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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
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or
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|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|
For the transition period from to
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Delaware
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98-0517725
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(State or other jurisdiction of
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(I.R.S. employer
|
incorporation or organization)
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|
identification number)
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5301 Legacy Drive, Plano, Texas
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75024
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(Address of principal executive offices)
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(Zip code)
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Title of Each Class
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Name of Each Exchange on Which Registered
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COMMON STOCK, $0.01 PAR VALUE
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|
NEW YORK STOCK EXCHANGE
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Large Accelerated Filer
x
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Accelerated Filer
o
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Non-Accelerated Filer
o
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Smaller Reporting Company
o
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Emerging Growth Company
o
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Page
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||
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Item 10.
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Directors, Executive Officers of the Registrant and Corporate Governance
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Item 11.
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Executive Compensation
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related Transactions and Director Independence
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Item 14.
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Principal Accounting Fees and Services
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||
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•
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stockholders may not approve the Stockholder Approvals;
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•
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regulatory and required approvals in connection with the Transaction may not be obtained on the proposed terms or on the anticipated schedule;
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•
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conditions of the Transaction may not be satisfied or waived;
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•
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legal proceedings or governmental inquiries in connection with the Transaction could delay or prevent the completion of the Transaction;
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•
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DPS stockholders will have a minority ownership and voting interest after the Transaction and exercise less influence;
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•
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the composition of the DPS Board of Directors (our "Board") will change following the Transaction;
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•
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the Company will be a "controlled company" following the Transaction and will rely on exemptions from certain corporate governance requirements, including having fewer independent directors on its board of directors or board committees following the Transaction;
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•
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the Merger Agreement may be terminated in accordance with its terms and the Transaction may not be consummated;
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•
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failure to consummate the Transaction could negatively impact DPS and its future operations;
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•
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business uncertainties and certain operating restrictions will exist for both DPS and Keurig until consummation of the Transaction;
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•
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restrictions on DPS' ability to pursue other alternatives to the Transaction;
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•
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DPS stockholders' investment could be materially and adversely affected if the due diligence of Keurig was inadequate or if unexpected risks related to Keurig materialize;
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•
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expected combination benefits from the Transaction may not be fully-realized;
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•
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integration of the combined businesses of DPS and Keurig may not be successful or may be more challenging than anticipated;
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•
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the diversion of management's attention to the completion of the Transaction and the integration of the DPS and Keurig businesses may reduce management's ability to devote sufficient time to the Company's business and operations prior to and after the Transaction;
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•
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the announcement of the Transaction may lead to the departure of key personnel;
|
•
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downgrade of DPS' credit rating below investment grade could occur;
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•
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Maple Parent and DPS will incur direct and indirect costs as a result of the Transaction;
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•
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restrictions on DPS from indebtedness agreements in connection with the Transaction may affect business operations;
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•
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additional risks associated with the coffee and appliance business and operations in new geographical regions;
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•
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changes in consumer preferences, trends and health concerns;
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•
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maintaining our relationships with our allied brand owners;
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•
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changes in the cost of commodities used in our business;
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•
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the impact of new or proposed beverage taxes or regulations on our business;
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•
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our ability to successfully integrate and manage our acquired businesses or brands;
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•
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dependence on third party bottling and distribution companies;
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•
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maintaining our relationships with our large retail customers;
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•
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operating in highly competitive markets and our ability to compete with companies with significant financial resources;
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•
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future impairment of our goodwill and other intangible assets;
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•
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the need to service our debt;
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•
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fluctuations in foreign currency exchange rates;
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•
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disruptions to our information systems and third-party service providers;
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•
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increases in the cost of employee benefits;
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•
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recession, financial and credit market disruptions and other economic conditions;
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•
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litigation claims or legal proceedings against us;
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•
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shortages of materials used in our business;
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•
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substantial disruption at our manufacturing or distribution facilities;
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•
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failure to comply with governmental regulations in the countries in which we operate;
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•
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weather, natural disasters, climate changes and the availability of water;
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•
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our products meeting health and safety standards or contamination of our products;
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•
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fluctuations in our tax obligations;
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•
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strikes or work stoppages;
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•
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infringement of our intellectual property rights by third parties, intellectual property claims against us or adverse events regarding licensed intellectual property;
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•
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the need for substantial investment and restructuring at our manufacturing, distribution and other facilities;
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•
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our ability to retain or recruit qualified personnel; and
|
•
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other factors discussed in Item 1A, "Risk Factors" under "Risks Related to Our Current DPS Business" and elsewhere in this Annual Report on Form 10-K.
