UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to              
KDPA03.JPG
Commission file number 001-33829
Delaware
 
98-0517725
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
 
 
 
53 South Avenue, Burlington, Massachusetts
 
01803
(Address of principal executive offices)
 
(Zip code)
(802) 244-5621
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    x No   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   x   No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.
Large Accelerated Filer x
Accelerated Filer o
Non-Accelerated Filer  o
Smaller Reporting Company o
Emerging Growth Company o
If 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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes     o    No     x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock
 
KDP
 
New York Stock Exchange
As of May 7, 2019 , there were 1,406,689,275 shares of the registrant's common stock, par value $0.01 per share, outstanding.
 


KEURIG DR PEPPER INC.
FORM 10-Q TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I - FINANCIAL INFORMATION
ITEM 1.
Financial Statements ( Unaudited )

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the First Quarter of 2019 and 2018
( Unaudited )
 
First Quarter
(in millions, except per share data)
2019
 
2018
Net sales
$
2,504

 
$
948

Cost of sales
1,106

 
467

Gross profit
1,398

 
481

Selling, general and administrative expenses
911

 
300

Other operating (income) expense, net
(11
)
 
3

Income from operations
498

 
178

Interest expense
169

 
(2
)
Interest expense - related party
—

 
25

Loss on early extinguishment of debt
9

 
2

Other expense, net
5

 
13

Income before provision for income taxes
315

 
140

Provision for income taxes
85

 
51

Net income
230

 
89

Less: Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards
—

 
1

Net income attributable to KDP
$
230

 
$
88

Earnings per common share:
 
 
 
Basic
$
0.16

 
$
0.11

Diluted
0.16

 
0.11

Weighted average common shares outstanding:
 
 
 
Basic
1,406.3

 
790.5

Diluted
1,417.7

 
790.5

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


1

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the First Quarter of 2019 and 2018
( Unaudited )
 
First Quarter
(in millions)
2019
 
2018
Comprehensive income
$
323

 
$
64

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


2

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2019 and December 31, 2018
( Unaudited )
 
March 31,
 
December 31,
(in millions, except share and per share data)
2019
 
2018
Assets
Current assets:
 
 
 
Cash and cash equivalents
$
85

 
$
83

Restricted cash and restricted cash equivalents
44

 
46

Trade accounts receivable, net
1,016

 
1,150

Inventories
663

 
626

Prepaid expenses and other current assets
354

 
254

Total current assets
2,162

 
2,159

Property, plant and equipment, net
2,282

 
2,310

Investments in unconsolidated affiliates
172

 
186

Goodwill
20,077

 
20,011

Other intangible assets, net
23,988

 
23,967

Other non-current assets
584

 
259

Deferred tax assets
26

 
26

Total assets
$
49,291

 
$
48,918

Liabilities and Stockholders' Equity
Current liabilities:
 
 
 
Accounts payable
$
2,558

 
$
2,300

Accrued expenses
962

 
1,012

Structured payables
595

 
526

Short-term borrowings and current portion of long-term obligations
2,018

 
1,458

Other current liabilities
523

 
406

Total current liabilities
6,656

 
5,702

Long-term obligations
13,246

 
14,201

Deferred tax liabilities
5,940

 
5,923

Other non-current liabilities
775

 
559

Total liabilities
26,617

 
26,385

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued
—

 
—

Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,406,689,275 and 1,405,944,922 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
14

 
14

Additional paid-in capital
21,505

 
21,471

Retained earnings
1,192

 
1,178

Accumulated other comprehensive loss
(37
)
 
(130
)
Total stockholders' equity
22,674

 
22,533

Total liabilities and stockholders' equity
$
49,291

 
$
48,918

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

3

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The First Quarter of 2019 and 2018
( Unaudited )
 
First Quarter
(in millions)
2019
 
2018
Operating activities:
 
 
 
Net income
$
230

 
$
89

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
85

 
32

Amortization expense
78

 
33

Provision for sales returns
9

 
11

Deferred income taxes
1

 
(14
)
Employee stock-based compensation expense
14

 
11

Loss on early extinguishment of debt
9

 
2

Unrealized (gain) loss on foreign currency
(17
)
 
8

Unrealized loss (gain) on derivatives
7

 
(29
)
Other, net
—

 
18

Changes in assets and liabilities:
 
 
 
Trade accounts receivable
126

 
97

Inventories
(36
)
 
(7
)
Income taxes receivable and payables, net
68

 
(4
)
Other current and non current assets
(102
)
 
(7
)
Accounts payable and accrued expenses
125

 
28

Other current and non current liabilities
(6
)
 
(1
)
Net change in operating assets and liabilities
175

 
106

Net cash provided by operating activities
591

 
267

Investing activities:
 
 
 
Issuance of related party note receivable
(7
)
 
—

Purchases of property, plant and equipment
(62
)
 
(20
)
Other, net
24

 
(6
)
Net cash used in investing activities
(45
)
 
(26
)
Financing activities:
 
 
 
Proceeds from term loan
2,000

 
—

Net issuance of Commercial Paper
594

 
—

Proceeds from structured payables
78

 
—

Payments on structured payables
(9
)
 
—

Payments on senior unsecured notes
(250
)
 
—

Repayment of term loan
(2,758
)
 
(200
)
Payments on finance leases
(10
)
 
(3
)
Proceeds from stock options exercised
8

 
—

Cash dividends paid
(211
)
 
(11
)
Other, net
2

 
(1
)
Net cash used in financing activities
(556
)
 
(215
)
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
 
 
 
Operating, investing and financing activities
(10
)
 
26

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
10

 
1

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
139

 
95

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
139

 
$
122

See Note 13 for supplemental cash flow information.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The First Quarter of 2019 and 2018
( Unaudited )

 
Common Stock Issued
 
 Additional
Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Stockholders' Equity
(in millions, except per share data)
Shares
 
Amount
 
 
 
 
Balance as of January 1, 2019
1,405.9

 
$
14

 
$
21,471

 
$
1,178

 
$
(130
)
 
$
22,533

Adoption of new accounting standards
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Net income attributable to KDP
—

 
—

 
—

 
230

 
—

 
230

Other comprehensive income
—

 
—

 
—

 
—

 
93

 
93

Dividends declared, $0.15 per share
—

 
—

 
—

 
(211
)
 
—

 
(211
)
Measurement period adjustment
—

 
—

 
11

 
—

 
—

 
11

Shares issued under employee stock-based compensation plans and other
0.8

 
—

 
—

 
—

 
—

 
—

Stock-based compensation and stock options exercised
—

 
—

 
23

 
—

 
—

 
23

Balance as of March 31, 2019
1,406.7

 
$
14

 
$
21,505

 
$
1,192

 
$
(37
)
 
$
22,674

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2018
790.5

 
$
8

 
$
6,377

 
$
914

 
$
99

 
$
7,398

Adoption of new accounting standards
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Net income attributable to KDP
—

 
—

 
—

 
88

 
—

 
88

Other comprehensive loss
—

 
—

 
—

 
—

 
(24
)
 
(24
)
Dividends declared
—

 
—

 
—

 
(11
)
 
—

 
(11
)
Adjustment of non-controlling interests to fair value
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Balance as of March 31, 2018
790.5

 
$
8

 
$
6,377

 
$
974

 
$
75

 
$
7,434

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

5
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1 . General
ORGANIZATION
On January 29, 2018, Dr Pepper Snapple Group, Inc. (" DPS ") entered into an Agreement and Plan of Merger (the " Merger Agreement ") by and among DPS , Maple Parent Holdings Corp. (“ Maple ”) and Salt Merger Sub, Inc. (“ Merger Sub ”), whereby Merger Sub would be merged with and into Maple , with Maple surviving the merger as a wholly-owned subsidiary of DPS (the “ DPS Merger ”). The DPS Merger was consummated on July 9, 2018 (the " Merger Date "), at which time DPS changed its name to " Keurig Dr Pepper Inc. ".
References in this Quarterly Report on Form 10-Q to " KDP " or "the Company " refer to Keurig Dr Pepper Inc. and all entities included in the unaudited condensed consolidated financial statements.
This Quarterly Report on Form 10-Q refers to some of KDP 's owned or licensed trademarks, trade names and service marks, which are referred to as the Company's brands. All of the product names included herein are either KDP registered trademarks or those of the Company 's licensors.
BASIS OF PRESENTATION
For financial reporting and accounting purposes, Maple was the acquirer of DPS upon completion of the DPS Merger . The unaudited condensed consolidated financial statements as of March 31, 2019 and December 31, 2018 and for the first quarter of 2019 and 2018 reflect the results of operations and financial position of Maple for the periods presented. Amounts reported as of March 31, 2019 and December 31, 2018 , and for the first quarter of 2019 , include the results of operations and financial position of DPS , as the DPS Merger was completed on July 9, 2018.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (" U.S. GAAP ") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements . In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with KDP 's consolidated financial statements and accompanying notes, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 .
Except as otherwise specified, references to the " first quarter " indicate the Company 's quarterly periods ended March 31, 2019 and 2018 .
PRINCIPLES OF CONSOLIDATION
KDP consolidates all wholly owned subsidiaries. The Company uses the equity method to account for investments in companies if the investment provides the Company with the ability to exercise significant influence over operating and financial policies of the investee. Consolidated net income includes KDP 's proportionate share of the net income or loss of these companies. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors or similar governing body, participation in policy-making decisions and material intercompany transactions.
The Company is also required to consolidate entities that are variable interest entities (“ VIE s”) of which KDP is the primary beneficiary. Judgments are made in assessing whether KDP is the primary beneficiary, including determination of the activities that most significantly impact the VIE ’s economic performance.
KDP eliminates from its financial results all intercompany transactions between entities included in the unaudited condensed consolidated financial statements and the intercompany transactions with its equity method investees.
USE OF ESTIMATES
The process of preparing KDP 's unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.

6
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

RECLASSIFICATIONS
The Company reclassified the following amounts from the unaudited condensed consolidated balance sheets as of December 31, 2018 in connection with the adoption of Accounting Standards Codification ("ASC") Topic 842, Leases ("ASC 842"):
(in millions)
 
Prior Presentation
 
Revised Presentation
 
December 31, 2018
Capital lease and financing obligations
 
Current portion of capital lease and financing obligations
 
Other current liabilities
 
$
26

Capital lease and financing obligations
 
Capital lease and financing obligations, less current
 
Other non-current liabilities
 
305


Refer to Recently Adopted Provisions of U.S. GAAP below for further information about the adoption of ASC 842. Refer to Note 3 for information about the Company's leases and Note 12 for disclosure of the components of other current liabilities and other non-current liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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 most financial assets held. The ASU is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2016-13 on the Company's unaudited condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements ("ASU 2018-13"). The objective of the ASU is to improve the disclosures related to fair value measurement by removing, modifying, or adding disclosure requirements related to recurring and non-recurring fair value measurements. ASU 2018-13 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, and early adoption is permitted. The Company is currently assessing the changes in disclosure requirements and does not believe there will be a material impact to KDP's unaudited condensed consolidated financial statements.
RECENTLY ADOPTED PROVISIONS OF U.S. GAAP
Leases
As of January 1, 2019, the Company adopted ASC 842. ASC 842 replaced the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures.
The Company elected to apply the optional transition method provided by ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which allows companies to adopt the standard on a modified retrospective basis and to apply the new leases standard as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. Accordingly, amounts reported in the unaudited condensed consolidated financial statements for all periods prior to January 1, 2019 have not been recast under ASC 842 and continue to be reported in accordance with ASC 840. The Company elected the package of practical expedients which allows the Company to carry forward its historical assessments of whether contracts contain leases, lease classification, and initial direct costs, for leases in existence prior to January 1, 2019.
The adoption of ASC 842 resulted in an increase to KDP's total assets of approximately $314 million , an increase to KDP's total liabilities of approximately $319 million , and an impact to KDP's retained earnings of approximately $5 million , as of January 1, 2019.
Refer to Note 3 for additional information .
Other Accounting Standards
As of January 1, 2019, the Company adopted ASU 2017-12, Derivativ es and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12") on a prospective basis. The objective of the ASU is to improve the financial reporting of hedging relationships in order to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of hedge accounting guidance. The adoption of ASU 2017-12 did not have a material impact on the Company's unaudited condensed consolidated financial statements.

7
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

As of January 1, 2019, the Company early adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. The ASU was adopted on a prospective basis and did not have a material impact on the Company's unaudited condensed consolidated financial statements.
2 . Acquisitions and Investments in Unconsolidated Affiliates
ACQUISITION OF DR PEPPER SNAPPLE GROUP, INC.
Overview and Total Consideration Exchanged
As discussed in Note 1 , General , Maple merged with DPS on July 9, 2018. The DPS Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations. Maple was considered to be the financial and accounting acquirer, and DPS was considered the legal acquirer. Under the acquisition method of accounting, total consideration exchanged was $22,482 million .
Allocation of Consideration
The Company 's preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the DPS Merger is based on estimated fair values as of July 9, 2018. The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the DPS Merger as of March 31, 2019 :
(in millions)
Initial Allocation of Consideration
 
Measurement Period Adjustments
 
March 31, 2019
Cash and cash equivalents
$
147

 
$
—

 
$
147

Investments in unconsolidated affiliates
90

 
—

 
90

Property, plant and equipment (1)
1,549

 
(43
)
 
1,506

Other intangible assets
20,404

 
(536
)
 
19,868

Long-term obligations
(4,049
)
 
—

 
(4,049
)
Finance leases
(214
)
 
9

 
(205
)
Acquired assets, net of assumed liabilities (2)
107

 
(25
)
 
82

Deferred tax liabilities, net of deferred tax assets (3)
(4,959
)
 
(18
)
 
(4,977
)
Goodwill
9,407

 
613

 
10,020

Total consideration exchanged
22,482

 
—

 
22,482

Fair value of stock and replacement equity awards not converted to cash
3,643

 
—

 
3,643

Acquisition of business
$
18,839

 
$
—

 
$
18,839

(1)
The Company preliminarily valued personal property using a combination of the market approach and the cost approach, which is based upon current replacement or reproduction cost of the asset as newly adjusted for any depreciation attributable to physical, functional and economic factors. The Company assigned personal property a useful life ranging from 1 year to 24 years . We preliminarily valued real property using the cost approach and land using the sales comparison approach. The Company assigned real property a useful life between 1 year and 41 years .
(2)
The Company used existing carrying values to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as the Company determined that they represented the fair value of those items as of the Merger Date . The Company preliminarily valued work-in-process ("WIP") and finished goods inventory using a net realizable value approach resulting in a step-up of $131 million which was recognized in the cost of goods sold for the third quarter of 2018 as the related inventory was sold during that period. Raw materials were carried at net book value.
(3)
Net deferred tax liabilities represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. The Company used a preliminary consolidated tax rate to determine the net deferred tax liabilities. The Company will record measurement period adjustments as the Company applies the appropriate tax rate for each legal entity within DPS.

8
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The DPS Merger preliminarily resulted in $10,020 million of goodwill as of March 31, 2019 . The preliminary goodwill to be recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, direct procurement savings on overlapping materials, purchasing scale on indirect spend categories and optimization of duplicate positions and processes. The Company may also recognize revenue synergies, driven by a strong portfolio of brands with exposure to higher growth segments and the ability to leverage our collective distribution strength. The goodwill created in the DPS Merger is not expected to be deductible for tax purposes.
The preliminary allocation of consideration exchanged to other intangible assets acquired is as follows:
(in millions)
 
Fair Value
 
Estimated Life (in years)
Brands (1)
 
$
19,357

 
n/a
Contractual arrangements (2)
 
120

 
n/a
Customer relationships (3)
 
386

 
10-40
Favorable leases (4)
 
5

 
5-12
Total other intangible assets
 
$
19,868

 
 
(1)
The Company preliminarily valued the brand portfolio utilizing the multi-period excess earnings method, a form of the income approach.
(2)
The Company preliminarily valued contractual arrangements with bottlers and distributors utilizing the distributor method, a form of the income approach.
(3)
The Company identified two types of customer relationships, retail and food service. We preliminarily valued retail and food service customer relationships utilizing the distributor method, a form of the income approach.
(4)
The Company preliminarily valued favorable leases utilizing the income approach.
Pro Forma Information
Assuming DPS had been acquired as of December 31, 2016, and the results of DPS had been included in operations beginning on January 1, 2017, the following tables provide estimated unaudited pro forma results of operations for the first quarter of 2018 under U.S. GAAP.
The estimated pro forma net income includes the alignment of accounting policies, the effect of fair value adjustments related to the DPS Merger , the associated tax effects and the impact of the additional debt to finance the DPS Merger .
 
