax7 — (1) — 6Total other comprehensive (loss) income, net of tax(34) (40) (29) 69 (34)Comprehensive income (loss)$813 $954 $52 $(1,006) $813 Condensed Consolidating Statements of Comprehensive Income For the Year Ended December 31, 2015(in millions)Parent Guarantors Non-Guarantors Eliminations TotalNet income$764 $864 $81 $(945) $764Other comprehensive (loss) income, net of tax: Other comprehensive income impact fromconsolidated subsidiaries(67) (100) — 167 —Foreign currency translation adjustments7 31 (102) — (64)Net change in pension liability, net of tax— 2 2 — 4Net change in cash flow hedges, net of tax2 — — — 2Total other comprehensive (loss) income, net of tax(58) (67) (100) 167 (58)Comprehensive income (loss)$706 $797 $(19) $(778) $706108Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Balance Sheets As of December 31, 2017(in millions)Parent Guarantors Non-Guarantors Eliminations TotalCurrent assets: Cash and cash equivalents$— $15 $46 $— $61Restricted cash and cash equivalents— 18 — — 18Accounts receivable: Trade, net— 595 73 — 668Other1 35 6 — 42Related party receivable20 42 — (62) —Inventories— 199 30 — 229Prepaid expenses and other current assets473 83 18 (475) 99Total current assets494 987 173 (537) 1,117Property, plant and equipment, net— 1,062 136 — 1,198Investments in consolidated subsidiaries9,373 332 — (9,705) —Investments in unconsolidated subsidiaries— 24 — — 24Goodwill— 3,539 22 — 3,561Other intangible assets, net— 3,733 48 — 3,781Long-term receivable, related parties3,278 6,233 — (9,511) —Other non-current assets65 195 22 (3) 279Non-current deferred tax assets11 — 62 (11) 62Total assets$13,221 $16,105 $463 $(19,767) $10,022 Current liabilities: Accounts payable$— $333 $32 $— $365Related party payable37 20 5 (62) —Deferred revenue— 68 2 (6) 64Short-term borrowings and current portion of long-termobligations66 13 — — 79Income taxes payable— 479 1 (469) 11Other current liabilities133 532 54 — 719Total current liabilities236 1,445 94 (537) 1,238Long-term obligations to third parties4,230 170 — — 4,400Long-term obligations to related parties6,233 3,278 — (9,511) —Non-current deferred tax liabilities— 625 — (11) 614Non-current deferred revenue— 1,032 26 (3) 1,055Other non-current liabilities71 182 11 — 264Total liabilities10,770 6,732 131 (10,062) 7,571Total stockholders' equity2,451 9,373 332 (9,705) 2,451Total liabilities and stockholders' equity$13,221 $16,105 $463 $(19,767) $10,022109Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Balance Sheets As of December 31, 2016(in millions)Parent Guarantors Non-Guarantors Eliminations TotalCurrent assets: Cash and cash equivalents$— $1,736 $51 $— $1,787Restricted cash and cash equivalents— — — — —Accounts receivable: Trade, net— 540 55 — 595Other3 39 9 — 51Related party receivable15 37 — (52) —Inventories— 178 24 — 202Prepaid and other current assets379 84 7 (369) 101Total current assets397 2,614 146 (421) 2,736Property, plant and equipment, net— 1,007 131 — 1,138Investments in consolidated subsidiaries8,067 302 — (8,369) —Investments in unconsolidated subsidiaries— 23 — — 23Goodwill— 2,972 21 — 2,993Other intangible assets, net— 2,609 47 — 2,656Long-term receivable, related parties3,209 5,077 — (8,286) —Other non-current assets64 107 12 — 183Non-current deferred tax assets20 — 62 (20) 62Total assets$11,757 $14,711 $419 $(17,096) $9,791 Current liabilities: Accounts payable$— $276 $27 $— $303Related party payable31 14 7 (52) —Deferred revenue— 63 1 — 64Short-term borrowings and current portion of long-termobligations— 10 — — 10Income taxes payable— 372 1 (369) 4Other current liabilities128 502 40 — 670Total current liabilities159 1,237 76 (421) 1,051Long-term obligations to third parties4,325 143 — — 4,468Long-term obligations to related parties5,077 3,209 — (8,286) —Non-current deferred tax liabilities(1) 833 — (20) 812Non-current deferred revenue— 1,091 26 — 1,117Other non-current liabilities63 131 15 — 209Total liabilities9,623 6,644 117 (8,727) 7,657Total stockholders' equity2,134 8,067 302 (8,369) 2,134Total liabilities and stockholders' equity$11,757 $14,711 $419 $(17,096) $9,791110Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Statements of Cash Flows For the Year Ended December 31, 2017(in millions)Parent Guarantors Non-Guarantors Eliminations TotalOperating activities: Net cash (used in) provided by operatingactivities$(255) $1,281 $68 $(56) $1,038Investing activities: Acquisition of business— (1,556) — — (1,556)Cash acquired in step acquisition of unconsolidatedsubsidiaries— 4 — — 4Purchase of property, plant and equipment— (182) (20) — (202)Purchase of intangible assets— (6) — — (6)Investment in unconsolidated subsidiaries— (3) — — (3)Proceeds from disposals of property, plant andequipment— 3 — — 3Issuance of related party notes receivable— (1,156) — 1,156 —Other, net(6) 3 — — (3)Net cash (used in) provided by investingactivities(6) (2,893) (20) 1,156 (1,763)Financing activities: Proceeds from issuance of related party debt1,156 — — (1,156) —Proceeds from issuance of senior unsecured notes400 — — — 400Repayment of senior unsecured notes(562) — — — (562)Net issuance of commercial paper66 — — — 66Repurchase of shares of common stock(399) — — — (399)Dividends paid(414) — (56) 56 (414)Tax withholdings related to net share settlements ofcertain stock awards(30) — — — (30)Proceeds from stock options exercised20 — — — 20Premium (discount) on issuance of senior unsecurednotes16 — — — 16Proceeds from termination of interest rate swap13 — — — 13Deferred financing charges(5) — — — (5)Capital lease payments— (12) — — (12)Net cash (used in) provided by financingactivities261 (12) (56) (1,100) (907)Cash, cash equivalents, restricted cash andrestricted cash equivalents — net change from: Operating, investing and financing activities— (1,624) (8) — (1,632)Effect of exchange rate changes on cash, cashequivalents, restricted cash and restricted cashequivalents— — 3 — 3Cash, cash equivalents, restricted