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•
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#1 flavored CSD company
(1)
in the U.S.
|
•
|
Approximately 83% of our bottler case sales ("BCS") volume from brands that are either #1 or #2 in their category
(1)
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•
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#3 North American liquid refreshment beverage ("LRB") business
(1)
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•
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$6.7 billion of net sales in 2017 from the U.S. (90%), Mexico and the Caribbean (7%) and Canada (3%)
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•
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#1 in its flavor category and #2 overall flavored CSD in the U.S.
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•
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Distinguished by its unique blend of 23 flavors and loyal consumer following
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•
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Flavors include regular, diet, cherry and Dr Pepper TEN
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•
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Oldest major soft drink in the U.S., introduced in 1885
|
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•
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#1 ginger ale in the U.S. and Canada, which includes regular, diet and Canada Dry TEN
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•
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Brand also includes club soda, tonic, sparkling water and other mixers
|
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•
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Created in Toronto, Canada in 1904 and introduced in the U.S. in 1919
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|
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•
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#2 lemon-lime CSD in the U.S.
|
•
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Flavors include regular, diet, cherry and 7UP TEN
|
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•
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The original "Un-Cola," created in 1929
|
|
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•
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#1 root beer in the U.S.
|
•
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Flavors include regular, diet, A&W TEN and cream soda
|
|
•
|
A classic all-American beverage first sold at a veteran's parade in 1919
|
|
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|
|
•
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#1 carbonated mineral water brand in Mexico
|
•
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Brand includes unflavored mineral water, Limeade, Orangeade, Grapefruitade, Strawberryade, Twist and Flavors
|
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•
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Mexico's oldest mineral water, created in 1948
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•
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#1 grapefruit CSD in the U.S. and a leading grapefruit CSD in Mexico
|
•
|
Founded in 1938
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|
|
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•
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#2 ginger ale in the U.S. and Canada
|
•
|
Brand includes club soda, tonic, sparkling water and other mixers
|
|
•
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First carbonated beverage in the world, invented in 1783
|
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|
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•
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#2 premium shelf-stable ready to drink tea in the U.S.
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•
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A full range of premium, flavored tea products including regular and diet offerings, as well as unflavored Straight Up Tea
|
|
•
|
Brand also includes premium juices and juice drinks
|
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•
|
Founded in Brooklyn, New York in 1972
|
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•
|
#4 enhanced water brand in the U.S. and one of the fastest-growing LRB brands in the U.S.
|
•
|
Bai, Bai Cocofusion and Bai Bubbles lines offer fresh fruit flavor and antioxidants.
|
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•
|
Bai Supertea is an antioxidant-infused real brewed tea.
|
|
•
|
Created in 2008
|
|
•
|
#1 branded multi-serve apple juice and apple sauce brand in the U.S.
|
•
|
Juice products include apple and other fruit juices and Mott's for Tots
|
|
•
|
Apple sauce products include regular, unsweetened and flavored
|
|
•
|
Brand began as a line of apple cider and vinegar offerings in 1842
|
|
•
|
A leading spicy tomato juice brand in the U.S., Canada and Mexico that ranks as the #1 shelf stable vegetable juice brand in the U.S.
|
•
|
Key ingredient in the popular Mexican drink, the Michelada, and Canada’s national drink cocktail, the Bloody Caesar
|
|
•
|
Brand includes a variety of flavors, Original, Picante, Lime, Camarón, Vuelve a la Vida, Cubano and Preparado (the Works)
|
|
•
|
Created in 1969
|
In addition, we are significantly impacted by changes in fuel costs, which can also fluctuate substantially, due to the large truck fleet we operate in our distribution businesses.