First Quarter
(Unaudited, in millions)
2018
Net sales
$
2,529

Net income
222

Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the DPS Merger been completed on the date indicated or the future operating results.
ACQUISITION OF BIG RED
Overview and Purchase Price
On July 9, 2018, KDP entered into an Agreement and Plan of Merger (the "Big Red Merger Agreement") with Big Red Group Holdings, LLC ("Big Red"), pursuant to which we agreed to acquire Big Red for an enterprise value of  $300 million , subject to certain adjustments outlined in the Big Red Merger Agreement (the " Big Red Acquisition "). On August 31, 2018 (the "Big Red Merger Date"), the Company completed the Big Red Acquisition .
As of March 31, 2019, the Company has recorded a preliminary allocation of purchase price to the net tangible and intangible assets acquired and liabilities assumed in the Big Red Acquisition based on estimated fair values as of the Big Red Merger Date. There have been no measurement period adjustments recorded during the first quarter of 2019 related to the Big Red Acquisition .
ACQUISITION OF CORE NUTRITION, LLC
Overview and Purchase Price
On September 27, 2018, KDP entered into a definitive agreement with Core Nutrition, LLC (" Core "), pursuant to which we agreed to acquire Core for merger consideration, which represented an enterprise value of $525 million (subject to customary post-closing working capital and other adjustments), comprised substantially of shares of common stock of KDP , subject to certain adjustments paid in cash (the " Core Acquisition "). On November 30, 2018 (the " Core Acquisition Date "), the Company completed the Core Acquisition .

9
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

Allocation of Purchase Price
The Company 's preliminary allocation of purchase price to the net tangible and intangible assets acquired and liabilities assumed in the Core Acquisition is based on estimated fair values as of the Core Acquisition Date . The allocation of purchase price, as set forth in the table below, reflects various preliminary fair value estimates and analyses, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The primary areas of the preliminary allocation of purchase price that are not yet finalized relate to the fair values of certain tangible assets, the valuation of intangible assets acquired, assumed liabilities and residual goodwill.
The following is a summary of the preliminary allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed in the Core Acquisition as of March 31, 2019 :
(in millions)
Initial Allocation of Consideration
 
Measurement Period Adjustments
 
March 31, 2019
Cash and cash equivalents
$
10

 
$
—

 
$
10

Other intangible assets
273

 
—

 
273

Assumed liabilities, net of acquired assets (1)
(12
)
 
(1
)
 
(13
)
Goodwill
236

 
10

 
246

Total purchase price
507

 
9

 
516

Company's previous ownership interest
31

 
—

 
31

Less: Holdback placed in Escrow
27

 
(2
)
 
25

Acquisition of business
$
449

 
$
11

 
$
460

(1)
The Company preliminarily valued WIP and finished goods inventory using a net realizable value approach resulting in a step-up of $4 million , of which $1 million and $3 million was recognized in cost of goods sold in 2018 and 2019, respectively, due to the timing of the sale of the related inventory. Raw materials were carried at net book value.
The Core Acquisition preliminarily resulted in $246 million of goodwill. The preliminary goodwill to be recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes. The goodwill created in the Core Acquisition is expected to be deductible for tax purposes.
The preliminary allocation of purchase price to other intangible assets acquired is as follows:
(in millions)
 
Fair Value
 
Estimated Life (in years)
Brands (1)
 
$
254

 
n/a
Contractual arrangements (2)
 
19

 
10
Total other intangible assets
 
$
273

 
 
(1)
The Company preliminarily valued the brand portfolio utilizing the multi-period excess earnings method, a form of the income approach.
(2)
The Company preliminarily valued contractual arrangements utilizing the distributor method, a form of the income approach.

TRANSACTION EXPENSES
The following table provides information about the Company's transaction expenses incurred during the first quarter of 2019 and 2018 :
 
First Quarter
(in millions)
2019
 
2018
DPS Merger
$
2

 
$
36

Other transaction expenses
3

 
—

Total transaction expenses incurred
$
5

 
$
36

Transaction expenses primarily consisted of professional fees for advisory and consulting services and other incremental costs related to the acquisition.

10
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The following table summarizes investments in unconsolidated affiliates as of March 31, 2019 and December 31, 2018 :
 
 
 
 
March 31,
 
December 31,
(in millions)
 
Ownership Interest
 
2019
 
2018
BA Sports Nutrition, LLC ("BA") (1)
 
15.5
%
 
$
56

 
$
62

Bedford Systems, LLC
 
30.0
%
 
71

 
79

Dyla LLC
 
12.6
%
 
15

 
15

Force Holdings LLC
 
33.3
%
 
5

 
6

Beverage startup companies
 
(various)

 
19

 
19

Other
 
(various)

 
6

 
5

Investments in unconsolidated affiliates
 
 
 
$
172

 
$
186

(1)
In 2018, BA announced that The Coca-Cola Company ("Coca-Cola") obtained a minority interest in BA and would obtain the Company's current distribution rights. As a result, KDP received a distribution from BA, which reduced the Company's investment. KDP continues to account for its interest in BA as an equity method investment at the ownership level held by the Company prior to the Coca-Cola announcement, as a revised ownership interest percentage has not been provided to the Company by BA.
3 . Leases
The Company leases certain facilities and machinery and equipment, including fleet. These leases expire at various dates through 2044. Some lease agreements contain standard renewal provisions that allow us to renew the lease at rates equivalent to fair market value at the end of the lease term. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Operating leases are included within other non-current assets, other current liabilities, and other non-current liabilities within our unaudited Condensed Consolidated Balance Sheets. Refer to Note 12 for further information. Finance leases are included within property, plant and equipment, net, other current liabilities, and other non-current liabilities. Leases with an initial term of 12 months or less are not recognized on the balance sheet.
Right of use assets and lease liabilities are recognized in the unaudited Condensed Consolidated Balance Sheets at the present value of future minimum lease payments over the lease term on the commencement date. As the rate implicit in the lease is generally not provided to the Company, KDP uses its incremental borrowing rate based on information available at the commencement date to determine the present value of future minimum lease payments. KDP's incremental borrowing rate is determined using a portfolio of secured borrowing rates commensurate with the term of the lease and is reassessed on a quarterly basis.
KDP has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.
The following table presents the components of lease cost:
 
First Quarter
(in millions)
2019
Operating lease cost
$
20

Finance lease cost
 
Amortization of right-of-use assets
10

Interest on lease liabilities
4

Variable lease cost (1)
6

Short-term lease cost
1

Total lease cost
$
41

(1)
Variable lease cost primarily consists of common area maintenance costs, property taxes, and adjustments for inflation.

11
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The following table presents supplemental cash flow information about the Company's leases:
 
First Quarter
(in millions)
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
18

Operating cash flows from finance leases
4

Financing cash flows from finance leases
10

The following table presents information about the Company's weighted average discount rate and remaining lease term:
 
First Quarter
 
2019
Weighted average discount rate
 
Operating leases
4.6
%
Finance leases
5.4
%
Weighted average remaining lease term
 
Operating leases
8 years

Finance leases
12 years

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:
(in millions)
Operating Leases
 
Finance Leases
Remainder of 2019
$
53

 
$
36

2020
65

 
44

2021
56

 
36

2022
46

 
35

2023
39

 
31

2024
37

 
29

Thereafter
134

 
163

Total future minimum lease payments
430

 
374

Less: imputed interest
(74
)
 
(97
)
Present value of minimum lease payments
$
356

 
$
277


Future minimum lease payments under non-cancellable leases as of December 31, 2018 under ASC 840 were as follows:
(in millions)
Operating Leases
 
Capital Leases
 
Financing Obligations
2019
$
58

 
$
35

 
$
10

2020
53

 
34

 
10

2021
44

 
33

 
10

2022
34

 
33

 
10

2023
25

 
30

 
10

Thereafter
98

 
189

 
62

Total future minimum lease payments
$
312

 
354

 
112

Less: imputed interest
 
 
(98
)
 
(37
)
Present value of minimum lease payments
 
 
$
256

 
$
75


12
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

LEASES THAT HAVE NOT YET COMMENCED
In February 2019, the Company entered into an agreement to relocate KDP's Texas headquarters to a new leased facility. The lease is expected to commence in 2021, with an initial lease term of 16 years and includes the option for KDP to renew for up to an additional ten years at an agreed-upon rate. The future minimum lease payments related to this lease are not yet known, as the cost is dependent on a number of factors, including the ultimate cost of construction. As of March 31, 2019 , the potential obligation for this lease is estimated to be approximately $200 million .
4 . Goodwill and Other Intangible Assets
GOODWILL
Changes in the carrying amount of goodwill by reportable segment are as follows:
 
Coffee Systems
 
Packaged Beverages
 
Beverage Concentrates
 
Latin America Beverages
 
Unallocated (1)
 
Total
Balance as of January 1, 2019
$
9,725

 
$
4,878

 
$
4,265

 
$
618

 
$
525

 
$
20,011

Foreign currency translation
24

 
14

 
6

 
8

 
—

 
52

Acquisitions (2)
—

 
19

 
(10
)
 
—

 
5

 
14

Balance as of March 31, 2019
$
9,749

 
$
4,911

 
$
4,261

 
$
626

 
$
530

 
$
20,077

(1)
Amounts recorded primarily for deferred tax liabilities in the preliminary purchase price allocations are recorded using a preliminary consolidated tax rate to determine the deferred tax liabilities. The Company will record measurement period adjustments as the Company applies the appropriate tax rate for each legal entity, which will enable the Company to allocate this goodwill to the applicable segment within the measurement period.
(2)
Amounts represent measurement period adjustments for the DPS Merger and the Core Acquisition. Refer to Note 2 for further information.
INTANGIBLE ASSETS OTHER THAN GOODWILL
The net carrying amounts of intangible assets other than goodwill with indefinite lives are as follows:
 
 
March 31, 2019
 
December 31, 2018
Brands
 
$
19,770

 
$
19,712

Trade names
 
2,479

 
2,479

Contractual arrangements
 
120

 
119

Distribution rights
 
2

 
—

Total
 
$
22,371

 
$
22,310

The net carrying amounts of intangible assets other than goodwill with definite lives are as follows:
 
March 31, 2019
 
December 31, 2018
(in millions)
 Gross Amount
 
Accumulated Amortization
 
Net Amount
 
 Gross Amount
 
Accumulated Amortization
 
Net Amount
Acquired technology
$
1,146

 
$
(200
)
 
$
946

 
$
1,146

 
$
(182
)
 
$
964

Customer relationships
631

 
(77
)
 
554

 
629

 
(67
)
 
562

Trade names
127

 
(43
)
 
84

 
127

 
(40
)
 
87

Favorable leases (1)
—

 
—

 
—

 
13

 
(3
)
 
10

Brands
9

 
(1
)
 
8

 
9

 
—

 
9

Contractual arrangements
26

 
(1
)
 
25

 
26

 
(1
)
 
25

Total
$
1,939

 
$
(322
)
 
$
1,617

 
$
1,950

 
$
(293
)
 
$
1,657

(1)
Amounts recorded as favorable lease intangible assets were reclassified to operating lease right-of-use assets in connection with the adoption of ASC 842 as of January 1, 2019. Refer to Note 3 for further information regarding the adoption of ASC 842.
Amortization expense for intangible assets with definite lives was as follows:
 
First Quarter
(in millions)
2019
 
2018
Amortization expense for intangible assets with definite lives
$
31

 
$
30


13
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

Amortization expense of these intangible assets over the remainder of 2019 and the next five years is expected to be as follows:
 
Remainder of 2019
 
For the Years Ending December 31,
(in millions)
 
2020
 
2021
 
2022
 
2023
 
2024
Expected amortization expense for intangible assets with definite lives
$
94

 
$
126

 
$
126

 
$
126

 
$
125

 
$
120

IMPAIRMENT TESTING
KDP conducts impairment tests on goodwill and all indefinite lived intangible assets annually, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not identify any circumstances that indicated that the carrying amount of any goodwill or any indefinite lived intangible asset may not be recoverable as of March 31, 2019 .
5 . Restructuring and Integration Costs
The Company implements restructuring programs from time to time and incurs costs that are designed to improve operating effectiveness and lower costs. When the Company implements these programs, the Company incurs expenses, such as employee separations, lease terminations and other direct exit costs, that qualify as exit and disposal costs under U.S. GAAP.
The Company also incurs expenses that are an integral component of, and directly attributable to, its restructuring activities, which do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments, implementation costs and other incremental costs. These costs are recorded within SG&A expenses on the income statement and are held within unallocated corporate costs.
Restructuring and integration charges incurred during the first quarter of 2019 and 2018 are as follows:
 
First Quarter
(in millions)
2019
 
2018
Keurig 2.0 exit
$
1

 
$
5

Integration program
60

 
—

Other restructuring programs
—

 
1

Total restructuring and integration charges
$
61

 
$
6

Restructuring liabilities that qualify as exit and disposal costs under U.S. GAAP are included in accounts payable and accrued expenses on the unaudited condensed consolidated financial statements. Restructuring liabilities as of March 31, 2019 and December 31, 2018 along with charges to expense, cash payments and non-cash charges for the period were as follows:
(in millions)
Workforce Reduction Costs
 
Other (1)
 
Total
Balance as of December 31, 2018
$
28

 
$
1

 
$
29

Charges to expense
6

 
—

 
6

Cash payments
(24
)
 
—

 
(24
)
Non-cash adjustment items
(1
)
 
(1
)
 
(2
)
Balance as of March 31, 2019
$
9

 
$
—

 
$
9

(1)
Primarily reflects activities associated with the closure of certain facilities, excluding contract termination costs, which include any associated asset write-downs and accelerated depreciation.
RESTRUCTURING PROGRAMS
Integration Program
As part of the DPS Merger, the Company established a transformation management office to enable integration and maximize value capture. The Company developed a program to deliver $600 million in synergies over a three-year period through supply chain optimization, reduction of indirect spend through new economies of scale, elimination of duplicative support functions and advertising and promotion optimization. The Company expects to incur total cash expenditures of $750 million , comprised of both capital expenditures and expense, and expects to complete the program by 2021. The restructuring and integration program resulted in cumulative pre-tax charges of approximately $215 million , primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through March 31, 2019 .