cash, andrestricted cash equivalents at beginning of year— 1,736 51 — 1,787Cash, cash equivalents, restricted cash, andrestricted cash equivalents at end of year$— $112 $46 $— $158111Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Statements of Cash Flows For the Year Ended December 31, 2016(in millions)Parent Guarantors Non-Guarantors Eliminations TotalOperating activities: Net cash (used in) provided by operating activities$(197) $1,107 $74 $(23) $961Investing activities: Acquisition of business— — (15) — (15)Cash acquired in step acquisition of unconsolidatedsubsidiaries— — 17 — 17Purchase of property, plant and equipment— (131) (49) — (180)Purchase of intangible assets— (1) (1) — (2)Investments in unconsolidated subsidiaries— (6) — — (6)Purchase of cost method investments— (1) — — (1)Proceeds from disposals of property, plant andequipment— 6 — — 6Issuance of related party notes receivable— (88) — 88 —Other, net(8) — — — (8)Net cash (used in) provided by investing activities(8) (221) (48) 88 (189)Financing activities: Proceeds from issuance of related party debt88 — — (88) —Proceeds from issuance of senior unsecured notes1,950 — — — 1,950Repayment of senior unsecured notes(891) — — — (891)Repurchase of shares of common stock(519) — — — (519)Dividends paid(386) — (23) 23 (386)Tax withholdings related to net share settlements ofcertain stock awards(31) — — — (31)Proceeds from stock options exercised14 — — — 14Premium (discount) on issuance of senior unsecurednotes(1) — — — (1)Deferred financing charges paid(19) — — — (19)Capital lease payments— (9) — — (9)Net cash (used in) provided by financing activities205 (9) (23) (65) 108Cash and cash equivalents — net change from: Operating, investing and financing activities— 877 3 — 880Effect of exchange rate changes on cash and cashequivalents— — (4) — (4)Cash and cash equivalents at beginning of period— 859 52 — 911Cash and cash equivalents at end of period$— $1,736 $51 $— $1,787112Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued) Condensed Consolidating Statements of Cash Flows For the Year Ended December 31, 2015(in millions)Parent Guarantors Non-Guarantors Eliminations TotalOperating activities: Net cash (used in) provided by operating activities$(209) $1,128 $95 $— $1,014Investing activities: Purchase of property, plant and equipment— (133) (46) — (179)Purchase of intangible assets— (1) — — (1)Purchase of cost method investments— (15) — — (15)Investments in unconsolidated subsidiaries— (20) — — (20)Proceeds from disposals of property, plant andequipment— 20 — — 20Issuance of related party notes receivable— (340) (39) 379 —Other, net1 — — — 1Net cash (used in) provided by investing activities1 (489) (85) 379 (194)Financing activities: Proceeds from issuance of related party debt340 39 — (379) —Proceeds from issuance of senior unsecured notes750 — — — 750Repurchase of shares of common stock(521) — — — (521)Dividends paid(355) — — — (355)Tax withholdings related to net share settlements ofcertain stock awards(27) — — — (27)Proceeds from stock options exercised30 — — — 30Premium (discount) on issuance of senior unsecurednotes(4) ——— — (4)Deferred financing charges paid(6) — — — (6)Capital lease payments— (5) — — (5)Other, net1 — — — 1Net cash (used in) provided by financing activities208 34 — (379) (137)Cash and cash equivalents — net change from: Operating, investing and financing activities— 673 10 — 683Effect of exchange rate changes on cash and cashequivalents— — (9) — (9)Cash and cash equivalents at beginning of year— 186 51 — 237Cash and cash equivalents at end of year$— $859 $52 $— $911113Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)20. Subsequent EventsANNOUNCEMENT OF MERGER WITH KEURIG GREEN MOUNTAIN, INC.On January 29, 2018, DPS entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among DPS, Maple Parent Holdings Corp.(“Maple Parent”) and Salt Merger Sub, Inc. (“Merger Sub”), whereby Merger Sub will be merged with and into Maple Parent, with Maple Parent surviving themerger as a wholly-owned subsidiary of the Company (the “Transaction”). For financial reporting and accounting purposes, Maple Parent will be the acquirerof DPS upon completion of the Transaction.Maple Parent owns Keurig Green Mountain, Inc. ("Keurig"), a leader in specialty coffee and innovative single serve brewing systems. The combinedbusinesses will create Keurig Dr Pepper Inc., a new beverage company of scale with a portfolio of iconic consumer brands and expanded distributioncapability to reach virtually every point-of-sale in North America.In consideration for the Transaction, each share of common stock of Maple Parent issued and outstanding immediately prior to the closing of theTransaction (the “Effective Time”) shall be converted into the right to receive a number of fully paid and nonassessable shares of common stock of DPSdetermined pursuant to an exchange ratio set forth in the Merger Agreement (the “Acquisition Shares”).The Merger Agreement provides that DPS will declare a special cash dividend equal to $103.75 per share, subject to any withholding of taxes requiredby law, payable to holders of its common stock as of the record date for the special dividend.As a result of the Transaction, the stockholders of Maple Parent as of immediately prior to the Effective Time will own approximately 87% of DPS'common stock following the closing and the stockholders of DPS as of immediately prior to the Effective Time will own approximately 13% on a fully dilutedbasis.The completion of the Transaction requires the approval of the holders of DPS' common stock of (i) an amendment to the DPS’ certificate of incorporationto increase the number of authorized shares of common stock and to change DPS' name to "Keurig Dr Pepper Inc." and (ii) the issuance of the AcquisitionShares pursuant to the Merger Agreement (collectively, the "Stockholder Approvals").In addition to the Stockholder Approvals, the completion of the Transaction will depend upon a number