Income Taxes

6 Months Ended

Jun. 30, 2013


	Income Taxes

The effective tax rates for the three months ended June 30, 2013 and 2012 were 48.0% and 34.3%, respectively. The effective tax rates for the six months ended June 30, 2013 and 2012 were 43.7% and 35.5%, respectively. The primary reason for the changes in the tax rates was the enactment of a Canadian tax law as described below.

During the second quarter of 2013, a bill was enacted by the Canadian government which reduced amounts amortized for income tax purposes. The Company's Canadian deferred tax assets included a separation related balance, which was offset by a liability due to Mondelēz driven by the Tax Sharing and Indemnification Agreement ("Tax Indemnity Agreement"). As a result of the enactment of this bill, the Company recorded a $38 million non-cash reduction of its long-term liability to Mondelēz, which increased other income, net and resulted in a non-cash reduction of $50 million to the Company's tax assets, which increased the provision for income taxes. The impact of the Canadian law change increased the Company's effective tax rate by 12.3% and 7.9% for the three and six months ended June 30, 2013, respectively.

Under the Tax Indemnity Agreement, Mondelēz will indemnify DPS for net unrecognized tax benefits and other tax related items of $443 million. This balance increased by $4 million during the six months ended June 30, 2013, and was offset by indemnity income recorded as a component of other income, net, in the unaudited Condensed Consolidated Statements of Income. In addition, pursuant to the terms of the Tax Indemnity Agreement, if DPS breaches certain covenants or other obligations or is involved in certain change-in-control transactions, Mondelēz may not be required to indemnify the Company.

It is reasonably possible that a reduction of $459 million in the gross balance of unrecognized tax benefits may occur within 12 months as a result of projected resolutions of tax disputes, the majority of which is indemnified under the aforementioned Tax Indemnity Agreement.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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