14
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

6 . Income Taxes
The effective tax rates for the first quarter of 2019 and 2018 were 27.0% and 36.4% , respectively. The decrease in our effective tax rate was primarily due to a reduction in the U.S. federal tax rate from 24.5% to 21% and exclusion of DPS Merger-related non-deductible transaction costs, partially offset by the elimination of the domestic manufacturing deduction.  The legislation commonly known as the Tax Cuts and Jobs Act was enacted on December 22, 2017 (“TCJA”). The TCJA reduced the U.S. federal statutory tax rate from 35% to 21% and eliminated the domestic manufacturing deduction. Guidance under the TCJA for non-calendar year filers resulted in a 24.5% federal statutory rate for companies with a September year-end for the period ended March 31, 2018. 
7 . Long-term Obligations and Borrowing Arrangements
The following table summarizes the Company 's long-term obligations:
(in millions)
March 31, 2019
 
December 31, 2018
Senior unsecured notes
$
11,778

 
$
12,019

Term loans
1,812

 
2,561

Subtotal
13,590

 
14,580

Less - current portion
(344
)
 
(379
)
Long-term obligations
$
13,246

 
$
14,201

The following table summarizes the Company 's short-term borrowings and current portion of long-term obligations:
 
Fair Value Hierarchy Level
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Commercial paper
2
 
$
1,674

 
$
1,674

 
$
1,079

 
$
1,079

Current portion of long-term obligations:
 
 
 
 
 
 
 
 
 
Senior unsecured notes
2
 
248

 
248

 
250

 
250

Term loans
2
 
96

 
96

 
129

 
129

Short-term borrowings and current portion of long-term obligations
 
 
$
2,018

 
$
2,018

 
$
1,458

 
$
1,458


15
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

SENIOR UNSECURED NOTES 
The Company 's senior unsecured notes (collectively, the " Notes ") consisted of the following:
(in millions)
 
 
 
 
 
Fair Value Hierarchy Level
 
March 31, 2019
 
December 31, 2018
Issuance
 
Maturity Date
 
Rate
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
2019 Notes (1)
 
January 15, 2019
 
2.600%
 
2
 
$
—

 
$
—

 
$
250

 
$
250

2020 Notes
 
January 15, 2020
 
2.000%
 
2
 
250

 
248

 
250

 
245

2021 Merger Notes
 
May 25, 2021
 
3.551%
 
2
 
1,750

 
1,769

 
1,750

 
1,742

2021-A Notes
 
November 15, 2021
 
3.200%
 
2
 
250

 
251

 
250

 
244

2021-B Notes
 
November 15, 2021
 
2.530%
 
2
 
250

 
246

 
250

 
240

2022 Notes
 
November 15, 2022
 
2.700%
 
2
 
250

 
243

 
250

 
237

2023 Merger Notes
 
May 25, 2023
 
4.057%
 
2
 
2,000

 
2,058

 
2,000

 
1,988

2023 Notes
 
December 15, 2023
 
3.130%
 
2
 
500

 
496

 
500

 
474

2025 Merger Notes
 
May 25, 2025
 
4.417%
 
2
 
1,000

 
1,037

 
1,000

 
999

2025 Notes
 
November 15, 2025
 
3.400%
 
2
 
500

 
488

 
500

 
467

2026 Notes
 
September 15, 2026
 
2.550%
 
2
 
400

 
364

 
400

 
346

2027 Notes
 
June 15, 2027
 
3.430%
 
2
 
500

 
479

 
500

 
458

2028 Merger Notes
 
May 25, 2028
 
4.597%
 
2
 
2,000

 
2,082

 
2,000

 
1,981

2038 Notes
 
May 1, 2038
 
7.450%
 
2
 
125

 
160

 
125

 
151

2038 Merger Notes
 
May 25, 2038
 
4.985%
 
2
 
500

 
508

 
500

 
483

2045 Notes
 
November 15, 2045
 
4.500%
 
2
 
550

 
509

 
550

 
478

2046 Notes
 
December 15, 2046
 
4.420%
 
2
 
400

 
365

 
400

 
342

2048 Merger Notes
 
May 25, 2048
 
5.085%
 
2
 
750

 
763

 
750

 
716

Principal amount
 
 
 
 
 
 
 
$
11,975

 
$
12,066

 
$
12,225

 
$
11,841

Unamortized debt issuance costs and fair value adjustment for Notes assumed in the DPS Merger
 
 
 
(197
)
 
 
 
(206
)
 
 
Carrying amount
 
 
 
 
 
 
 
$
11,778

 
 
 
$
12,019

 
 
(1)
On January 15, 2019, the Company repaid the 2019 Notes at maturity, using Commercial Paper.
The fair value amounts of the Notes were based on current market rates available to the Company . The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date. The carrying amount includes the unamortized discounts, debt issuance costs and the fair value adjustment for the DPS Merger .
BORROWING ARRANGEMENTS
On February 8, 2019 , the Company terminated its term loan executed in conjunction with the DPS Merger ("KDP Term Loan") and entered into a new term loan agreement among the Company ("New KDP Term Loan"), the lenders party thereto (the "New Term Lenders"), and JP Morgan , as administrative agent (the "2019 New Term Loan Agreement"), pursuant to which the New Term Lenders provided $2 billion of the New KDP Term Loan to refinance the KDP Term Loan in order to achieve a more favorable interest rate. As a result of the extinguishment of the KDP Term Loan, the Company recorded approximately $3 million of loss on early extinguishment during the first quarter of 2019.
The interest rate applicable to the 2019 Term Loan Agreement ranges from a rate equal to LIBOR plus a margin of 0.75% to 1.25% or a base rate plus a margin of 0.00% to 0.25% , depending on the rating of certain indexed debt of KDP . Under the 2019 New Term Loan Agreement, KDP must repay the unpaid principal amount quarterly commencing on March 29, 2019 in an amount equal to 1.25% of the aggregate principal amount made on the effective date of the New KDP Term Loan, resulting in annual mandatory repayments of $100 million . The 2019 Term Loan Agreement matures on February 8, 2023 .

16
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The Company 's revolving credit facilities ("KDP Revolver") and term loans, collectively the ("KDP Credit Agreements"), consisted of the following carrying values and estimated fair values that are not required to be measured at fair value in the unaudited Condensed Consolidated Balance Sheets:
(in millions)
 
 
 
Fair Value Hierarchy Level
 
March 31, 2019
 
December 31, 2018
Issuance
 
Maturity Date
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
KDP Term Loan (1)
 
February 2023
 
2
 
$
—

 
$
—

 
$
2,583

 
$
2,583

New KDP Term Loan (2)
 
February 2023
 
2
 
1,825

 
1,825

 
—

 
—

KDP Revolver
 
February 2023
 
2
 
—

 
—

 
—

 
—

Principal amount
 
 
 
 
 
$
1,825

 
$
1,825

 
$
2,583

 
$
2,583

Unamortized discounts and debt issuance costs
 
 
(13
)
 
 
 
(22
)
 
 
Carrying amount
 
 
 
 
 
$
1,812

 
 
 
$
2,561

 
 
(1)
During January 2019, the Company borrowed $583 million of Commercial Paper to prepay a portion of its outstanding obligations under the KDP Term Loan, all of which was a voluntary prepayment. As a result of these voluntary prepayments, the Company recorded approximately $5 million of loss on early extinguishment during the first quarter of 2019.
(2)
On February 28, 2019, the Company borrowed $150 million of Commercial Paper to prepay a portion of its outstanding obligations under the 2019 New Term Loan Agreement, all of which was a voluntary prepayment. As a result, the Company recorded approximately $1 million of loss on early extinguishment during the first quarter of 2019.
Revolving Credit Facilities
The following table provides amounts utilized and available under the KDP Revolver as of March 31, 2019 :
(in millions)
Amount Utilized
 
Balances Available
KDP Revolver
$
—

 
$
2,400

Letters of credit
—

 
200

As of March 31, 2019 , the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements .
Commercial Paper Program
The following table provides information about the Company 's weighted average borrowings under its commercial paper program for the first quarter of 2019 and 2018 :
 
First Quarter
 
2019
 
2018
Weighted average commercial paper borrowings
$
1,748

 
$
—

Weighted average borrowing rates
2.90
%
 
—
%
Letter of Credit Facility
In addition to the portion of the KDP Revolver reserved for issuance of letters of credit, the Company has an incremental letter of credit facility. Under this facility, $100 million is available for the issuance of letters of credit, $48 million of which was utilized as of March 31, 2019 and $52 million of which remains available for use.
8 . Derivatives
KDP is exposed to market risks arising from adverse changes in interest rates, commodity prices, and foreign exchange (" FX ") rates.
KDP manages these risks through a variety of strategies, including the use of interest rate contracts, FX forward contracts, commodity forward and future contracts and supplier pricing agreements. KDP does not designate these contracts as hedges for accounting purposes, and KDP does not hold or issue derivative financial instruments for trading or speculative purposes.

17
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

INTEREST RATES 
The Company is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate swaps to provide predictability in the Company's overall cost structure, including both receive-fixed, pay-variable and receive-variable, pay-fixed swaps. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the unaudited Condensed Consolidated Statements of Income. These interest rate swap contracts have maturities between 10 months and 20 years as of March 31, 2019 .
FOREIGN EXCHANGE
The Company 's Canadian and Mexican businesses purchase certain inventory through transactions denominated and settled in U.S. dollars, a currency different from the functional currency of those businesses. The Company additionally has a subsidiary in Canada with intercompany notes denominated and settled in U.S. dollars, a currency different from the functional currency of the Canadian business. These inventory purchases and intercompany notes are subject to exposure from movements in exchange rates. During the first quarter of 2019 and 2018 , the Company held FX forward contracts to economically manage the exposures resulting from changes in these foreign currency exchange rates. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same caption of the unaudited Condensed Consolidated Statements of Income as the associated risk. These FX contracts have maturities between 1 month and 6 years  as of March 31, 2019 .
COMMODITIES
KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts. The intent of these contracts is to provide a certain level of predictability in the Company 's overall cost structure. During the first quarter of 2019 and 2018 , the Company held forward, future, swap and option contracts that economically hedged certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company 's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. These commodity contracts have maturities between 1 month and 6 years as of March 31, 2019 .
NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS
The following table presents the notional amounts of the Company's outstanding derivative instruments by type:
 
March 31,
 
December 31,
(in millions)
2019
 
2018
Interest rate contracts
 
 
 
Receive-fixed, pay-variable interest rate swaps
$
970

 
$
1,070

Receive-variable, pay-fixed interest rate swaps (1)
1,075

 
2,125

FX contracts
386

 
348

Commodity contracts
302

 
296

(1)
During the three months ended March 31, 2019 , the Company elected to terminate $900 million notional amount of receive-variable, pay-fixed interest rate swaps and received cash of $27 million .

18
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

FAIR VALUE OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS
The following table summarizes the fair value hierarchy and the location of the fair value of the Company 's derivative instruments not designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 :
(in millions)
Fair Value Hierarchy Level
 
Balance Sheet Location
 
March 31,
2019
 
December 31,
2018
Assets:
 
 
 
 
 
 
 
Interest rate contracts
2
 
Prepaid expenses and other current assets
 
$
4

 
$
2

FX contracts
2
 
Prepaid expenses and other current assets
 
2

 
4

Commodity contracts
2
 
Prepaid expenses and other current assets
 
14

 
3

Interest rate contracts
2
 
Other non-current assets
 
40

 
77

FX contracts
2
 
Other non-current assets
 
9

 
15

Commodity contracts
2
 
Other non-current assets
 
5

 
3

 
 
 
 
 

 


Liabilities:
 
 
 
 
 
 
 
Interest rate contracts
2
 
Other current liabilities
 
$
5

 
$
7

Commodity contracts
2
 
Other current liabilities
 
37

 
27

Interest rate contracts
2
 
Other non-current liabilities
 
3

 
6

Commodity contracts
2
 
Other non-current liabilities
 
9

 
10

The fair values of commodity contracts, interest rate contracts and FX forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest rate contracts are valued using models based primarily on readily observable market parameters, such as LIBOR forward rates, for all substantial terms of the Company 's contracts and credit risk of the counterparties. The fair value of FX forward contracts are valued using quoted forward FX prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.
IMPACT OF ECONOMIC HEDGES
The following table presents the impact of derivative instruments not designated as hedging instruments under U.S. GAAP to the unaudited Condensed Consolidated Statements of Income. Amounts include both realized and unrealized gains and losses.
(in millions)
 
Amount of (Gain) Loss
Recognized in Income
 
Location of (Gain) Loss
Recognized in Income
For the First Quarter of 2019
 
 
 
 
Commodity contracts
 
$
15

 
Cost of sales
Commodity contracts
 
(14
)
 
SG&A expenses
Interest rate contracts
 
2

 
Interest expense
FX contracts
 
2

 
Cost of sales
FX contracts
 
6

 
Other expense, net
Total
 
$
11

 
 
 
 
 
 
 
For the First Quarter of 2018
 
 
 
 
Commodity contracts
 
$
2

 
Cost of sales
Interest rate contracts
 
(24
)
 
Interest expense
FX contracts
 
(6
)
 
Other expense, net
Total
 
$
(28
)
 
 

19
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, the Company has not experienced credit losses as a result of counterparty nonperformance. The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.
9 . Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities.
As a result of the DPS Merger , all historical per share data and number of shares and numbers of equity awards were retroactively adjusted. The following table presents the Company 's basic and diluted EPS and shares outstanding:
 
First Quarter
(in millions, except per share data)
2019
 
2018
Basic EPS:
 
 
 
Net income attributable to KDP
$
230

 
$
88

Weighted average common shares outstanding
1,406.3

 
790.5

Earnings per common share — basic
$
0.16

 
$
0.11

Diluted EPS:
 
 
 
Net income attributable to KDP
$
230

 
$
88

Impact of dilutive securities in Maple Parent Corporation
—

 
1

Total
$
230

 
$
87

Weighted average common shares outstanding
1,406.3

 
790.5

Effect of dilutive securities:
 
 
 
Stock options
0.8

 
—

RSUs
10.6

 
—

Weighted average common shares outstanding and common stock equivalents
1,417.7

 
790.5

Earnings per common share — diluted
$
0.16

 
$
0.11

 
 
 
 
Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation
—

 
—

10 . Stock-Based Compensation
Stock-based compensation expense is primarily recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense are presented below:
 
For the First Quarter
(in millions)
2019
 
2018
Total stock-based compensation expense
$
14

 
$
11

Income tax benefit recognized in the Statements of Income
(3
)
 
(3
)
Stock-based compensation expense, net of tax
$
11

 
$
8


20
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

RESTRICTED STOCK UNITS
The table below summarizes RSU activity for the first quarter of 2019 :
 
RSUs
 
Weighted Average Grant Date Fair Value
 
Weighted Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value
(in millions)
Outstanding as of December 31, 2018
18,625,898

 
$
15.68

 
3.54
 
$
478

Granted
4,834,604

 
26.05

 
 
 
 
Vested and released
(4,137
)
 
24.13

 
 
 
—

Forfeited
(839,706
)
 
18.48

 
 
 
 
Outstanding as of March 31, 2019
22,616,659

 
$
17.79

 
4.13
 
$
633

As of March 31, 2019 , there was $312 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 4.13 years .
11 . Accumulated Other Comprehensive Loss
The following table provides a summary of changes in Accumulated Other Comprehensive Loss , net of taxes:
 (in millions)
Foreign Currency Translation Adjustments
 
Pension and PRMB Liabilities
 
Accumulated Other Comprehensive Loss
Balance as of January 1, 2019
$
(126
)
 
$
(4
)
 
$
(130
)
Other comprehensive income
93

 
—

 
93

Balance as of March 31, 2019
$
(33
)
 
$
(4
)
 
$
(37
)

21
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

12 . Other Financial Information
The tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:
 
March 31,
 
December 31,
(in millions)
2019
 
2018
Inventories:
 
 
 
Raw materials
$
218

 
$
204

Work in process
7

 
7

Finished goods
438

 
415

Total inventories
$
663

 
$
626

Prepaid expenses and other current assets:
 
 
 
Other receivables
$
48

 
$
51

Customer incentive programs
94

 
12

Derivative instruments
20

 
9

Prepaid marketing
47

 
29

Spare parts
44

 
43

Assets held for sale
7

 
8

Income tax receivable
14

 
22

Other
80

 
80

Total prepaid expenses and other current assets
$
354

 
$
254

Other non-current assets:
 
 
 
Customer incentive programs
$
31

 
$
34

Marketable securities - trading (1)
39

 
44

Operating lease right-of-use assets (2)
361

 
—

Derivative instruments
54

 
95

Equity securities without readily determinable fair values
1

 
1

Non-current restricted cash and restricted cash equivalents
10

 
10

Related party notes receivable (3)
24

 
17

Other
64

 
58

Total other non-current assets
$
584

 
$
259

(1)
Fair values of marketable securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. The fair value of marketable securities was $39 million and $44 million as of March 31, 2019 and December 31, 2018 , respectively.
(2)
Refer to Note 3 for additional information .
(3)
Refer to Note 15 for additional information .


22
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

 
March 31,
 
December 31,
(in millions)
2019
 
2018
Accrued expenses:
 
 
 
Customer rebates & incentives
$
360

 
$
342

Accrued compensation
114

 
214

Insurance reserve
42

 
37

Accrued interest
167

 
77

Accrued professional fees
33

 
113

Other accrued expenses
246

 
229

Total accrued expenses
$
962

 
$
1,012

Other current liabilities:
 
 
 
Dividends payable
$
211

 
$
209

Income taxes payable
114

 
60

Operating lease liability (1)
55

 
—

Finance lease liability (2)
33

 
26

Derivative instruments
42

 
34

Holdback liabilities
42

 
44

Other
26

 
33

Total other current liabilities
$
523

 
$
406

Other non-current liabilities:
 
 
 
Pension and post-retirement liability
$
29

 
$
30

Insurance reserves
59

 
57

Operating lease liability (1)
301

 
—

Finance lease liability (2)
244

 
305

Derivative instruments
12

 
16

Deferred compensation liability
39

 
44

Other
91

 
107

Total other non-current liabilities
$
775

 
$
559

(1)
Refer to Note 3 for additional information .
(2)
Amounts as of December 31, 2018 include capital leases and financing obligations reported under ASC 840. Refer to Notes 1 and 3 for additional information .
ACCOUNTS PAYABLE
KDP entered into an agreement with a third party to allow participating suppliers to track payment obligations from KDP, and if elected, sell payment obligations from KDP to financial institutions. Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted. KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted. As of March 31, 2019 and December 31, 2018 ,  $1,898 million  and  $1,676 million , respectively, of KDP's outstanding payment obligations is payable to suppliers who utilize these third party services.