of conditions being satisfied or waived, including,among others, obtaining all required regulatory approvals, authorization of the listing on the New York Stock Exchange of the Acquisition Shares, theabsence of any injunction prohibiting the consummation of the Transaction and absence of any legal requirements enacted by any court or othergovernmental entity since the date of the Merger Agreement that remain in effect prohibiting consummation of the Transaction. The obligation of each party toconsummate the Transaction is also conditioned on the other party’s representations and warranties being true and correct (subject to certain materialityexceptions) and the other party having performed in all material respects its obligations under the Merger Agreement.The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after receipt of the Stockholder Approvals or theeffectiveness of the Maple Parent stockholder consent or Merger Sub stockholder consent, by the mutual written consent of the parties, by either MapleParent or DPS if the closing of the Transaction does not occur by October 29, 2018 or stockholder approvals are not obtained or a final and nonappealablegovernment order prohibiting the closing of the Transaction is in place, or by Maple Parent or DPS in connection with certain breaches of the MergerAgreement by DPS or Maple Parent, respectively.If the Merger Agreement is terminated by DPS pursuant to DPS accepting a superior proposal and entering into an alternative acquisition agreement, byMaple Parent if our Board changes its recommendation to stockholders to approve the Stockholder Approvals or fails to reaffirm such recommendationfollowing receipt or public announcement of a competing acquisition proposal within five business days after Maple Parent's request to do so, or by eitherDPS or Maple Parent because the closing does not occur by October 29, 2018 and there is an acquisition proposal outstanding at the time of suchtermination and within twelve months of termination of the Merger Agreement DPS consummates or enters into an agreement with respect to an acquisitionproposal, DPS shall pay to Maple Parent a termination fee in the amount of $700 million. If the Merger Agreement is terminated by DPS because MapleParent is unable to obtain required financing on the terms required by the Merger Agreement, Maple Parent shall pay to DPS a reverse termination fee in theamount of $700 million.Upon completion of the Transaction:•all unvested stock options, RSUs and PSUs will vest immediately as a result of the Change in Control (as defined in the terms of eachindividual award agreement); and•the Revolver will be terminated as a result of the Change in Control (as defined in the Credit Agreement).114Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsDR PEPPER SNAPPLE GROUP, INC.NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)We have an agreement with a financial advisor in relation to the pending Transaction with Maple Parent. We agreed to pay a fee of approximately $50million, $5 million of which was for the delivery of the fairness opinion, and the remaining portion of which will be paid upon, and subject to, consummation ofthe Transaction.CHANGE IN THE COMPANY'S OPERATING SEGMENTS AND REPORTING UNITSAs of January 1, 2018, due to changes to the information reviewed by the Chief Operating Decision Maker and limited availability of discrete financialinformation, the Company has determined that Bai no longer meets the criteria to be considered an operating segment. Therefore, as of January 1, 2018, theCompany has three operating segments: Beverage Concentrates, Packaged Beverages, and Latin America Beverages. There is no change to theCompany's reportable segments, as previously Bai and Packaged Beverages Excluding Bai were aggregated into the Packaged Beverages reportablesegment.The Company has additionally concluded that Bai meets the criteria to be considered a component of the Packaged Beverages segment. However, asthe economic characteristics of Bai and WD are similar, the Company has aggregated Bai and WD into a single reporting unit as of January 1, 2018.INVESTMENT IN CORE NUTRITION LLCOn January 5, 2018, the Company acquired a 5.1% equity interest in Core for $18 million.115Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURENot applicable.ITEM 9A. CONTROLS AND PROCEDURESDISCLOSURE CONTROLS AND PROCEDURES Based on evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act)our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, as of December 31, 2017, our disclosure controls andprocedures are effective to (i) provide reasonable assurance that information required to be disclosed in the Exchange Act filings is recorded, processed,summarized and reported within the time periods specified by the SEC's rules and forms, and (ii) ensure that information required to be disclosed by us in thereports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate to allow timely decisions regarding required disclosure.MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, weconducted an evaluation of the effectiveness of our internal control over financial reporting. In making its assessment of internal control over financialreporting, management used criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013). Based on that evaluation, our management concluded that our internal control over financial reporting is effective as ofDecember 31, 2017. Under guidelines established by the SEC, companies are allowed to exclude an acquired business from management's report on internal control overfinancial reporting for the first year subsequent to the acquisition while integrating the acquired operations. Accordingly, management has excluded BaiBrands from its annual report on internal control over financial reporting as of December 31, 2017. Bai Brands represented 17% and 1% of the Company'sconsolidated total assets and consolidated net sales, respectively, as of and for the year ended December 31, 2017.ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Deloitte & Touche LLP, our independentregistered public accounting firm, as stated in their attestation report, which is included in Item 8, "Financial Statements and Supplementary Data," of thisAnnual Report on Form 10-K. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING As of December 31, 2017, management has concluded that there have been no changes in our internal controls over financial reporting that occurredduring our fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.116Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsPART IIIItem 10. Directors. Executive Officers and Corporate Governance.Information not disclosed below that is required with respect to directors, executive officers, filings under Section 16(a) of the Exchange Act and corporategovernance is incorporated herein by reference, when filed, from our proxy statement (the "Proxy Statement") for the Annual Meeting of Shareholders to befiled with the SEC pursuant to Regulation 14A under the Exchange Act or an amendment on Form 10-K/A.Item 11. Executive Compensation.Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement or anamendment on Form 10-K/A.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement or anamendment on Form 10-K/A. Item 13. Certain Relationships and Related Transactions, and Director Independence.Information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement or anamendment on Form 10-K/A.Item 14. Principal Accountant Fees and ServicesInformation required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, from our Proxy Statement or anamendment on Form 10-K/A.PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESFINANCIAL STATEMENTSThe following financial statements are included in Part II, Item 8, "Financial Statements and Supplementary Data," in this Annual Report on Form 10-K:•Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015•Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015•Consolidated Balance Sheets as of December 31, 2017 and 2016•Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015•Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015•Notes to Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015SCHEDULESSchedules are omitted because they are not required or applicable, or the required information is included in the Consolidated Financial Statements orrelated notes.EXHIBITSSee Index to Exhibits.117Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsEXHIBIT INDEX2.1Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certainprovisions set forth therein, Cadbury plc, dated as of May 1, 2008 (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (filed onMay 5, 2008) and incorporated herein by reference).2.2Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., SuperfruitMerger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K (filed on November 23, 2016)and incorporated herein by reference).2.3Amendment No. 1, dated as of January 31, 2017, to the Agreement and Plan of Merger, dated as of November 21, 2016, by and among BaiBrands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.2 to the Company’sCurrent Report on Form 8-K (filed on January 31, 2017) and incorporated herein by reference).3.1Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. (filed as Exhibit 3.1 to the Company's Current Report onForm 8-K (filed on May 12, 2008) and incorporated herein by reference).3.2Certificate of Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 17,2012 (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (filed July 26, 2012) and incorporated herein by reference).3.3Certificate of Second Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May19, 2016 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed May 20, 2016) and incorporated herein by reference.3.4Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc. effective as of January 25, 2016 (filed as Exhibit 3.2 to the Company'sCurrent Report on Form 8-K (filed January 25, 2016) and incorporated herein by reference).4.1Indenture, dated April 30, 2008, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A. (filed as Exhibit 4.1 to the Company'sCurrent Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).4.2Form of 6.12% Senior Notes due 2013 (filed as Exhibit 4.2 to, and included as Exhibit A-1 to Exhibit 4.1 to, the Company's Current Report onForm 8-K (filed on May 1, 2008) and incorporated herein by reference).4.3Form of 6.82% Senior Notes due 2018 (filed as Exhibit 4.3 to, and included as Exhibit A-2 to Exhibit 4.1 to, the Company's Current Report onForm 8-K (filed on May 1, 2008) and incorporated herein by reference).4.4Form of 7.45% Senior Notes due 2038 (filed as Exhibit 4.4 to, and included as Exhibit A-3 to Exhibit 4.1 to, the Company's Current Report onForm 8-K (filed on May 1, 2008) and incorporated herein by reference).4.5Registration Rights Agreement, dated April 30, 2008, between Dr Pepper Snapple Group, Inc., J.P. Morgan Securities Inc., Banc of AmericaSecurities LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, UBS Securities LLC, BNP Paribas Securities Corp., MitsubishiUFJ Securities International plc, Scotia Capital (USA) Inc., SunTrust Robinson Humphrey, Inc., Wachovia Capital Markets, LLC and TDSecurities (USA) LLC (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein byreference).4.6Registration Rights Agreement Joinder, dated May 7, 2008, by the subsidiary guarantors named therein (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).4.7Supplemental Indenture, dated May 7, 2008, among Dr Pepper Snapple Group, Inc., the subsidiary guarantors named therein and WellsFargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporatedherein by reference).4.8Second Supplemental Indenture dated March 17, 2009, to be effective as of December 31, 2008, among Splash Transport, Inc., as asubsidiary guarantor, Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's AnnualReport on Form 