Under many of our supply arrangements for these raw materials, the price we pay fluctuates along with certain changes in underlying commodities costs, such as aluminum in the case of cans, natural gas in the case of glass bottles, resin in the case of PET bottles and caps, corn in the case of sweeteners and pulp in the case of paperboard packaging. When appropriate, we mitigate the exposure to volatility in the prices of certain commodities used in our production process through the use of forward contracts and supplier pricing agreements. The intent of the contracts and agreements is to provide a certain level of short-term predictability in our operating margins and our overall cost structure, while remaining in what we believe to be a competitive cost position.
|
|
•
|
eight directors will be appointed by Maple Parent's stockholders, including Keurig's current Chief Executive Officer;
|
•
|
two directors will be appointed by DPS, including our current President and Chief Executive Officer; and
|
•
|
two independent directors will be mutually agreed upon by Maple Parent and DPS.
|
•
|
the diversion of management attention to integration matters;
|
•
|
difficulties in integrating operations and systems, including intellectual property and communications systems;
|
•
|
challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
|
•
|
difficulties in assimilating employees and in attracting and retaining key personnel;
|
•
|
challenges in keeping existing customers and obtaining new customers;
|
•
|
difficulties in achieving anticipated synergies, business opportunities and growth prospects from the combination;
|
•
|
difficulties in managing the expanded operations of a significantly larger and more complex company;
|
•
|
the transition of management of the combined company from DPS' executive management team to Keurig's executive management team who has limited experience with operating a LRB business;
|
•
|
integrating the companies' financial reporting and internal control systems, including compliance by the combined company with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated by the SEC;
|
•
|
the impact of the additional debt financing expected to be incurred in connection with the Transaction;
|
•
|
contingent liabilities that are larger than expected; and
|
•
|
potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Transaction.
|
|
Packaged
|
|
Beverage
|
|
Latin America
|
|
|
|||||||||||||
|
Beverages
|
|
Concentrates
|
|
Beverages
|
|
|
|||||||||||||
|
Owned
|
|
Leased
|
|
Owned
|
|
Leased
|
|
Owned
|
|
Leased
|
|
Total
|
|||||||
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Office buildings
(1)
|
1
|
|
|
9
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Manufacturing facilities
|
12
|
|
|
5
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
Principal distribution centers and warehouse facilities
|
37
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
50
|
|
|
75
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
127
|
|
Mexico and Canada:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Office buildings
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
Manufacturing facilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Principal distribution centers and warehouse facilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
17
|
|
|
21
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
18
|
|
|
27
|
|
Total
|
50
|
|
|
76
|
|
|
2
|
|
|
—
|
|
|
8
|
|
|
18
|
|
|
154
|
|
(1)
|
The office building owned by our Beverage Concentrates operating segment is our corporate headquarters located in Plano, Texas.
|
(in thousands, except per share data)
|
|
Number of Shares Purchased
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plans or Programs
(1)
|
||||||
Period
|
|
|
|
|
||||||||||
October 1, 2017 – October 31, 2017
|
|
308
|
|
|
$
|
86.96
|
|
|
308
|
|
|
$
|
784,086
|
|
November 1, 2017 – November 30, 2017
|
|
597
|
|
|
85.60
|
|
|
597
|
|
|
732,988
|
|
||
December 1, 2017 – December 31, 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
732,988
|
|
||
For the quarter ended December 31, 2017
|
|
905
|
|
|
86.06
|
|
|
905
|
|
|
|
(1)
|
As of
December 31, 2017
, the Board has authorized us to repurchase an amount of up to
$5 billion
of our outstanding common stock. This authorization has no expiration date.