23
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

13 . Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported with the unaudited Condensed Consolidated Balance Sheets to the total of the same amounts shown in the unaudited Condensed Consolidated Statements of Cash Flows:
 
Fair Value Hierarchy Level
 
March 31, 2019
 
December 31, 2018
 (in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
1
 
$
85

 
$
85

 
$
83

 
$
83

Restricted cash and restricted cash equivalents (1)
1
 
44

 
44

 
46

 
46

Non-current restricted cash and restricted cash equivalents included in Other non-current assets
1
 
10

 
10

 
10

 
10

Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows
 
 
$
139

 
$
139

 
$
139

 
$
139

(1)
Restricted cash and cash equivalents represent amounts held in escrow in connection with the Big Red Acquisition and the Core Acquisition.
The following table provides supplemental cash flow disclosures: 
 
First Quarter
 (in millions)
2019
 
2018
Supplemental cash flow disclosures of non-cash investing activities:
 
 
 
Measurement period adjustment of Core purchase price
$
(11
)
 
$
—

Capital expenditures included in accounts payable and accrued expenses
154

 
22

Supplemental cash flow disclosures of non-cash financing activities:
 
 
 
Dividends declared but not yet paid
211

 
—

Finance lease additions
7

 
—

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest
64

 
23

Cash paid for related party interest
—

 
25

Cash paid for income taxes
25

 
67

14 . Commitments and Contingencies
LEGAL MATTERS
The Company is involved from time to time in various claims, proceedings, and litigation, including those described below. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.
Proposition 65 Litigation
On May 9, 2011, an organization named Council for Education and Research on Toxics ("CERT") filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against Keurig. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al., Case No. BC461182. CERT alleges that Keurig, in addition to nearly one hundred other defendants who manufacture, package, distribute, or sell coffee, failed to warn persons in California that Keurig's coffee products (the "Products") expose persons to the chemical acrylamide in violation of California's Safe Drinking Water and Toxic Enforcement Act of 1986, Health and Safety Code section 25249.5, et seq. ("Proposition 65"). CERT seeks equitable relief, including providing warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. CERT asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.
Keurig, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee, but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. Keurig has asserted multiple affirmative defenses. The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees beginning on October 15, 2018, however on October 12, 2018, the California Court of Appeal granted the defendants' request for a stay of the third phase trial.

24
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

Potentially relevant to the lawsuit, on June 15, 2018, California’s Office of Environmental Health Hazard Assessment (“OEHHA”) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. Defendants anticipate that the proposed regulation, if finalized, could be effective as early as June 2019.
At this stage of the proceedings, prior to a trial on remedies issues, Keurig is unable to reasonably estimate the potential loss or effect on Keurig or its operations that could be associated with the lawsuit. The trial court has discretion to impose zero penalties against Keurig or to impose significant statutory penalties. Significant labeling or warning requirements that could potentially be imposed by the trial court may increase Keurig's costs and adversely affect sales of coffee products. We can provide no assurances as to the outcome of any litigation.
15 . Related Parties
IDENTIFICATION OF RELATED PARTIES
The Company is indirectly controlled by a single stockholder, JAB Holding Company S.a.r.l ("JAB"), a privately held investor group. JAB has ownership control over certain investments that create the following related party transaction types:
•
Coffee Transactions include transactions with Peet's Coffee ("Peet's"), Caribou Coffee ("Caribou"), Panera Bread ("Panera"), Einstein Bros Bagels ("Einstein Bros") and Krispy Kreme Doughnuts ("Krispy Kreme"). The Company manufactures portion packs containing a selection of coffee and tea varieties under Peet’s brands for sale in the U.S. and Canada. As part of this agreement Peet’s issues purchase orders to the Company for portion packs to be supplied to Peet’s and sold in select channels. In turn, the Company places purchase orders for Peet’s raw materials to manufacture portion packs for sale by the Company in select channels. The Company licenses the Caribou and Krispy Kreme trademarks for use in the Keurig system in the Company owned channels.
•
Restaurant Transactions include transactions with Panera, Peets, Caribou, Einstein Bros and Krispy Kreme. The Company sells various beverage concentrates and packaged beverages to these companies.
The Company also has rights in certain territories to bottle and/or distribute various brands that the Company does not own. The Company holds investments in certain brand ownership companies. Refer to Note 2 for additional information about the Company 's investments in unconsolidated affiliates. The Company purchases inventory from these brand ownership companies and sells finished product to third-party customers primarily in the U.S. Additionally, any transactions with significant partners in these investments, such as Anheuser-Busch InBev ("ABI"), are also included in this line. ABI purchases Clamato from the Company and pays the Company a royalty for use of the brand name.
LINE OF CREDIT WITH BEDFORD
The Company and ABI executed a line of credit agreement with Bedford on March 3, 2017, in conjunction with the creation of the joint venture ("Bedford Credit Agreement"), which was amended on December 7, 2018 to increase the line of credit (the credit agreement, as amended, the "Bedford Credit Agreement"). Under the Bedford Credit Agreement, the Company has committed to provide up to $51 million capacity with a fixed interest rate of 8.1% per annum. The Bedford Credit Agreement matures on March 3, 2024. The Company has outstanding receivable balances on the Bedford Credit Agreement of $24 million and $17 million as of March 31, 2019 and December 31, 2018 , respectively.

25
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

16 . Segments
Following the DPS Merger as described in Note 2 , the Company revised its segment structure to consist of the following four reportable segments as of March 31, 2019 and December 31, 2018 , and for the first quarter of 2019 , and recasted for the first quarter of 2018 :
•
The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to the Company 's coffee system, pods and brewers.
•
The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company 's own brands and third-party brands, through both the Direct Store Delivery system and the Warehouse Direct system.
•
The Beverage Concentrates segment reflects sales of the Company 's branded concentrates and syrup to third-party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands.
•
The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.
Segment results are based on management reports. Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments. Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income. “ Unallocated corporate costs ” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.
Information about the Company 's operations by reportable segment is as follows:
 
First Quarter
(in millions)
2019
 
2018
Segment Results – Net sales
 
 
 
Coffee Systems
$
968

 
$
948

Packaged Beverages
1,116

 
—

Beverage Concentrates
304

 
—

Latin America Beverages
116

 
—

Net sales
$
2,504

 
$
948

 
First Quarter
 (in millions)
2019
 
2018
Segment Results – Income from operations
 
 
 
Coffee Systems
$
293

 
$
254

Packaged Beverages
149

 
—

Beverage Concentrates
201

 
—

Latin America Beverages
11

 
—

Total income from operations - segments
654

 
254

Unallocated corporate costs
156

 
76

Income from operations
$
498

 
$
178

17 . Revenue Recognition
The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include CSDs , NCBs , pods and appliances, occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.

26
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The following table disaggregates the Company 's revenue by portfolio for the first quarter of 2019 and 2018 :
(in millions)
Coffee Systems
 
Packaged Beverages
 
Beverage Concentrates
 
Latin America Beverages
 
Total
For the first quarter of 2019:
 
 
 
 
 
 
 
 
 
CSD (1)
$
—

 
$
522

 
$
298

 
$
80

 
$
900

NCB (1)
—

 
501

 
2

 
36

 
539

Pods (2)
793

 
—

 
—

 
—

 
793

Appliances
123

 
—

 
—

 
—

 
123

Other
52

 
93

 
4

 
—

 
149

Net sales
$
968

 
$
1,116

 
$
304

 
$
116

 
$
2,504

 
 
 
 
 
 
 
 
 
 
For the first   quarter of 2018:
 
 
 
 
 
 
 
 
 
CSD (1)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

NCB (1)
—

 
—

 
—

 
—

 
—

Pods (2)
794

 
—

 
—

 
—

 
794

Appliances
101

 
—

 
—

 
—

 
101

Other
53

 
—

 
—

 
—

 
53

Net sales
$
948

 
$
—

 
$
—

 
$
—

 
$
948

(1)    Represents net sales of owned and Allied Brands within our portfolio.
(2)
Represents net sales from owned brands, partner brands and private label owners. Net sales for partner brands and private label owners are contractual and long term in nature.
18 . Guarantor and Non-Guarantor Financial Information
The Notes are fully and unconditionally guaranteed by certain direct and indirect subsidiaries of the Company (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 described below, the Company's obligations under the Notes. None of the Company's subsidiaries organized outside of the U.S., immaterial subsidiaries used for charitable purposes, any of the subsidiaries held by Maple prior to the DPS Merger or any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes. The subsidiary guarantees with respect to the Notes are subject to release upon 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 other indebtedness of the Company, the Company's exercise of its legal defeasance option with respect to the Notes and the discharge of the Company's obligations under the applicable indenture. The DPS Merger was accounted for under the acquisition method of accounting, using pushdown accounting for the purposes of presenting the following guarantor and non-guarantor financial information.
The first quarter of 2018 is not presented herein, as amounts reported prior to the DPS Merger are that of Maple, and would therefore be entirely reported within the Non-Guarantors column. Refer to the Condensed Consolidated Statements of Income, Statements of Comprehensive Income, and Statements of Cash Flows for the amounts which would be presented as Non-Guarantors for these historical periods.
The following schedules present the financial information for Keurig Dr Pepper Inc. (the "Parent"), Guarantors and Non-Guarantors. The consolidating schedules are provided in accordance with the reporting requirements of Rule 3-10 under SEC Regulation S-X for guarantor subsidiaries.

27
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

 
Condensed Consolidating Statements of Income
 
For the First Quarter of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,410

 
$
1,138

 
$
(44
)
 
$
2,504

Cost of sales
—

 
571

 
579

 
(44
)
 
1,106

Gross profit
—

 
839

 
559

 
—

 
1,398

Selling, general and administrative expenses
4

 
562

 
345

 
—

 
911

Other operating (income) expense, net
—

 
(10
)
 
(1
)
 
—

 
(11
)
Income from operations
(4
)
 
287

 
215

 
—

 
498

Interest expense
200

 
4

 
29

 
(64
)
 
169

Interest expense - related party
—

 
—

 
—

 
—

 
—

Loss on early extinguishment of debt
9

 
—

 
—

 
—

 
9

Other (income) expense, net
(12
)
 
(45
)
 
(2
)
 
64

 
5

(Loss) income before provision for income taxes
(201
)
 
328

 
188

 
—

 
315

(Benefit) provision for income taxes
(49
)
 
84

 
50

 
—

 
85

Income before equity in earnings of consolidated subsidiaries
(152
)
 
244

 
138

 
—

 
230

Equity in earnings of consolidated subsidiaries
382

 
—

 
—

 
(382
)
 
—

Net income
230

 
244

 
138

 
(382
)
 
230

 
Condensed Consolidating Statements of Comprehensive Income
 
For the First Quarter of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income (loss)
$
323

 
$
319

 
$
231

 
$
(550
)
 
$
323



28
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

 
Condensed Consolidating Balance Sheets
 
As of March 31, 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
6

 
$
79

 
$
—

 
$
85

Restricted cash and restricted cash equivalents
40

 
2

 
2

 
—

 
44

Trade accounts receivable, net
—

 
600

 
416

 
—

 
1,016

Related party receivable
136

 
143

 
78

 
(357
)
 
—

Inventories
—

 
246

 
417

 
—

 
663

Prepaid expenses and other current assets
619

 
218

 
122

 
(605
)
 
354

Total current assets
795

 
1,215

 
1,114

 
(962
)
 
2,162

Property, plant and equipment, net
—

 
1,340

 
942

 
—

 
2,282

Investments in consolidated subsidiaries
40,601

 
4,940

 
—

 
(45,541
)
 
—

Investments in unconsolidated affiliates
—

 
57

 
115

 
—

 
172

Goodwill
50

 
8,374

 
11,653

 
—

 
20,077

Other intangible assets, net
—

 
16,578

 
7,410

 
—

 
23,988

Long-term receivable, related parties
5,277

 
8,208

 
—

 
(13,485
)
 
—

Other non-current assets
63

 
251

 
270

 
—

 
584

Deferred tax assets
—

 
—

 
26

 
—

 
26

Total assets
$
46,786

 
$
40,963

 
$
21,530

 
$
(59,988
)
 
$
49,291

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
723

 
$
1,835

 
$
—

 
$
2,558

Accrued expenses
167

 
579

 
216

 
—

 
962

Structured payables
—

 
47

 
548

 
—

 
595

Related party payable
142

 
111

 
104

 
(357
)
 
—

Short-term borrowings and current portion of long-term obligations
2,018

 
—

 
—

 
—

 
2,018

Other current liabilities
273

 
723

 
132

 
(605
)
 
523

Total current liabilities
2,600

 
2,183

 
2,835

 
(962
)
 
6,656

Long-term obligations to third parties
13,246

 
—

 
—

 
—

 
13,246

Long-term obligations to related parties
8,177

 
3,407

 
1,901

 
(13,485
)
 
—

Deferred tax liabilities
46

 
4,080

 
1,814

 
—

 
5,940

Other non-current liabilities
43

 
491

 
241

 
—

 
775

Total liabilities
24,112

 
10,161

 
6,791

 
(14,447
)
 
26,617

Total stockholders' equity
22,674

 
30,802

 
14,739

 
(45,541
)
 
22,674

Total liabilities and stockholders' equity
$
46,786

 
$
40,963

 
$
21,530

 
$
(59,988
)
 
$
49,291



29
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

 
Condensed Consolidating Balance Sheets
 
As of December 31, 2018
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
18

 
$
65

 
$
—

 
$
83

Restricted cash and restricted cash equivalents
42

 
3

 
1

 
—

 
46

Trade accounts receivable, net
—

 
596

 
554

 
—

 
1,150

Related party receivable
189

 
71

 
76

 
(336
)
 
—

Inventories
—

 
226

 
400

 
—

 
626

Prepaid expenses and other current assets
569

 
110

 
132

 
(557
)
 
254

Total current assets
800

 
1,024

 
1,228

 
(893
)
 
2,159

Property, plant and equipment, net
—

 
1,351

 
959

 
—

 
2,310

Investments in consolidated subsidiaries
40,119

 
4,882

 
—

 
(45,001
)
 
—

Investments in unconsolidated affiliates
—

 
63

 
123

 
—

 
186

Goodwill
50

 
8,371

 
11,590

 
—

 
20,011

Other intangible assets, net
—

 
16,583

 
7,384

 
—

 
23,967

Long-term receivable, related parties
5,503

 
7,827

 
—

 
(13,330
)
 
—

Other non-current assets
64

 
41

 
154

 
—

 
259

Deferred tax assets
—

 
—

 
26

 
—

 
26

Total assets
$
46,536

 
$
40,142

 
$
21,464

 
$
(59,224
)
 
$
48,918

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
497

 
$
1,803

 
$
—

 
$
2,300

Accrued expenses
78

 
610

 
324

 
—

 
1,012

Structured payables
—

 
47

 
479

 
—

 
526

Related party payable
65

 
106

 
165

 
(336
)
 
—

Short-term borrowings and current portion of long-term obligations
1,458

 
—

 
—

 
—

 
1,458

Other current liabilities
278

 
626

 
59

 
(557
)
 
406

Total current liabilities
1,879

 
1,886

 
2,830

 
(893
)
 
5,702

Long-term obligations to third parties
14,201

 
—

 
—

 
—

 
14,201

Long-term obligations to related parties
7,827

 
3,369

 
2,134

 
(13,330
)
 
—

Deferred tax liabilities
46

 
4,075

 
1,802

 
—

 
5,923

Other non-current liabilities
50

 
337

 
172

 
—

 
559

Total liabilities
24,003

 
9,667

 
6,938

 
(14,223
)
 
26,385

Total stockholders' equity
22,533

 
30,475

 
14,526

 
(45,001
)
 