10-K (filed on March 26, 2009) and incorporated herein by reference).4.9Third Supplemental Indenture, dated October 19, 2009, among 234DP Aviation, LLC, as a subsidiary guarantor; Dr Pepper Snapple Group,Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q (filed November 5, 2009)and incorporated herein by reference).4.10Fourth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184Innovations Inc., a Delaware corporation (each as a new subsidiary guarantors under the Indenture dated April 30, 2008 (as referenced inItem 4.1 in this Exhibit Index), Dr Pepper Snapple Group, Inc., each other then-existing Guarantor under the Indenture and Wells Fargo,National Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed February 2, 2017) and incorporatedherein by reference).4.11Indenture, dated as of December 15, 2009, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A., as trustee (filed asExhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).4.12Second Supplemental Indenture, dated as of January 11, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto andWells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on January 11, 2011) andincorporated herein by reference).4.132.90% Senior Note due 2016 (in global form), dated January 11, 2011, in the principal amount of $500 million (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on January 11, 2011) and incorporated herein by reference).4.14Third Supplemental Indenture, dated as of November 15, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto andWells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 15, 2011) andincorporated herein by reference).118Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents4.152.60% Senior Note due 2019 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).4.163.20% Senior Note due 2021 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.3 to theCompany's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).4.17Fourth Supplemental Indenture, dated as of November 20, 2012, among Dr Pepper Snapple Group, Inc., the guarantors party thereto andWells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 20, 2012) andincorporated herein by reference).4.182.00% Senior Note due 2020 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).4.192.70% Senior Note due 2022 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.3 to theCompany's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).4.20Fifth Supplemental Indenture, dated as of November 9, 2015, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and WellsFargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 10, 2015) andincorporated herein by reference).4.213.40% Senior Note due 2025 (in global form), dated November 9, 2015, in the principal amount of $500,000,000 (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).4.224.50% Senior Note due 2045 (in global form), dated November 9, 2015, in the principal amount of $250,000,000 (filed as Exhibit 4.3 to theCompany's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).4.23Sixth Supplemental Indenture, dated as of September 16, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto andWells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on September 16, 2016) andincorporated herein by reference).4.242.55% Senior Note due 2026 (in global form), dated September 16, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on September 16, 2016) and incorporated herein by reference).4.25Seventh Supplemental Indenture, dated as of December 14, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto andWells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 14, 2016) andincorporated herein by reference).4.262.53% Senior Note due 2021 (in global form), dated December 14, 2016, in the principal amount of $250,000,000 (filed as Exhibit 4.2 to theCompany's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).4.273.13% Senior Note due 2023 (in global form), dated December 14, 2016, in the principal amount of $500,000,000 (filed as Exhibit 4.3 to theCompany's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).4.283.43% Senior Note due 2027 (in global form), dated December 14, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.4 to theCompany's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).4.294.42% Senior Note due 2046 (in global form), dated December 14, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.5 to theCompany's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).4.30Eighth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184Innovations Inc., a Delaware corporation (each as a new subsidiary guarantor under the Indenture dated April 30, 2008 (as referenced inItem 4.1 in this Exhibit Index)), Dr Pepper Snapple Group, Inc., each other then-existing Guarantor under the Indenture) and Wells Fargo,National Bank, N.A., as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed February 2, 2017) and incorporatedherein by reference).4.31Ninth Supplemental Indenture, dated as of June 15, 2017, among Dr Pepper Snapple Group, Inc., the guarantors party thereto, and WellsFargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on June 15, 2017) and incorporatedherein by reference).4.32Registration Rights Agreement, dated June 15, 2017, between Dr Pepper Snapple Group, Inc., the guarantors party thereto, Morgan Stanley& Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K(filed on June 15, 2017) and incorporated herein by reference).10.1Tax Sharing and Indemnification Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for the certainprovision set forth therein, Cadbury plc, dated as of May 1, 2008 (initially filed as Exhibit 10.2 to the Company's Current Report on Form 8-K(initially filed on May 5, 2008), refiled as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (filed on May 6, 2010) solely for thepurpose of including previously omitted exhibits and incorporated herein by reference).10.2Employee Matters Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions setforth therein, Cadbury plc, dated as of May 1, 2008 (initially filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (filed onMay 5, 2008), refiled as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (filed on May 6, 2010) solely for the purpose ofincluding previously omitted exhibits and incorporated herein by reference).119Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents10.3Form of Dr Pepper License Agreement for Bottles, Cans and Pre-mix (filed as Exhibit 10.9 to Amendment No. 2 to the Company'sRegistration Statement on Form 10 (filed on February 12, 2008) and incorporated herein by reference).10.4Form of Dr Pepper Fountain Concentrate Agreement (filed as Exhibit 10.10 to Amendment No. 3 to the Company's Registration Statement onForm 10 (filed on March 20, 2008) and incorporated herein by reference).10.5Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. (now known as DPS Holdings Inc.) and Larry D.Young (filed as Exhibit 10.11 to Amendment No. 2 to the Company's Registration Statement on Form 10 (filed on February 12, 2008) andincorporated herein by reference).10.6First Amendment to Executive Employment Agreement, effective as of February 11, 2009, between DPS Holdings, Inc. and Larry D. Young(filed as Exhibit 99.2 to the Company's Current Report on Form 8-K (filed on February 18, 2009) and incorporated herein by reference).10.7Second Amendment to Executive Employment Agreement, effective as of August 11, 2009, between DPS Holdings, Inc. and Larry D. Young(filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (filed on August 13, 2009) and incorporated herein by reference).10.8Letter Agreement, effective as of November 23, 2008, between Dr Pepper Snapple Group, Inc. and James J. Johnston (filed as Exhibit 10.20to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).10.9Letter Agreement, effective as of November 23, 2008, between Dr Pepper Snapple Group, Inc. and Rodger L. Collins (filed as Exhibit 10.24to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).10.10Letter Agreement, effective as of April 1, 2010, between Dr Pepper Snapple Group, Inc. and Martin M. Ellen (filed as Exhibit 10.25 to theCompany's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).10.11Executive Employment Agreement, effective as of October 15, 2017, between CBI Holdings Inc. and James L. Baldwin (filed as exhibit 10.1 tothe Company's Quarterly Report on Form 10-Q (filed on April 26, 2017) and incorporated herein by reference).10.12Dr Pepper Snapple Group, Inc. Employee Stock Purchase Plan (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K (filed onMay 12, 2008) and incorporated herein by reference).10.13Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2009 approved by the Stockholders on May 19, 2009, and re-approved bythe Stockholders on May 15, 2014 (filed as Annex "A" to the Company's Preliminary Proxy Statement on Form DEFA14A (filed April 1, 2014)and incorporated herein by reference).10.14Dr Pepper Snapple Group, Inc. Management Incentive Plan of 2009 approved by the Stockholders on May 19, 2009, and re-approved by theStockholders on May 16, 2013 (filed as Appendix A to the Company's Preliminary Proxy Statement on Form DEF14A (filed March 25,2013) and incorporated herein by reference).10.15Dr Pepper Snapple Group, Inc. Change in Control Severance Plan adopted on February 11, 2009 (filed as Exhibit 99.1 to the Company'sCurrent Report on Form 8-K (filed February 18, 2009) and incorporated herein by reference).10.16First Amendment to the Dr Pepper Snapple Group, Inc. Change in Control Severance Plan, effective as of February 24, 2010 (filed as Exhibit10.40 to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).10.17Letter Agreement, dated December 7, 2009, between Dr Pepper Snapple Group, Inc. and PepsiCo, Inc. (filed as Exhibit 10.1 to theCompany's Current Report on Form 8-K (filed on December 8, 2009) and incorporated herein by reference).10.18Letter Agreement, dated June 7, 2010, between Dr Pepper/Seven Up, Inc. and The Coca-Cola Company (filed as Exhibit 10.1 to theCompany's Current Report on Form 8-K (filed on June 7, 2010) and incorporated herein by reference).10.19Commercial Paper Dealer Agreement between Dr Pepper Snapple Group, Inc. and J.P. Morgan Securities LLC, dated as of December 10,2010 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on December 13, 2010) and incorporated herein byreference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the Company has filed only one Dealer Agreement, as the otherDealer Agreements are substantially identical in all material respects except as to the parties thereto and the notice provisions.10.20Credit Agreement, dated as of September 25, 2012, among the Company, the Lenders and Issuing Banks party thereto; JPMorgan ChaseBank, N.A., as Administrative Agent; Bank of America, N.A. and Deutsche Bank Securities Inc., as Syndication Agents, and Branch Bankingand Trust Company, Credit Suisse AG, Cayman Islands Branch, HSBC Bank USA, N.A., Morgan Senior Funding, Inc., UBS Securities LLCand U.S. Bank National Association, as Co-Documentation Agents (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filedon September 26, 2012 and incorporated herein by reference).10.21Credit Agreement, dated as of March 16, 2017, among the Company, the lenders and issuing banks party thereto; JPMorgan Chase Bank,N.A., as administrative agent; and the syndication agents, documentation agents, joint lead arrangers and joint borrowers, as identified in theCredit Agreement (filed as Exhibit 10.1 to the Company's Current Report on Form 8–K (filed on March 17, 2017) and incorporated herein byreference).10.22Assumption Agreement dated as of January 31, 2017 by Bai Brands LLC and 184 Innovations, Inc., (each as an additional guarantor underthe Credit Agreement dated September 25, 2012 (as referenced in Item 10.22 in this Exhibit Index)), in favor of the Administrative Agent andeach Lender (as each such term is defined in the Credit