22,533

Total liabilities and stockholders' equity
$
46,536

 
$
40,142

 
$
21,464

 
$
(59,224
)
 
$
48,918



30
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

 
Condensed Consolidating Statements of Cash Flows
 
For the First Quarter of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(34
)
 
$
374

 
$
259

 
$
(8
)
 
$
591

Investing activities:
 
 
 
 
 
 
 
 
 
Collections on (issuances of) related party notes receivable
290

 
(373
)
 
(7
)
 
83

 
(7
)
Purchases of property, plant and equipment
—

 
(21
)
 
(41
)
 
—

 
(62
)
Return of capital from investments in consolidated subsidiaries
—

 
16

 
—

 
(16
)
 
—

Other, net
9

 
(4
)
 
19

 
—

 
24

Net cash provided by (used in) investing activities
$
299

 
$
(382
)
 
$
(29
)
 
$
67

 
$
(45
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from (payments of) related party notes
$
350

 
$
—

 
$
(267
)
 
$
(83
)
 
$
—

Proceeds from term loan
2,000

 
—

 
—

 
—

 
2,000

Net Issuance of Commercial Paper
594

 
—

 
—

 
—

 
594

Proceeds from structured payables
—

 
—

 
78

 
—

 
78

Payments on structured payables
—

 
—

 
(9
)
 
—

 
(9
)
Payments on senior unsecured notes
(250
)
 
—

 
—

 
—

 
(250
)
Repayment of term loan
(2,758
)
 
—

 
—

 
—

 
(2,758
)
Payments on finance leases
—

 
(5
)
 
(5
)
 
—

 
(10
)
Proceeds from stock options exercised
8

 
—

 
—

 
—

 
8

Cash dividends paid
(211
)
 
—

 
(24
)
 
24

 
(211
)
Other, net
—

 
—

 
2

 
—

 
2

Net cash used in financing activities
$
(267
)
 
$
(5
)
 
$
(225
)
 
$
(59
)
 
$
(556
)
Cash and cash equivalents — net change from:
 

 
 

 
 

 
 

 
 

Operating, investing and financing activities
$
(2
)
 
$
(13
)
 
$
5

 
$
—

 
$
(10
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
10

 
—

 
10

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
42

 
31

 
66

 
—

 
139

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
40

 
$
18

 
$
81

 
$
—

 
$
139



31

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 
The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto in our Form 10-K, as filed on February 28, 2019.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, in particular, statements about future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, labor matters 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 the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" or the negative of these terms or similar expressions in this Quarterly Report on Form 10-Q. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections, and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 (the "Annual Report"). Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update the forward-looking statements, and the estimates and assumptions associated with them, after the date of this Quarterly Report on Form 10-Q, except to the extent required by applicable securities laws.
This Quarterly Report on Form 10-Q contains the names of some of our owned or licensed trademarks, trade names and service marks, which we refer to as our brands. All of the product names included in this Quarterly Report on Form 10-Q are either our registered trademarks or those of our licensors.
DR PEPPER SNAPPLE GROUP, INC. MERGER
On January 29, 2018, Dr Pepper Snapple Group, Inc. ("DPS") entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among DPS, Maple Parent Holdings Corp. (“ Maple ”) and Salt Merger Sub, Inc. (“Merger Sub”), whereby Merger Sub would be merged with and into Maple , with Maple surviving the merger as a wholly-owned subsidiary of DPS (the “DPS Merger”). The DPS Merger was consummated on July 9, 2018 (the "Merger Date"), at which time DPS changed its name to "Keurig Dr Pepper Inc.".
Maple owns Keurig, a leader in specialty coffee and innovative single serve brewing systems. The combined businesses created Keurig Dr Pepper Inc. ("KDP"), a new beverage company of scale with a portfolio of iconic consumer brands and expanded distribution capability to reach virtually every point-of-sale in North America.
See Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information related to the DPS Merger.
OVERVIEW
KDP is a leading beverage company in North America, with a diverse portfolio of flavored (non-cola) CSDs, NCBs, including ready-to-drink teas and coffee, juices, juice drinks, water and mixers, and specialty coffee, and is a leading producer of innovative single-serve brewing systems. With a wide range of hot and cold beverages that meet virtually any consumer need, KDP key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Mott's, Core, Green Mountain and The Original Donut Shop. KDP has some of the most recognized beverage brands in North America, with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers. KDP offers more than 125 owned, licensed and partner brands, including the top ten best-selling coffee brands and Dr Pepper as a leading flavored CSD in the U.S. according to IRi , available nearly everywhere people shop and consume beverages.
KDP operates as an integrated brand owner, manufacturer and distributor. We believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our DSD system and our WD delivery system. KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, pure-play e-commerce retailers, and office superstores; to restaurants, hotel chains, office product and coffee distributors, and partner brand owners; and directly to consumers through its websites. Our integrated business model enables 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 reduce costs by creating greater geographic manufacturing and distribution coverage.
The beverage market is subject to some seasonal variations. Our cold beverage sales are generally higher during the warmer months, while hot beverage sales are generally higher during the cooler months. Overall beverage sales can be influenced by the timing of holidays and weather fluctuations.

32

COFFEE SYSTEMS
Our Coffee Systems segment is primarily a producer of innovative single-serve brewing systems and specialty coffee in the U.S. and Canada. The multi-brand brewing system is aimed at changing the way consumers prepare and enjoy coffee and other beverages both at home and away from home in places such as offices, restaurants, cafeterias, convenience stores and hotels. We develop and sell a variety of Keurig brewers and, in addition to coffee, produce and sell a variety of other specialty beverages in K-Cup pod s (including hot and iced teas, hot cocoa and other beverages) for use with Keurig brewing systems. We also develop and sell brewer accessories, including pod storage racks, baskets, brewer carrying cases and other coffee-related equipment and accessories. We also offer traditional whole bean and ground coffee in other package types, including bags, fractional packages and cans.
Our Coffee Systems segment offers pods primarily in the single-serve K-Cup pod format. We manufacture and sell 100% of the K-Cup pod s of our own brands, such as Green Mountain Coffee Roasters, The Original Donut Shop, Van Houtte, Laughing Man and REVV. We have licensing and manufacturing agreements with our partner brands to manufacture approximately 80% of the K-Cup pod s in the U.S. and Canada, including brands such as Starbucks, Peet's Coffee, Dunkin' Donuts, Caribou Coffee, Eight O’Clock, Folgers, Maxwell House, Newman’s Own Organics and Tim Hortons, and private label arrangements. Our Coffee Systems segment also has agreements for manufacturing, distributing, and selling K-Cup pod s for tea under brands such as Celestial Seasonings, Lipton and Tazo in addition to K-Cup pod s of our own brand, Snapple. We also produce and sell K-Cup pod s for cocoa, including through a licensing agreement for the Swiss Miss brand, and hot apple cider.
Our Coffee Systems segment manufactures its K-Cup pod s in facilities in North America that include specialty designed proprietary high-speed packaging lines using freshly roasted and ground coffee as well as tea, cocoa and other products. We offer high-quality coffee including single-origin, organic, flavored, limited edition and proprietary blends. We carefully select our coffee beans and appropriately roast the coffees to optimize their taste and flavor differences. We engineer and design all of our single-serve brewing systems, where we then utilize third-party contract manufacturers located in various countries in Asia for brewer appliance manufacturing. We distribute our Coffee Systems products using third-party distributors and retail partners.
PACKAGED BEVERAGES
Our Packaged Beverages segment is principally a brand ownership, manufacturing and distribution business. In this segment, we primarily manufacture and distribute packaged beverages of our brands. Additionally, in order to maximize the size and scale of our manufacturing and distribution operations, we also distribute packaged beverages for our Allied Brands and manufacture packaged beverages for certain private label beverages in the U.S. and Canada.
Our larger NCB brands in this segment include Snapple, Hawaiian Punch, Mott's, Clamato, Bai, Yoo-Hoo, Deja Blue, Core, ReaLemon, Mistic, Vita Coco coconut water, and Mr and Mrs T mixers. Our larger CSD brands in this segment include Dr Pepper, 7UP, Canada Dry, A&W, Sunkist soda, Squirt, RC Cola, Big Red, and Vernors. 
Approximately  90%  of our  2019  Packaged Beverages net sales come from the manufacturing and distribution of our own brands and the manufacturing of certain private label beverages. The remaining portion of our  2019 Packaged Beverages net sales came from the distribution of our partner brands such as Vita Coco coconut water, AriZona tea, Neuro drinks, High Brew, evian, Peet's Coffee and Forto Coffee shots. Although the majority of our Packaged Beverages net sales relate to our brands, we also provide a route-to-market for these third party brand owners seeking effective distribution for their new and emerging brands. These brands give us exposure in certain markets to fast growing segments 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 their warehouses by our own distribution network or by third party distributors.
BEVERAGE CONCENTRATES
Our Beverage Concentrates segment is principally a brand ownership business where we manufacture and sell beverage concentrates in the U.S. and Canada. Most of the brands in this segment are CSD brands. Key brands include Dr Pepper, Canada Dry, Crush, Schweppes, Sunkist soda, 7UP, A&W, Sun Drop, Squirt, RC Cola 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 with carbonation, 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 fountain customers, such as fast food restaurants, who mix the syrup with water and carbonation to create a finished beverage at the point of sale to consumers. Dr Pepper represents most of our fountain channel volume.
Our Beverage Concentrates brands are sold by our bottlers through all major retail channels including supermarkets, fountains, mass merchandisers, club stores, vending machines, convenience stores, gas stations, small groceries, drug chains and dollar stores.

33

LATIN AMERICA BEVERAGES
Our Latin America Beverages segment is a brand ownership, manufacturing and distribution business, with operations in Mexico representing approximately 90% of segment net sales. This segment participates mainly in the carbonated mineral water, flavored CSD, bottled water and vegetable juice categories, with particular strength in carbonated mineral water, vegetable juice categories and grapefruit flavored CSDs. The largest brands 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. We sell our finished beverages through all major Mexican retail channels, including small outlets, supermarkets, hypermarkets, convenience stores and on-premise channels. In the Caribbean, we distribute our products through third party bottlers and distributors. We have also begun to distribute certain products in other international jurisdictions through various third party bottlers and distributors.
VOLUME
In evaluating our performance, we consider different volume measures depending on whether we sell beverage concentrates, finished beverages, pods or brewers.
Beverage Concentrates Sales Volume
In our Beverage Concentrates segment, we measure our sales volume as concentrate case sales. The unit of measurement for concentrate case sales equals 288 fluid ounces of finished beverage, the equivalent of 24 twelve ounce servings.
Concentrate case sales represent units of measurement for concentrates sold by us to our bottlers and distributors. A concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage. It does not include any other component of the finished beverage other than concentrate. Our net sales in our concentrate businesses are based on our sales of concentrate cases.
Packaged Beverages and Latin America Beverages Sales Volume
In our Packaged Beverages and Latin America Beverages segments, we measure volume as case sales to customers. A case sale represents a unit of measurement equal to 288 fluid ounces of packaged beverage sold by us. Case sales include both our owned brands and certain brands licensed to and/or distributed by us.
Appliance and Pod Sales Volume
In our Coffee Systems segments, we measure our sales volume as the number of appliances and the number of individual pods sold to our customers.
COMPARABLE RESULTS OF OPERATIONS
As a result of the DPS Merger , in order for management to discuss our results on a comparable basis, we prepared unaudited pro forma condensed combined financial information for the first quarter of 2018 to illustrate the estimated effects of the DPS Merger , which was consummated on July 9, 2018, based on the historical results of operations of DPS and Maple. See Supplemental Unaudited Pro Forma Condensed Combined Financial Information section at the end of Management's Discussion and Analysis for further information on the assumptions used in the preparation of the financial information.
Furthermore, management believes that there are certain non-GAAP financial measures that allow management to evaluate our results, trends and ongoing performance on a comparable basis. In order to derive the adjusted financial information, we adjust certain financial statement captions and metrics prepared under U.S. GAAP for 2019 and on a pro forma basis for 2018 for certain items affecting comparability. See Non-GAAP Financial Measures for further information on the certain items affecting comparability used in the preparation of the financial information. These items are referred to within the Adjusted Results of Operations section, within Management's Discussion and Analysis discussion, as Adjusted net sales, Adjusted pro forma net sales, Adjusted income from operations, Adjusted pro forma income from operations, Adjusted interest expense, Adjusted pro forma interest expense, Adjusted provision for income taxes, Adjusted pro forma provision for income taxes, Adjusted net income, Adjusted pro forma net income, Adjusted diluted EPS and Adjusted pro forma diluted EPS.

34

EXECUTIVE SUMMARY
Financial Overview
•
The following table details our net income, diluted EPS, Adjusted net income and Adjusted diluted EPS for the the first quarter of 2019 compared with the net income, diluted EPS, Adjusted pro forma net income and Adjusted pro forma diluted EPS for the first quarter of 2018 :
    
 
First Quarter
 
Dollar
 
Percent
(in millions, except per share data)
2019
 
2018
 
Change
 
Change
Net income attributable to KDP
$
230

 
$
88

 
$
142

 
161.4
%
Diluted EPS
0.16

 
0.11

 
0.05

 
45.5

Adjusted net income (1)
356

 
263

 
93

 
35.4

Adjusted diluted EPS (1)
0.25

 
0.19

 
0.06

 
31.6

(1)
Adjusted net income and Adjusted diluted EPS are non-GAAP financial measures. For the first quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Net income attributable to KDP increased $142 million to $230 million for the first quarter of 2019 compared to the prior year driven primarily by the impact of the DPS Merger. Diluted EPS increased 45.5% to $0.16 per diluted shares as compared to $0.11 in the prior year.
Adjusted net income advanced 35.4% to $356 million for the first quarter of 2019 as compared to Adjusted pro forma net income for the first quarter of 2018 driven by growth in Adjusted income from operations, primarily attributable to net productivity and merger synergies partially offset by inflation on input costs and logistics, lower interest expense primarily due to realized gains associated with the termination of certain interest rate swaps and a lower tax rate. Adjusted diluted EPS increased 31.6% to $0.25 per diluted share as compared to Adjusted pro forma diluted EPS of $0.19 per diluted share in the prior year.
•
On February 8, 2019 , the Company terminated its KDP Term Loan and entered into the New KDP Term Loan to provide $2 billion for the purposes of refinancing the KDP Term Loan in order to achieve a more favorable interest rate.
•
During the first quarter of 2019, we made net repayments of approximately $414 million related to our 2019 Notes, our term loans and Commercial Paper.
Recent Developments
•
We announced that our Board of Directors declared a quarterly dividend of $0.15 per share, which was paid on April 19, 2019 to shareholders of record on April 5, 2019. Additionally, our Board of Directors declared a quarterly dividend of $0.15 per share on May 3, 2019, which will be paid on July 19, 2019 to shareholders of record on July 5, 2019.
•
During April, we entered into a distribution agreement with All Market Inc., the parent company of Vita Coco, to sell, distribute and merchandise RUNA Clean Energy drink in certain territories across the U.S.
RESULTS OF OPERATIONS
We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
References in the financial tables to percentage changes that are not meaningful are denoted by "NM."