Agreement) (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filedFebruary 2, 2017) and incorporated herein by reference).10.23†Agreement dated July 22, 2013, among The American Bottling Company, Mott's LLP and CROWN Cork & Seal USA, Inc., filed as Exhibit10.29 to the Company's Annual Report on Form 10-K (filed February 20, 2014) and incorporated herein by this reference.10.24First Amendment to Omnibus Stock Incentive Plan of 2009 approved by the Board of Directors and the Compensation Committee of theBoard of Directors of Dr Pepper Snapple Group, Inc. on September 18, 2013 filed as Exhibit 10.2 to the Company's Quarterly Report on Form10-Q (filed on October 24, 2013) and incorporated herein by reference.120Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of Contents10.25Non-Employee Director Deferral Plan approved by the Board of Directors and the Compensation Committee of the Board of Directors of DrPepper Snapple Group, Inc. on September 18, 2013 filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (filed on October24, 2013) and incorporated herein by this reference.10.26Agreement, dated as of October 15, 2007, between CBI Holdings Inc. (now known as DPS Holdings Inc.) and Derry Hobson, filed as Exhibit10.32 to the Company's Annual Report on Form 10-K (filed February 20, 2014) and incorporated herein by this reference.10.27Amendment to Employment Agreement, effective as of February 11, 2009, between DPS Holdings, Inc. and Derry Hobson (filed as Exhibit10.33 to the Company's Annual Report on Form 10-K (filed February 20, 2014) and incorporated herein by this reference).10.28Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2009, as amended and approved by the Stockholders on May 15, 2014(filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K (filed February 19, 2015) and incorporated herein by reference).10.29First Amendment, dated as of August 21, 2015, to Credit Agreement dated as of September 25, 2012, by and among the Loan Parties and theAdministrative Agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on August 25, 2015) and incorporated hereinby reference).10.30Severance Pay Plan for Executives, dated to be effective as of October 15, 2017 (filed as Exhibit 10.1 to the Company's Quarterly Report onForm 10-Q (filed on October 25, 2017) and incorporated herein by reference).10.31Purchase Agreement, dated June 5, 2017, between Dr Pepper Snapple Group, Inc., Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC,and J.P. Morgan Securities LLC (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on June 6, 2017) and incorporatedherein by reference).12.1*Computation of Ratio of Earnings to Fixed Charges.14.1Dr Pepper Snapple Group, Inc. Code of Conduct approved by the Board of Directors on September 16, 2015 (filed as Exhibit 14.1 to theCompany's Current Report on Form 8-K (filed on September 16, 2015) and incorporated herein by reference).21.1*List of Subsidiaries (as of December 31, 2017)23.1*Consent of Deloitte & Touche LLP31.1*Certification of Chief Executive Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under theExchange Act.31.2*Certification of Chief Financial Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under theExchange Act.32.1**Certification of Chief Executive Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under theExchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.32.2**Certification of Chief Financial Officer of Dr Pepper Snapple Group, Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under theExchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.101*The following financial information from Dr Pepper Snapple Group, Inc.'s Annual Report on Form 10-K for the year ended December 31,2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for the years ended December31, 2017, 2016 and 2015, (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015,(iii) Consolidated Balance Sheets as of December 31, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the years endedDecember 31, 2017, 2016 and 2015, (v) Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31,2017, 2016 and 2015, and (vi) the Notes to Audited Consolidated Financial Statements.* Filed herewith.† Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidentialtreatment pursuant to the Securities and Exchange Act of 1934 as amended.** Furnished herewith.121Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized. Dr Pepper Snapple Group, Inc. By: /s/ Martin M. EllenDate: February 14, 2018 Name:Martin M. Ellen Title:Executive Vice President and ChiefFinancial OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.By: /s/ Larry D. Young By: /s/ Martin M. Ellen Name:Larry D. Young Name:Martin M. Ellen Title:President, Chief Executive Officer andDirector Title:Executive Vice President and ChiefFinancial Officer Date:February 14, 2018 Date:February 14, 2018 By: /s/ Angela A. Stephens By: /s/ Wayne R. Sanders Name:Angela A. Stephens Name:Wayne R. Sanders Title:Senior Vice President and Controller(Principal Accounting Officer) Title:Chairman Date:February 14, 2018 Date:February 14, 2018 By: /s/ David E. Alexander By: /s/ Antonio Carrillo Name:David E. Alexander Name:Antonio Carrillo Title:Director Title:Director Date:February 14, 2018 Date:February 14, 2018 By: /s/ José Gutiérrez By: /s/ Pamela H. Patsley Name:José Gutiérrez Name:Pamela H. Patsley Title:Director Title:Director Date:February 14, 2018 Date:February 14, 2018 By: /s/ Ronald G. Rogers By: /s/ Dunia A. Shive Name:Ronald G. Rogers Name:Dunia A. Shive Title:Director Title:Director Date:February 14, 2018 Date:February 14, 2018 By: /s/ M. Anne Szostak Name:M. Anne Szostak Title:Director Date:February 14, 2018 122Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 12.1DR PEPPER SNAPPLE GROUP, INC.COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(In millions, except ratio amounts) For the Years Ended December 31, 2017 2016 2015 2014 2013Calculation of fixed charges ratio: Income before provision for income taxes, equity in (loss) earnings of unconsolidatedsubsidiaries and cumulative effect of change in accounting policy(2)$1,173 $1,283 $1,184 $1,073 $542 Add/(deduct): Fixed charges181 164 132 125 138Amortization of capitalized interest3 3 3 4 4Capitalized interest(1) (3) (1) (2) (1)Total earnings available for fixed charges$1,356 $1,447 $1,318 $1,200 $683 Fixed charges: Interest expense$164 $147 $117 $109 $123Capitalized interest1 3 1 2 1Interest component of rental expense(1)16 14 14 14 14Total fixed charges$181 $164 $132 $125 $138 Ratio of earnings to fixed charges7.5x 8.8x 10.0x 9.6x 4.9x_________________________________(1)Represents a reasonable estimate of the interest component of rental expense incurred by us.(2)Due to the completion of the IRS audit for our 2006-2008 federal income tax returns in August 2013, we recognized $430 million of other expense, net, as we no longeranticipate collecting amounts from Mondelēz. Additionally, in June 2013, a bill was enacted by the Canadian government, which reduced amounts amortized for income taxpurposes. As a result, we recognized $38 million of indemnity income due to the reduction of our long-term liability to Mondelēz. Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1Subsidiaries of Dr Pepper Snapple Group, Inc.As of December 31, 2017 Name of Subsidiary Jurisdiction of Formation1184 Innovations, Inc. Delaware2234DP Aviation, LLC Delaware3A&W Concentrate Company Delaware4Americas Beverages Management GP Nevada5AmTrans, Inc. Illinois6Bai Brands LLC New Jersey7Berkeley Square US, Inc. Delaware8Beverages Delaware Inc. Delaware9DP Beverages Inc. Delaware10DPS Americas Beverages, LLC Delaware11DPS Beverages, Inc. Delaware12DPS Holdings Inc. Delaware13Dr Pepper Snapple Group Employee Relief Fund Texas14Dr Pepper/Seven Up Beverage Sales Company Texas15Dr Pepper/Seven Up Manufacturing Company Delaware16Dr Pepper/Seven Up, Inc. Delaware17High Ridge Investments US, Inc. Delaware18International Investments Management LLC Delaware19Mott's Delaware LLC Delaware20Mott's LLP Delaware21MSSI LLC Delaware22Nantucket Allserve, LLC Delaware23Nuthatch Trading US, Inc. Delaware24Pacific Snapple Distributors, Inc. California25Royal Crown Company, Inc. Delaware26Snapple Beverage Corp. Delaware27Splash Transport, Inc. Delaware28The American Bottling Company Delaware29Canada Dry Mott's Inc. Canada30Bebidas Americas Investments B.V. Netherlands31Comercializadora de Bebidas, SA de CV Mexico32Peñafiel Aguas Minerales SA de CV Mexico33Peñafiel Bebidas SA de CV Mexico34Peñafiel Servicios Comerciales, S.A. de C.V. Mexico35Peñafiel Servicios S.A. de C.V. Mexico36Embotelladora Mexicana de Agua, SA de CV Mexico37Industria Embotelladora de Bebidas Mexicanas, SA de CV Mexico38Manantiales Penafiel, S.A. de C.V. Mexico39Snapple Beverage de Mexico, S.A. de C.V. Mexico40Snapple Beverage Corporation Singapore PTE. LTD. SingaporeSource: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-153506, 333-153505, and 333-163651 on Form S-8 and RegistrationStatement Nos. 333-208328, and 333-213477 on Form S-3 of our reports dated February 14, 2018, relating to the consolidated financial statements of DrPepper Snapple Group, Inc. and subsidiaries, and the effectiveness of Dr Pepper Snapple Group, Inc. and subsidiaries' internal control over financialreporting, appearing in this Annual Report on Form 10-K of Dr Pepper Snapple Group, Inc. for the year ended December 31, 2017./s/ DELOITTE & TOUCHE LLP Dallas, Texas February 14, 2018 Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1Principal Executive Officer's CertificationPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Larry D. Young, certify that:1.I have reviewed this Annual Report on Form 10-K of Dr Pepper Snapple Group, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. /s/ Larry D. Young Date: February 14, 2018Larry D. Young President and Chief Executive Officer ofDr Pepper Snapple Group, Inc. Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.2Principal Financial Officer's CertificationPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Martin M. Ellen, certify that:1.I have reviewed this Annual Report on Form 10-K of Dr Pepper Snapple Group, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. /s/ Martin M. Ellen Date: February 14, 2018Martin M. Ellen Executive Vice President and Chief Financial Officer ofDr Pepper Snapple Group, Inc. Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.1Certification Pursuant To 18 U.S.C. Section 1350,As Adopted Pursuant ToSection 906 of the Sarbanes-Oxley Act of 2002 I, Larry D. Young, President and Chief Executive Officer of Dr Pepper Snapple Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:(1)the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2017, as filed with the Securities and ExchangeCommission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)or 78o(d)); and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Larry D. Young Date: February 14, 2018Larry D. Young President and Chief Executive Officer ofDr Pepper Snapple Group, Inc. Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.2Certification Pursuant To 18 U.S.C. Section 1350,As Adopted Pursuant ToSection 906 of the Sarbanes-Oxley Act of 2002 I, Martin M. Ellen, Executive Vice President and Chief Financial Officer of Dr Pepper Snapple Group, Inc. (the "Company"), certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:(1)the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2017, as filed with the Securities and ExchangeCommission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)or 78o(d)); and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Martin M. Ellen Date: February 14, 2018Martin M. Ellen Executive Vice President and Chief Financial Officer ofDr Pepper Snapple Group, Inc. Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: Dr Pepper Snapple Group, Inc., 10-K, February 14, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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