35

First Quarter March 31, 2019 Compared to First Quarter March 31, 2018
Consolidated Operations
The following table sets forth our unaudited consolidated results of operations for the first quarter of 2019 and 2018 :
 
First Quarter
 
 
 
 
 
2019
 
2018
 
Dollar
 
Percentage
($ in millions)
Dollars
 
Percent
 
Dollars
 
Percent
 
Change
 
Change
Net sales
$
2,504

 
100.0
 %
 
$
948

 
100.0
 %
 
$
1,556

 
164.1
 %
Cost of sales
1,106

 
44.2

 
467

 
49.3

 
639

 
136.8

Gross profit
1,398

 
55.8

 
481

 
50.7

 
917

 
191.0

Selling, general and administrative expenses
911

 
36.4

 
300

 
31.6

 
611

 
204.0

Other operating (income) expense, net
(11
)
 
(0.4
)
 
3

 
0.3

 
(14
)
 
NM

Income from operations
498

 
19.9

 
178

 
18.8

 
320

 
180.0

Interest expense (income)
169

 
6.7

 
(2
)
 
(0.2
)
 
171

 
NM

Interest expense - related party
—

 
—

 
25

 
5.4

 
(25
)
 
(100.0
)
Loss on early extinguishment of debt
9

 
0.4

 
2

 
0.2

 
7

 
NM

Other expense, net
5

 
0.2

 
13

 
1.4

 
(8
)
 
NM

Income before provision for income taxes
315

 
12.6

 
140

 
14.8

 
175

 
125.0

Provision for income taxes
85

 
3.4

 
51

 
5.4

 
34

 
67.0

Net income
230

 
9.2

 
89

 
9.4

 
141

 
158.0

Less: Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards
—

 
—

 
1

 
0.1

 
(1
)
 
NM

Net income attributable to KDP
$
230

 
9.2
 %
 
$
88

 
9.3
 %
 
142

 
161.0

 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.16

 
 
 
$
0.11

 
 
 
$
0.05

 
45.0
 %
Diluted
0.16

 
 
 
0.11

 
 
 
0.05

 
45.0

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
1,406.3

 
 
 
790.5

 
 
 
 
 
 
Diluted
1,417.7

 
 
 
790.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
19.9
%
 
 
 
18.8
%
 
 
 
 
 
110 bps

Effective tax rate
27.0

 
 
 
36.4

 
 
 
 
 
 
Net Sales. Net sales increased $1,556 million , or approximately 164% , for the first quarter of 2019 compared with the first quarter of 2018 . The primary factor of the increase in net sales was the $1,536 million of sales acquired primarily since the DPS Merger.
Gross Profit. Gross profit increased $917 million for the first quarter of 2019 compared with the first quarter of 2018 . Gross margin of 55.8% for the first quarter of 2019 significantly improved from the 50.7% gross margin for the first quarter of 2018 . The primary driver of the change in gross profit for the first quarter of 2019 was the incremental gross profit we acquired as a result of the consummation of the DPS Merger.
Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses increased $611 million for the first quarter of 2019 compared with the first quarter of 2018 . The primary driver of the increase in SG&A expenses was the impact of the DPS Merger, which includes acquired operating costs and restructuring expenses associated with the integration of DPS and Keurig.
Other Operating (Income) Expense, Net. Other operating (income) expense, net for the first quarter of 2019 included a $10 million net benefit on the renegotiation of a manufacturing contract.
Income from Operations. Income from operations increased $320 million to $498 million for the first quarter of 2019 due to the increase in gross profit partially offset by an increase in SG&A expenses, driven by the DPS Merger.

36

Interest Expense (Income). Interest expense increased $171 million for the first quarter of 2019 compared with the first quarter of 2018 due primarily to the increased borrowings and assumption of the existing senior unsecured notes as a result of the DPS Merger and the impact of our interest rate derivative instruments.
Interest Expense - Related Party. Interest expense - related party decreased $25 million for the first quarter of 2019 compared with the first quarter of 2018 as a result of the capitalization of the related party term loans into additional paid in capital during the DPS Merger.
Effective Tax Rate. The effective tax rates for the first quarter of 2019 and 2018 were 27.0% and 36.4% , respectively. The decrease in our effective tax rate was primarily due to a reduction in the U.S. federal tax rate from 24.5% to 21.0% and exclusion of DPS Merger related non-deductible transaction costs offset by the elimination of domestic manufacturing deduction. Refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
Adjusted Results of Operations
The following table sets forth certain unaudited consolidated adjusted results of operations for the first quarter of 2019 and 2018 :
 
For the First Quarter
 
Dollar
 
Percent
(in millions, except per share amounts)
2019
 
2018
 
Change
 
Change
Adjusted net sales (1)
$
2,504

 
$
2,533

 
$
(29
)
 
(1.1
)%
Adjusted income from operations (1)
621

 
562

 
59

 
10.5

Adjusted interest expense (1)
131

 
171

 
(40
)
 
(23.4
)
Adjusted provision for income taxes (1)
127

 
107

 
20

 
18.7

Adjusted net income (1)
356

 
263

 
93

 
35.4

Adjusted diluted EPS (1)
0.25

 
0.19

 
0.06

 
31.6

 
 
 
 
 
 
 
 
Adjusted diluted weighted average shares (1)
1,417.7

 
1,386.5

 
 
 
 
Adjusted operating margin (1)
24.8
%
 
22.2
%
 
 
 
260 bps

Adjusted effective tax rate (1)
26.3
%
 
28.9
%
 
 
 
 
(1)
These adjusted measures are non-GAAP financial measures. For the first quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of this term and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Adjusted Net Sales. Adjusted net sales decreased $29 million , or 1.1% , to $2,504 million for the first quarter of 2019 as compared to Adjusted pro forma net sales of $2,533 million for the first quarter of 2018 . This performance reflected strong underlying net sales growth of 2.5% , driven by higher volume/mix of 1.4% and net price realization of 1.1% , more than offset by the expected unfavorable impacts related to changes in our Allied Brands portfolio of 2.5% and calendar timing of 0.6% that affected year-over-year comparisons - namely, the shift of Easter into the second quarter of 2019 and one less shipping day in the first quarter of 2019 within the Packaged Beverages segment. Unfavorable foreign currency translation also impacted the period by 0.5% .
Adjusted Income from Operations. Adjusted income from operations increased $59 million , or 10.5% , to $621 million compared to Adjusted pro forma income from operations of $562 million in the prior year. This performance primarily reflected strong productivity and merger synergies, both of which benefitted SG&A and cost of sales. Partially offsetting these growth drivers was inflation in input costs, led by packaging, and logistics. On a percentage of net sales basis, Adjusted operating income grew 260 bps to 24.8% in the first quarter.
Adjusted Interest Expense. Adjusted interest expense decreased $40 million , or 23.4% , to $131 million for the first quarter of 2019 compared to Adjusted pro forma interest expense of $171 million in the prior year. This change was primarily the result of realized gains associated with the termination of certain interest rate swaps, realized gains on existing interest rate swaps and the benefit of lower indebtedness due to continued deleveraging.
Adjusted Effective Tax Rate. The Adjusted effective tax rate decreased 2.3 points to 26.3% for the the first quarter of 2019 compared to Adjusted pro forma effective tax rate of 28.9% in the prior year. This improvement in our Adjusted effective tax rate was primarily due to a reduction in the U.S. federal tax rate from 24.5% to 21.0%, partially offset by the removal of domestic manufacturing deduction.



37

Results of Operations by Segment
The following tables set forth net sales and income from operations for our segments for the first quarter of 2019 and 2018 , as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP :
(in millions)
For the First Quarter
Segment Results — Net sales
2019
 
2018
Coffee Systems
$
968

 
$
948

Packaged Beverages
1,116

 
—

Beverage Concentrates
304

 
—

Latin America Beverages
116

 
—

Net sales
$
2,504

 
$
948

 
 
 
 
 
For the First Quarter
(in millions)
2019
 
2018
Segment Results — Income from Operations
 
 
 
Coffee Systems
$
293

 
$
254

Packaged Beverages
149

 
—

Beverage Concentrates
201

 
—

Latin America Beverages
11

 
—

Total income from operations
654

 
254

Unallocated corporate costs
156

 
76

Income from operations
$
498

 
$
178

COFFEE SYSTEMS
The following table details our Coffee Systems segment's net sales and income from operations for the first quarter of 2019 and 2018 :
 
For the First Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
968

 
$
948

 
$
20

 
2.1
%
Income from operations
293

 
254

 
39

 
15.4

Operating margin
30.3
%
 
26.8
%
 
 
 
350 bps

Adjusted net sales (1)
968

 
952

 
16

 
1.7

Adjusted income from operations (1)
335

 
312

 
23

 
7.4

Adjusted operating margin
34.6
%
 
32.8
%
 
 
 
180 bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. The volume/mix growth for the Coffee Systems segment reflected a 7.0% increase in K-Cup pod volume, primarily driven by ongoing growth of the single serve pod category and the launch of Tim Horton's in Canada, and a 12.4% increase in brewers compared to the prior year due to innovation and timing of brewer shipments.
Net Sales. Net sales increased 2.1% to $968 million for the first quarter of 2019 compared to the first quarter of 2018 due to volume/mix growth of 5.0% , partially offset by lower net price realization of 2.1% , reflecting the continued moderation in strategic pod pricing investments and unfavorable foreign currency translation of 0.8% .
Adjusted Net Sales. Adjusted net sales increased 1.7% to $968 million for the first quarter of 2019 compared to Adjusted pro forma net sales of $952 million for the first quarter of 2018 due to volume/mix growth of 5.0% , partially offset by lower net price realization of 2.5% , reflecting the continued moderation in strategic pod pricing investments, and unfavorable foreign currency translation of 0.8% .
Income from Operations. Income from operations increased $39 million for the first quarter of 2019 , compared with the first quarter of 2018 , primarily reflecting the benefits of productivity and net sales growth.

38

Adjusted Income from Operations. Adjusted income from operations increased $23 million , or 7.4% , to $335 million for the first quarter of 2019 , compared with Adjusted pro forma income from operations of $312 million for the first quarter of 2018 , primarily reflecting the benefits of productivity and net sales growth. On a percent of Adjusted net sales basis, Adjusted operating income grew 180 bps versus the year ago period to 34.6% .
PACKAGED BEVERAGES
The following table details our Packaged Beverages segment's net sales and income from operations for first quarter of 2019 and 2018 :
 
For the First Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
1,116

 
$
—

 
$
1,116

 
NM
Income from operations
149

 
—

 
149

 
NM
Adjusted net sales (1)
1,116

 
1,178

 
(62
)
 
(5.3
)%
Adjusted income from operations (1)
160

 
160

 
—

 
—

Adjusted operating margin
14.3
%
 
13.6
%
 
 
 
70 bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. Sales volume for the first quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the first quarter of 2019 declined 4.9% due to the net unfavorable impact of 3.1% related to changes in our Allied Brands portfolio and the impact of the calendar timing versus the prior year, partially offset by growth of Core Hydration and higher volume from contract manufacturing.
Net Sales. Net sales were $1,116 million for the first quarter of 2019 , which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales decreased 5.3% to $1,116 million for the first quarter of 2019 compared with Adjusted pro forma net sales of $1,178 million for the first quarter of 2018 , reflecting underlying net sales growth of 1.4% , driven by higher net price realization of 2.3% from pricing actions taken late in 2018 partially offset by lower volume/mix of 0.9% . More than offsetting the underlying net sales growth were the expected unfavorable impacts of 5.4% from changes in the Allied Brands portfolio and 1.2% from calendar timing. Unfavorable foreign currency translation also impacted the comparison by 0.1% .
Income from Operations. Income from operations was $149 million for the first quarter of 2019 , which were wholly incremental as a result of the DPS Merger, as net sales were reduced by cost of sales and SG&A expenses. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs. SG&A expenses were primarily comprised of employee salaries, marketing investments and logistics expense.
Adjusted Income from Operations. Adjusted income from operations of $160 million in the first quarter of 2019 was even with Adjusted pro forma income from operations in the first quarter of 2018 , largely reflecting the strong productivity, which includes a benefit from the renegotiation of a manufacturing contract, and merger synergies. These drivers were offset by inflation on input costs, led by packaging, and logistics. As a percentage of Adjusted net sales, Adjusted operating income grew 70 bps versus the year ago period to 14.3% .
BEVERAGE CONCENTRATES
The following table details our Beverage Concentrates segment's net sales and income from operations for first quarter of 2019 and 2018 :
 
For the First Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
304

 
$
—

 
$
304

 
NM
Income from operations
201

 
—

 
201

 
NM
Adjusted net sales (1)
304

 
290

 
14

 
4.8
%
Adjusted income from operations (1)
201

 
180

 
21

 
11.7

Adjusted operating margin
66.1
%
 
62.1
%
 
 
 
400 bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.

39

Sales Volume. Sales volume for the first quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the first quarter of 2019 declined 2.5% due to CSD category volume and timing of Canada Dry innovation in the prior year.
Net Sales. Net sales were $304 million for the first quarter of 2019 , which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales increased 4.8% to $304 million for the first quarter of 2019 compared with Adjusted pro forma net sales for the first quarter of 2018 driven by net price realization of 7.1% , partially offset by lower volume/mix of 2.0% and unfavorable foreign currency translation of 0.3% .
Income from Operations. Income from operations was $201 million for the first quarter of 2019 , which were wholly incremental as a result of the DPS Merger, as net sales were reduced by SG&A expenses and cost of sales. SG&A expenses were primarily comprised of marketing investments and employee salaries. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs.
Adjusted Income from Operations. Adjusted income from operations increased $21 million , or 11.7% , to $201 million for the first quarter of 2019 compared with Adjusted pro forma income from operations of $180 million for the first quarter of 2018 . This performance reflected the growth in adjusted net sales and timing of marketing investments. On a percentage of Adjusted net sales basis, Adjusted operating income grew 400 bps versus the year ago period to 66.1% .
LATIN AMERICA BEVERAGES
The following table details our Latin America Beverages segment's net sales and income from operations for first quarter of 2019 and 2018 :
 
For the First Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
116

 
$
—

 
$
116

 
NM
Income from operations
11

 
—

 
11

 
NM
Adjusted net sales (1)
116

 
113

 
3

 
2.7
%
Adjusted income from operations (1)
12

 
12

 
—

 
—

Adjusted operating margin
10.3
%
 
10.6
%
 
 
 
(30 bps)

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. Sales volume for the first quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the first quarter of 2019 declined 3.3% due to the exit of our Aguafiel bulk water business, partially offset by growth of 1.2% in the balance of the portfolio, led by Squirt.
Net Sales. Net sales were $116 million for the first quarter of 2019 , which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales increased 2.7% to $116 million for the first quarter of 2019 compared with Adjusted pro forma net sales for the first quarter of 2018 , driven by higher net price realization of 4.1% from pricing actions taken in 2018 and favorable volume/mix of 1.0% , partially offset by unfavorable foreign currency translation of 2.4% .
Income from Operations . Income from operations was $11 million for the first quarter of 2019 , which was wholly incremental as a result of the DPS Merger, as net sales were reduced by cost of sales and SG&A expenses. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs. SG&A expenses were primarily comprised of logistics expense, employee salaries and marketing investments.
Adjusted Income from Operations. Adjusted income from operations of $12 million in the first quarter of 2019 was even with Adjusted pro forma income from operations in the first quarter of 2018 . This performance reflected the adjusted net sales performance offset by unfavorable foreign currency transaction and inflation on input costs, logistics and energy.

40

CRITICAL ACCOUNTING ESTIMATES
The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective or complex estimates and assessments. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. These critical accounting estimates are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2018.
LIQUIDITY AND CAPITAL RESOURCES
Trends and Uncertainties Affecting Liquidity
Customer and consumer demand for our products may be impacted by all risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, that could have a material effect on production, delivery and consumption of our products in the U.S., Mexico and the Caribbean or Canada, which could result in a reduction in our sales volume. Similarly, disruptions in financial and credit markets 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.
We believe that the following events, trends and uncertainties may also impact liquidity:
•
our intention to drive significant cash flow generation to enable rapid deleveraging within two to three years from the DPS Merger;
•
our ability to issue unsecured commercial paper notes ("Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $2,400 million;
•
our continued integration of DPS;
•
our continued payment of dividends;
•
our continued capital expenditures;
•
seasonality of our operating cash flows, which includes our payable extension program and structured payables, which could impact short-term liquidity;
•
fluctuations in our tax obligations;
•
future equity investments; and
•
future mergers or acquisitions of brand ownership companies, regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage.
Financing Arrangements
Refer to Note 7 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of financing arrangements.
Liquidity
Based on our current and anticipated level of operations, we believe that our operating cash flows 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 our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.
The following table summarizes our cash activity for the first quarter of 2019 and 2018 :
 
First Quarter
(in millions)
2019
 
2018
Net cash provided by operating activities
$
591

 
$
267

Net cash used in investing activities
(45
)
 
(26
)
Net cash used in financing activities
(556
)
 
(215
)

41

NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities increased $324 million for the first quarter of 2019 , as compared to the first quarter of 2018 , primarily due to additional cash flows from operations generated as a result of the DPS Merger.
Accounts payable program
The Company entered into agreements with third parties to allow participating suppliers to track payment obligations from the Company, and if elected, sell payment obligations from the Company to financial institutions.  Suppliers can sell one or more of the the Company's payment obligations at their sole discretion and the rights and obligations of the Company to its suppliers are not impacted. The Company has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.  The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted. As of March 31, 2019 and December 31, 2018 , $1,898 million and $1,676 million , respectively, of the Company's outstanding payment obligations are payable to suppliers who utilize these third party services.
NET CASH USED IN INVESTING ACTIVITIES
Cash used in investing activities for the first three months of 2019 consisted primarily of purchases of property, plant and equipment of $62 million .
Cash used in investing activities for the first three months of 2018 consisted primarily of purchases of property, plant and equipment of $20 million .
NET CASH USED IN FINANCING ACTIVITIES
Cash used in financing activities for the first quarter of 2019 consisted primarily of the voluntary and mandatory repayments on the term loan facility of $758 million , repayment of the 2019 Notes of $250 million , and dividend payments of $211 million . These cash outflows from financing activities were partially offset by net issuance of commercial paper of $594 million and net proceeds from structured payables of $69 million.
Net cash used in financing activities for the first quarter of 2018 consisted primarily of repayments on the term loan facility of $200 million and dividend payments of $11 million .
Debt Ratings
As of March 31, 2019 , our credit ratings were as follows:
Rating Agency
Long-Term Debt Rating
Commercial Paper Rating
Outlook
Date of Last Change
Moody's
Baa2
P-2
Negative
May 11, 2018
S&P
BBB
A-2
Stable
May 14, 2018
These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.
Capital Expenditures
Capital expenditures were $62 million and $20 million for the first quarter of 2019 and 2018 , respectively.
Capital expenditures for the first quarter of 2019 primarily related to machinery and equipment, portion pack manufacturing, logistics equipment, information technology infrastructure, and replacement of existing cold drink equipment.
Capital expenditures for the first quarter of 2018 primarily related to portion pack manufacturing and information technology infrastructure.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents was unchanged from December 31, 2018 to March 31, 2019 due to the Company's focus on utilizing cash for debt repayment.
Our cash balances are used to fund working capital requirements, scheduled debt and interest payments, capital expenditures, income tax obligations, dividend payments and business combinations. Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements in those jurisdictions allow. Foreign cash balances were $58 million and $59 million as of March 31, 2019 and December 31, 2018 , respectively. We accrue tax costs for repatriation, as applicable, as cash is generated in those foreign jurisdictions.

42

Contractual Commitments and Obligations
We enter into various contractual obligations that impact, or could impact, our liquidity. Based on our current and anticipated level of operations, we believe that our proceeds from operating cash flows combined with cash on hand and amounts available under our financing arrangements will be sufficient to meet our anticipated obligations.
The following table summarizes our contractual obligations and contingencies, as of March 31, 2019 , that have significantly changed from the amounts disclosed in our Annual Report:
 
Payments Due in Year
 (in millions)
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
After 2023
Long-term obligations (1)
$
13,800

 
$
75

 
$
350

 
$
2,350

 
$
350

 
$
3,950

 
$
6,725

Interest payments
5,290

 
507

 
522

 
487

 
441

 
356

 
2,977

Finance leases (2)
299

 
33

 
43

 
36

 
34

 
31

 
122

Operating leases (3)
409

 
50

 
64

 
55

 
44

 
35

 
161

Purchase obligations (4)
2,182

 
1,055

 
468

 
189

 
175

 
141

 
154

(1)
Amounts represent payments for the senior unsecured notes issued by us and the term loan credit agreement. Refer to Note 7 for additional information.
(2)
Amounts represent our contractual payment obligations for our lease arrangements classified as finance leases. These amounts exclude renewal options, which were not yet executed but were included in the lease term to determine finance lease obligation as the lease imposes a penalty on us in such amount that the renewal appeared reasonably assured at lease inception. Amounts exclude leases not yet commenced in accordance with ASC 842. Refer to Note 3 for additional information .
(3)
Amounts represent minimum rental commitments under our non-cancelable operating leases. Amounts exclude leases not yet commenced in accordance with ASC 842. Amounts previously recorded as financing obligations were reclassified within operating leases as a result of the adoption of ASC 842. Refer to Note 3 for additional information .
(4)
Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital obligations and long-term contractual obligations.
Through March 31, 2019 , there have been no other material changes to the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
OFF-BALANCE SHEET ARRANGEMENTS
There are no material changes in off-balance sheet arrangements from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the Notes to our Unaudited Condensed Consolidated Financial Statements for a discussion of recently issued accounting standards and recently adopted provisions of U.S. GAAP.
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the DPS Merger for the first quarter of 2018 , which was consummated on July 9, 2018, based on the historical results of operations of DPS and Maple. See Notes 1 and 2 of the Notes to our unaudited condensed consolidated financial statements for additional information on the DPS Merger.
The following unaudited pro forma condensed combined statement of income for the the first quarter of 2018 is based on the historical financial statements of Maple and DPS after giving effect to the DPS Merger, related equity investments, and the assumptions and adjustments described in the accompanying notes to this unaudited pro forma condensed combined statement of income. The Maple statement of income information for the the first quarter of 2018 was derived from the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. The DPS statement of income information for the first quarter of 2018 was derived from its unaudited condensed consolidated financial statements included in our Form 10-Q dated April 25, 2018. The unaudited pro forma condensed combined statement of income is presented as if the DPS Merger had been consummated on December 31, 2016, and combine the historical results of Maple and DPS.

43

The unaudited pro forma condensed combined statements of income set forth below primarily give effect to the following assumptions and adjustments:
• Application of the acquisition method of accounting;
• The issuance of Maple common stock to JAB in connection with the equity investments;
• The conversion of Maple Parent Corporation into KDP shares in accordance with the Merger Agreement;
• The pre-closing Maple share conversion;
• The exchange of one share of KDP common stock for each share of DPS common stock;
• The change in year-end for Maple; and
• The alignment of accounting policies.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. We utilized estimated fair values at the Merger Date for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. During the measurement period, we will continue to obtain information to assist in determining the fair value of net assets acquired, which may differ materially from these preliminary estimates.
The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11 and is not necessarily indicative of the results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of our anticipated combined future results. In addition, the accompanying unaudited pro forma condensed combined statements of income do not reflect any anticipated synergies, operating efficiencies, cost savings or any integration costs that may result from the DPS Merger.
The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed combined statements of income to give effect to unaudited pro forma events that are (1) directly attributable to the DPS Merger, (2) factually supportable and (3) are expected to have a continuing impact on the results of operations of KDP. As a result, under SEC Regulation S-X Article 11, certain expenses such as transaction costs and costs associated with the impact of the step-up of inventory are eliminated from pro forma results in all periods presented. In contrast, under the U.S. GAAP presentation in Note 2,  Acquisitions and Investments in Unconsolidated Affiliates , these expenses are required to be included in the pro forma results for the year ended December 31, 2017. See Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information.
The unaudited pro forma condensed combined financial information, including the related notes, should be read in conjunction with the historical consolidated financial statements and related notes of DPS, and with our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.


44

Keurig Dr Pepper Inc.
Pro Forma Condensed Combined Statement of Income
For the First Quarter of 2018
(Unaudited)
(in millions, except per share data)
Reported KDP (1)
 
DPS First Quarter of 2018 (2)
 
Reclassifications
 
Pro Forma Adjustments (3)
 
Pro Forma Combined
Net sales
$
948

 
$
1,594

 
$
—

 
$
(13
)
 
$
2,529

Cost of sales
467

 
681

 
—

 
(13
)
 
1,135

Gross profit
481

 
913

 
—

 
—

 
1,394

Selling, general and administrative expenses
300

 
626

 
27

 
(49
)
 
904

Depreciation and amortization
—

 
27

 
(27
)
 
—

 
—

Other operating income, net
3

 
1

 
—

 
2

 
6

Income from operations
178

 
259

 
—

 
47

 
484

Interest (income) expense
(2
)
 
41

 
—

 
106

 
145

Interest expense - related party
25

 
—

 
—

 
(25
)
 
—

Interest income
—

 
(1
)
 
1

 
—

 
—

Loss on early extinguishment of debt
2

 
—

 
—

 
—

 
2

Other expense, net
13

 
—

 
5

 
(1
)
 
17

Income before provision for income taxes
140

 
219

 
(6
)
 
(33
)
 
320

Provision for income taxes
51

 
54

 
—

 
(7
)
 
98

Income before equity in loss of unconsolidated affiliates
89

 
165

 
(6
)
 
(26
)
 
222

Equity in loss of unconsolidated affiliates, net of tax
—

 
(6
)
 
6

 
—

 
—

Net income
89

 
159

 
—

 
(26
)
 
222

Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards
1

 
—

 
—

 
(1
)
 
—

Net income attributable to KDP
$
88

 
$
159

 
$
—

 
$
(25
)
 
$
222

Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
0.11

 
$
0.88

 
 
 
 
 
$
0.16

Diluted
0.11

 
0.88

 
 
 
 
 
0.16

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
790.5

 
179.9

 
 
 
416.1

 
1,386.5

Diluted
790.5

 
180.8

 
 
 
415.2

 
1,386.5

(1)
Refer to the Statements of Income .
(2)
Refers to DPS's activity during the the first quarter of 2018 . Refer to our Quarterly Report on Form 10-Q as filed on April 25, 2018.
(3)
Refer to Summary of Pro Forma Adjustments .


45

Keurig Dr Pepper Inc.
Reconciliation of Pro Forma Segment Information
(Unaudited)
(in millions)
Reported KDP (1)
 
DPS First Quarter of 2018 (2)
 
Pro Forma Adjustments (3)
 
Pro Forma Combined
For the First Quarter of 2018
 
 
 
 
 
 
 
Net Sales
 
 
 
 
 
 
 
Coffee Systems
$
948

 
$
—

 
$
—

 
$
948

Packaged Beverages
—

 
1,178

 
—

 
1,178

Beverage Concentrates
—

 
303

 
(13
)
 
290

Latin America Beverages
—

 
113

 
—

 
113

Total net sales
$
948

 
$
1,594

 
$
(13
)
 
$
2,529

 
 
 
 
 
 
 
 
Income from Operations
 
 
 
 
 
 
 
Coffee Systems
$
254

 
$
—

 
$
—

 
$
254

Packaged Beverages
—

 
149

 
9

 
158

Beverage Concentrates
—

 
194

 
(14
)
 
180

Latin America Beverages
—

 
12

 
—

 
12

Unallocated corporate costs
(76
)
 
(96
)
 
52

 
(120
)
Total income from operations
$
178

 
$
259

 
$
47

 
$
484

(1)
Refer to the Statements of Income .
(2)
Refers to DPS's activity during the the first quarter of 2018 . Refer to our Quarterly Report on Form 10-Q as filed on April 25, 2018.
(3)
Refer to Summary of Pro Forma Adjustments .
Summary of Pro Forma Adjustments
Pro forma adjustments included in the Pro Forma Condensed Combined Statements of Income are as follows:
a.
A decrease in Net sales to remove the historical deferred revenue associated with DPS' arrangements with PepsiCo, Inc. and The Coca-Cola Company, which were eliminated in the fair value adjustments for DPS as part of purchase price accounting.
b.
An increase in Net sales to remove the historical amortization of certain capitalized upfront customer incentive program payments. These were eliminated in the fair value adjustments for DPS as these upfront payments were revalued within the customer relationship intangible assets recorded in purchase price accounting.
c.
Adjustment to remove the impact of the step-up of inventory recorded in purchase price accounting.
d.
Adjustments to SG&A expenses due to changes in amortization as a result of the fair value adjustments for DPS' intangible assets with definite lives as part of purchase price accounting.
e.
Adjustments to SG&A expenses due to changes in depreciation as a result of the fair value adjustments for DPS' property, plant and equipment as part of purchase price accounting.
f.
A decrease to SG&A expenses for both DPS and Maple to remove non-recurring transaction costs as a result of the DPS Merger.
g.
Removal of the Interest expense - related party caption for Maple, as the related party debt was capitalized into Additional paid-in capital immediately prior to the DPS Merger.
h.
Adjustments to Interest expense to remove the historical amortization of deferred debt issuance costs, discounts and premiums and to record incremental amortization as a result of the fair value adjustments for DPS' senior unsecured notes as part of purchase price accounting.
i.
Adjustments to Interest expense to record incremental interest expense and amortization of deferred debt issuance costs for borrowings related to the DPS Merger.
j.
Removal of the Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards caption as the Maple non-controlling interest was eliminated to reflect the capital structure of KDP.



46

Summary of Reclassifications
Reclassifications included in the Pro Forma Condensed Combined Statements of Income for the the first quarter of 2018 are as follows:
a.
Foreign currency transaction gains and losses were reclassified from Cost of sales and SG&A expenses in the historical DPS Statements of Income to Other (income) expense, net.
b.
Depreciation and amortization expenses were reclassified from Depreciation and amortization in the historical DPS Statements of Income to SG&A expenses.
c.
Interest income was reclassified from Interest income in the historical DPS Statements of Income to Other (income) expense, net.
NON-GAAP FINANCIAL MEASURES
To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented in this report selected unaudited pro forma combined financial information. We also present for the first quarter of 2019 (i) Adjusted net sales, (ii) Adjusted income from operations, (iii) Adjusted net income and (iv) Adjusted diluted EPS and for the first quarter of 2018 (i) Adjusted pro forma net sales, (ii) Adjusted pro forma income from operations, (iii) Adjusted pro forma net income and (iv) Adjusted pro forma diluted EPS, which are considered non-GAAP financial measures. This pro forma financial information and non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. The adjusted measures are not substitutes for their comparable U.S. GAAP financial measures, such as net sales, income from operations, net income, diluted EPS, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.
For the first quarter of 2019, we define our Adjusted non-GAAP financial measures as certain financial statement captions and metrics adjusted for certain items affecting comparability, while for the first quarter of 2018, we define our Adjusted non-GAAP financial measures as certain pro forma financial statement captions and metrics adjusted for certain items affecting comparability. The items affecting comparability are defined below.
Items affecting comparability : Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP and do not have an offsetting risk reflected within the financial results; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger and Maple's acquisition of Keurig Green Mountain, Inc. in 2016 (the "Keurig Acquisition"); (iv) stock compensation expense attributable to the matching awards made to employees who made an initial investment in the Keurig Green Mountain, Inc. Executive Ownership Plan or the Keurig Dr Pepper Omnibus Incentive Plan of 2009; and (v) other certain items that are excluded for comparison purposes to prior year periods.
For the first quarter of 2019 , the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to the DPS Merger and the Keurig Acquisition; (ii) productivity expenses; (iii) transaction costs not associated with the DPS Merger; (iv) provision for legal settlements; (v) the impact of the step-up of acquired inventory not associated with the DPS Merger (vi) the loss on early extinguishment of debt related to the redemption of debt and (vii) the loss related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment, as discussed in our Annual Report on Form 10-K.
For the first quarter of 2018 , the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to the DPS Merger and the Keurig Acquisition; (ii) productivity expenses; (iii) provisions for legal settlements; and (iv) the loss on early extinguishment of debt related to the redemption of debt; and (v) tax reform associated with the TCJA.
For the first quarter of 2019, the supplemental financial data set forth below includes reconciliations of Adjusted net sales, Adjusted income from operations, Adjusted net income and Adjusted diluted EPS to the applicable financial measure presented in the unaudited condensed consolidated financial statement for the same period. For the first quarter of 2018, the supplemental financial data set forth below includes reconciliations of Adjusted pro forma net sales, Adjusted pro forma income from operations, Adjusted pro forma net income and Adjusted pro forma diluted EPS to the applicable financial measure presented in the unaudited pro forma condensed combined financial statements for the same period. For a reconciliation of the applicable financial measure presented in the unaudited pro forma condensed combined financial statement for the first quarter of 2018 to the applicable historical financial measure presented in accordance with U.S. GAAP, please see "Supplemental Unaudited Pro Forma Condensed Combined Financial Information" above.


47

KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS
(Unaudited, in millions, except per share data)
 
For the First Quarter of 2019
 
 
 
 
 
Amortization of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported
 
Mark to Market
 
Intangibles
 
Deferred Financing Costs
 
Stock Compensation
 
Restructuring and Integration Expenses
 
Productivity
 
Transaction Costs
 
Loss on Early Payment of Debt
 
Inventory Step-Up
 
Provision for Settlements
 
Malware Incident
 
Adjusted GAAP
Cost of sales
$
1,106

 
$
(12
)
 
$
—

 
$
—

 
$
—

 
$
(1
)
 
$
(3
)
 
$
—

 
$
—

 
$
(3
)
 
$
—

 
$
(2
)
 
$
1,085

Gross profit
1,398

 
12

 
—

 
—

 
—

 
1

 
3

 
—

 
—

 
3

 
—

 
2

 
1,419

Gross margin
55.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 
56.7
%
Selling, general and administrative expenses
$
911

 
$
12

 
$
(31
)
 
$
—

 
$
(7
)
 
$
(60
)
 
$
(6
)
 
$
—

 
$
—

 
$
—

 
$
(7
)
 
$
(3
)
 
$
809

Income from operations
498

 
—

 
31

 
—

 
7

 
61

 
9

 
—

 
—

 
3

 
7

 
5

 
621

Operating margin
19.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24.8
%
Interest expense
$
169

 
$
(29
)
 
$
—

 
$
(4
)
 
$
—

 
$
—

 
$
—

 
$
(5
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
131

Loss on early extinguishment of debt
9

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(9
)
 
—

 
—

 
—

 
—

Other expense, net
5

 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7

Income before provision for income taxes
315

 
27

 
31

 
4

 
7

 
61

 
9

 
5

 
9

 
3

 
7

 
5

 
483

Provision for income taxes
85

 
7

 
8

 
1

 
2

 
15

 
2

 
1

 
2

 
1

 
2

 
1

 
127

Effective tax rate
27.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26.3
%
Net income
$
230

 
$
20

 
$
23

 
$
3

 
$
5

 
$
46

 
$
7

 
$
4

 
$
7

 
$
2

 
$
5

 
$
4

 
$
356

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EPS
Diluted earnings per common share
$
0.16

 


 


 


 


 


 


 


 


 


 


 


 
$
0.25

Shares
1,417.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,417.7



48

KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS
(Unaudited, in millions, except per share data)
 
For the First Quarter of 2018
 
 
 
 
 
Amortization of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma
 
Mark to Market
 
Intangibles
 
Deferred Financing Costs
 
Stock Compensation
 
Restructuring & Integration Expenses
 
Productivity
 
Provision for Settlements
 
Loss on Early Payment of Debt
 
Tax Reform
 
Adjusted
Net sales
$
2,529

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
4

 
$
—

 
$
—

 
$
2,533

Cost of sales
1,135

 
(14
)
 
—

 
—

 
—

 
—

 
(4
)
 
—

 
—

 
—

 
1,117

Gross profit
1,394

 
14

 
—

 
—

 
—

 
—

 
4

 
4

 
—

 
—

 
1,416

Gross margin
55.1
%
 


 


 


 


 


 


 


 


 


 
55.9
%
Selling, general and administrative expenses
$
904

 
$
—

 
$
(28
)
 
$
—

 
$
(6
)
 
$
(6
)
 
$
(14
)
 
$
2

 
$
—

 
$
—

 
$
852

Other operating income, net
6

 
—

 
—

 
—

 
—

 
—

 
(4
)
 
—

 
—

 
—

 
2

Income from operations
484

 
14

 
28

 
—

 
6

 
6

 
22

 
2

 
—

 
—

 
562

Operating margin
19.1
%
 


 


 


 


 


 


 


 


 


 
22.2
%
Interest expense
$
145

 
$
27

 
$
—

 
$
(1
)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
171

Loss on early extinguishment of debt
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

 
—

Other (income) expense, net
17

 
4

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
21

Income before provision for income taxes
320

 
(17
)
 
28

 
1

 
6

 
6

 
22

 
2

 
2

 
—

 
370

Provision for income taxes
98

 
(4
)
 
7

 
1

 
2

 
—

 
6

 
—

 
—

 
(3
)
 
107

Effective tax rate
30.6
%
 


 


 


 


 


 


 


 


 


 
28.9
%
Net income
$
222

 
$
(13
)
 
$
21

 
$
—

 
$
4

 
$
6

 
$
16

 
$
2

 
$
2

 
$
3

 
$
263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma Adjusted EPS
Diluted earnings per common share
$
0.16

 


 


 


 


 


 


 


 


 


 
$
0.19

Shares
1,386.50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,386.5




49

KEURIG DR PEPPER INC.
RECONCILIATION OF SEGMENT ITEMS TO CERTAIN NON-GAAP ADJUSTED SEGMENT ITEMS
(Unaudited)
(in millions)
Reported
 
Items Affecting Comparability
 
Adjusted GAAP
For the First Quarter of 2019
 
 
 
 
 
Net Sales
 
 
 
 
 
Coffee Systems
$
968

 
$
—

 
$
968

Packaged Beverages
1,116

 
—

 
1,116

Beverage Concentrates
304

 
—

 
304

Latin America Beverages
116

 
—

 
116

Total net sales
$
2,504

 
$
—

 
$
2,504

 
 
 
 
 
 
Income from Operations
 
 
 
 
 
Coffee Systems
$
293

 
$
42

 
$
335

Packaged Beverages
149

 
11

 
160

Beverage Concentrates
201

 
—

 
201

Latin America Beverages
11

 
1

 
12

Unallocated corporate costs
(156
)
 
69

 
(87
)
Total income from operations
$
498

 
$
123

 
$
621

(in millions)
Pro Forma
 
Items Affecting Comparability
 
Adjusted Pro Forma
For the First Quarter of 2018
 
 
 
 
 
Net Sales
 
 
 
 
 
Coffee Systems
$
948

 
$
4

 
$
952

Packaged Beverages
1,178

 
—

 
1,178

Beverage Concentrates
290

 
—

 
290

Latin America Beverages
113

 
—

 
113

Total net sales
$
2,529

 
$
4

 
$
2,533

 
 
 
 
 
 
Income from Operations
 
 
 
 
 
Coffee Systems
$
254

 
$
58

 
$
312

Packaged Beverages
158

 
2

 
160

Beverage Concentrates
180

 
—

 
180

Latin America Beverages
12

 
—

 
12

Unallocated corporate costs
(120
)
 
18

 
(102
)
Total income from operations
$
484

 
$
78

 
$
562




50

ITEM 3. 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 rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading.
FOREIGN EXCHANGE RISK
The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As of March 31, 2019 , 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 of approximately $40 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. As of March 31, 2019 , we had derivative contracts outstanding with a notional value of $386 million maturing at various dates through September 25, 2024.
INTEREST RATE RISK
We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable rate debt. As of March 31, 2019 , the carrying value of our fixed-rate debt, excluding lease obligations, was $11,778 million and our variable-rate debt was $3,486 million , inclusive of commercial paper.
Additionally, as of March 31, 2019 , the total notional value of receive-fixed, pay-variable interest rate swaps was $970 million and the total notional value of receive-variable, pay-fixed interest rate swaps was $1,075 million .
The following table is an estimate of the impact to our interest rate expense based upon our variable rate debt and derivative instruments and the fair value of the interest rate swaps that could result from hypothetical interest rate changes during the term of the financial instruments, based on debt levels as of March 31, 2019 :
 
 
 
Hypothetical Change in Interest Rates (1)
 
Annual Impact to Interest Expense
1-percent decrease
 
$34 million decrease
1-percent increase
 
$34 million increase
(1)
We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of certain derivative instruments and variable rate debt instruments. See Notes 7 and 8 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
COMMODITY RISKS
We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of coffee beans, PET, aluminum, diesel fuel, corn (for high fructose corn syrup), apple juice concentrate, apples, sucrose and natural gas (for use in processing and packaging).
We utilize commodities derivative instruments and supplier pricing agreements to hedge the risk of adverse movements in commodity prices for limited time periods for certain commodities. The fair market value of these contracts as of March 31, 2019 was a net liability of $27 million .
As of March 31, 2019 , the impact of a 10% change (up or down) in market prices for these commodities where the risk of adverse movements has not been hedged is estimated to have a $12 million impact to our income from operations for the year ending December 31, 2019 .

51

ITEM 4. Controls and Procedures
Evaluation of Disclosure 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 March 31, 2019 , our disclosure controls and procedures 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 the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
As described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018 , the DPS Merger was completed on July 9, 2018, and represented a change in internal control over financial reporting. Management continues to consolidate and integrate KDP’s system of controls. The processes and controls for significant areas including business combinations, intangibles and goodwill valuations, income taxes, treasury, consolidations and the preparation of financial statements and related disclosures, and entity level controls have been substantially impacted by the ongoing integration activities. The primary changes in these areas are related to the consolidation of process owner leadership and control owners, and where required, the modification of inputs, processes and associated systems. For all areas of change noted, management believes the control design and implementation thereof are being appropriately modified to address underlying risks. The above ongoing integration activities to KDP’s internal control over financial reporting are reasonably likely to materially affect KDP’s internal control over financial reporting in 2019.
In addition, the Company adopted ASC 842 as of January 1, 2019. The Company implemented a new IT system and internal controls related to the process of gathering, recording, accounting for and disclosing leases under the new standard.
There were no other changes during the quarter ended March 31, 2019 that have materially affected, or reasonably likely to materially affect, our internal controls over financial reporting.

52

PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
We are occasionally subject to litigation or other legal proceedings relating to our business.
See Note 14 of the Notes to our Unaudited Condensed Consolidated Financial Statements for more information related to commitments and contingencies, which is incorporated herein by reference.

BA Sports Nutrition Litigation
On March 6, 2019, The American Bottling Company ("ABC"), a subsidiary of KDP, filed suit against BA Sports Nutrition, LLC ("BA") and Mike Repole in the Superior Court for the State of Delaware. The complaint asserts claims for breach of contract and promissory estoppel against BA and asserts a claim for tortious interference against Mr. Repole, in each case in connection with BA's attempted early termination of the distribution contract between BA and ABC. The complaint seeks monetary damages, attorneys' fees and costs. ABC intends to vigorously prosecute the action. The Company is unable to predict the outcome of the lawsuit, the potential recovery, if any, associated with the resolution of the lawsuit or any potential effect it may have on the Company or its operations.
ITEM 1A. Risk Factors
There have been no material changes that we are aware of from the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 .

53

ITEM 6. Exhibits
Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions 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 on May 5, 2008) and incorporated herein by reference).
Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger 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).
Amendment No. 1, dated as of January 31, 2017, to the Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K (filed on January 31, 2017) and incorporated herein by reference).
Agreement and Plan of Merger, dated as of January 29, 2018, by and among Dr Pepper Snapple Group, Inc., Maple Parent Holdings Corp. and Salt Merger Sub, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (filed on January 31, 2018) and incorporated herein by reference).
Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
Certificate 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).
Certificate of Second Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 19, 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).
Certificate of Third Amendment to the Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of July 9, 2018 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 9, 2018) and incorporate herein by reference).
Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc. effective as of January 25, 2016 (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K (filed January 25, 2016) and incorporated herein by reference).
Amended and Restated By-Laws of Keurig Dr Pepper Inc. effective as of July 9, 2018 (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K (filed July 9, 2018) and incorporated herein by reference.
Indenture, dated April 30, 2008, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A. (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
Form of 7.45% Senior Notes due 2038 (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
Registration Rights Agreement, dated April 30, 2008, between Dr Pepper Snapple Group, Inc., J.P. Morgan Securities Inc., Banc of America Securities LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, UBS Securities LLC, BNP Paribas Securities Corp., Mitsubishi UFJ Securities International plc, Scotia Capital (USA) Inc., SunTrust Robinson Humphrey, Inc., Wachovia Capital Markets, LLC and TD Securities (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 by reference).
Registration Rights Agreement Joinder, dated May 7, 2008, by the subsidiary guarantors named therein (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
Supplemental Indenture, dated May 7, 2008, among Dr Pepper Snapple Group, Inc., the subsidiary guarantors named therein and Wells Fargo 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 incorporated herein by reference).
Second Supplemental Indenture dated March 17, 2009, to be effective as of December 31, 2008, among Splash Transport, Inc., as a subsidiary guarantor, Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K (filed on March 26, 2009) and incorporated herein by reference).
Third 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).
Fourth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184 Innovations Inc., a Delaware corporation (each as a new subsidiary guarantors under the Indenture dated April 30, 2008 (as referenced in Item 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 incorporated herein by reference).
Indenture, dated as of December 15, 2009, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
Second Supplemental Indenture, dated as of January 11, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells 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) and incorporated herein by reference).
Third Supplemental Indenture, dated as of November 15, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells 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) and incorporated herein by reference).

54

2.60% Senior Note due 2019 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
3.20% Senior Note due 2021 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
Fourth Supplemental Indenture, dated as of November 20, 2012, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells 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) and incorporated herein by reference).
2.00% Senior Note due 2020 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
2.70% Senior Note due 2022 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
Fifth Supplemental Indenture, dated as of November 9, 2015, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo 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) and incorporated herein by reference).
3.40% 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 the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
4.50% 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 the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
Sixth Supplemental Indenture, dated as of September 16, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells 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) and incorporated herein by reference).
2.55% 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 the Company's Current Report on Form 8-K (filed on September 16, 2016) and incorporated herein by reference).
Seventh Supplemental Indenture, dated as of December 14, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells 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) and incorporated herein by reference).
2.53% 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 the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
3.13% 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 the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
3.43% 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 the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
4.42% 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 the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
Eighth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184 Innovations Inc., a Delaware corporation (each as a new subsidiary guarantor under the Indenture dated April 30, 2008 (as referenced in Item 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 on February 2, 2017) and incorporated herein by reference).
Ninth Supplemental Indenture, dated as of June 15, 2017, among Dr Pepper Snapple Group, Inc., the guarantors party thereto, and Wells Fargo 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 incorporated herein by reference).
Investor Rights Agreement by and among Keurig Dr Pepper Inc. and The Holders Listed on Schedule A thereto, dated as of July 9, 2018 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Base Indenture, dated as of May 25, 2018 between Maple Escrow Subsidiary and Wells Fargo Bank, N.A. as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
First Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2021 Notes (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).

55

Second Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2023 Notes (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Third Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2025 Notes (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Fourth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2028 Notes (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Fifth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2038 Notes (filed as Exhibit 4.6 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Sixth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2048 Notes (filed as Exhibit 4.7 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Seventh Supplemental Indenture, dated as of July 9, 2018, among Keurig Dr Pepper Inc., the subsidiary guarantors thereto, and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Registration Rights Agreement, dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representative of the several purchasers of the Notes (filed as Exhibit 4.9 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Joinder to the Registration Rights Agreement, dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representative of the several purchasers of the Notes (filed as Exhibit 4.10 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Term Loan Agreement, dated as of February 28, 2018, among Maple Parent Holdings Corp., the banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Term Loan Agreement, dated as of February 8, 2019, among Keurig Dr Pepper Inc., the banks party thereto and JPMorgan Chase, Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on February 11, 2019) and incorporated herein by reference).
Credit Agreement, dated as of February 28, 2018, among Maple Parent Holdings Corp., the banks and issuers of credit party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Borrower Joinder (Term Loan Agreement), dated as of July 9, 2018, among Keurig Dr Pepper Inc., Maple Parent Holdings Corp. and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Borrower Joinder (Credit Agreement), dated as of July 9, 2018, among Keurig Dr Pepper Inc., Maple Parent Holdings Corp. and JPMorgan Chase Bank, N.A. as administrative agent (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Amended and Restated Employment Agreement, dated as of July 2, 2018, by and between Keurig Green Mountain, Inc. and Robert J. Gamgort (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Employment Agreement, dated as of April 12, 2016, by and between Keurig Green Mountain, Inc. and Ozan Dokmecioglu (filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Matching Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Directors' Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.

56

Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101*
The following financial information from Keurig Dr Pepper Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the first quarter of 2019 and 2018, (ii) Condensed Consolidated Statements of Comprehensive Income for the first quarter of 2019 and 2018, (iii) Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the first quarter of 2019 and 2018, (v) Condensed Consolidated Statement of Changes in Stockholders' Equity for the first quarter of 2019 and 2018, and (vi) the Notes to Condensed Consolidated Financial Statements.
* Filed herewith.
** Furnished herewith.
++ Indicates a management contract or compensatory plan or arrangement.


57

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
Keurig Dr Pepper Inc.
 
 
 
 
 
 
 
By:
 
/s/ Ozan Dokmecioglu
 
 
 
 
 
 
Name:
 
Ozan Dokmecioglu
 
 
Title:
 
Chief Financial Officer of Keurig Dr Pepper Inc.
 
 
 
 
(Principal Financial Officer)
 
Date: May 9, 2019
 
 
 
 


58
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