|
|
Year Ended December 31,
|
||||||||||||||||||
(in millions, except per share data)
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales
|
$
|
6,690
|
|
|
$
|
6,440
|
|
|
$
|
6,282
|
|
|
$
|
6,121
|
|
|
$
|
5,997
|
|
Gross profit
|
3,995
|
|
|
3,858
|
|
|
3,723
|
|
|
3,630
|
|
|
3,498
|
|
|||||
Income from operations
|
1,388
|
|
|
1,433
|
|
|
1,298
|
|
|
1,180
|
|
|
1,046
|
|
|||||
Net income
(5)
|
1,076
|
|
|
847
|
|
|
764
|
|
|
703
|
|
|
624
|
|
|||||
Basic earnings per share
(1)(5)
|
$
|
5.91
|
|
|
$
|
4.57
|
|
|
$
|
4.00
|
|
|
$
|
3.59
|
|
|
$
|
3.08
|
|
Diluted earnings per share
(1)(5)
|
5.89
|
|
|
4.54
|
|
|
3.97
|
|
|
3.56
|
|
|
3.05
|
|
|||||
Dividends declared per share
|
2.32
|
|
|
2.12
|
|
|
1.92
|
|
|
1.64
|
|
|
1.52
|
|
|||||
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating activities
(4)
|
$
|
1,038
|
|
|
$
|
961
|
|
|
$
|
1,014
|
|
|
$
|
1,033
|
|
|
$
|
872
|
|
Investing activities
(3)
|
(1,763
|
)
|
|
(189
|
)
|
|
(194
|
)
|
|
(185
|
)
|
|
(195
|
)
|
|||||
Financing activities
(2)(4)
|
(907
|
)
|
|
108
|
|
|
(137
|
)
|
|
(758
|
)
|
|
(886
|
)
|
|
As of December 31,
|
||||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Goodwill and other intangible assets, net
(3)
|
$
|
7,342
|
|
|
$
|
5,649
|
|
|
$
|
5,651
|
|
|
$
|
5,674
|
|
|
$
|
5,682
|
|
Total assets
(2)
|
10,022
|
|
|
9,791
|
|
|
8,869
|
|
|
8,265
|
|
|
8,191
|
|
|||||
Short-term borrowings and current portion of long-term obligations
|
79
|
|
|
10
|
|
|
507
|
|
|
3
|
|
|
66
|
|
|||||
Long-term obligations
(2)
|
4,400
|
|
|
4,468
|
|
|
2,875
|
|
|
2,580
|
|
|
2,498
|
|
|||||
Other non-current liabilities
|
1,933
|
|
|
2,138
|
|
|
2,228
|
|
|
2,353
|
|
|
2,386
|
|
|||||
Total stockholders’ equity
|
2,451
|
|
|
2,134
|
|
|
2,183
|
|
|
2,294
|
|
|
2,277
|
|
(1)
|
The weighted average number of shares of common stock outstanding used in the calculation of earnings per share ("EPS") was impacted by the repurchase and retirement of DPS common stock. For the years ended
December 31, 2017
,
2016
,
2015
,
2014
and
2013
, we repurchased and retired
4.4 million
shares,
5.7 million
shares,
6.5 million
shares,
6.8 million
shares and
8.7 million
shares, respectively.
|
(2)
|
For the year ended December 31, 2016, financing activities, total assets, and long-term obligations were impacted by the issuance of senior unsecured notes with an aggregate principal amount of
$1,550 million
, which were issued in December 2016 in anticipation of the Bai Brands Merger.
|
(3)
|
For the year ended December 31, 2017, investing activities and goodwill and other intangible assets, net were impacted as a result of the Bai Brands Merger. Refer to
Note 3 of the Notes to our Audited Consolidated Financial Statements
for additional information.
|
(4)
|
For the years ended December 31, 2016, 2015, 2014 and 2013, excess tax benefits on stock based compensation were reclassified from financing activities to operating activities to conform to the current year presentation as a result of the adoption of Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share Based Payment Accounting.
Refer to
Note 2 of the Notes to our Audited Consolidated Financial Statements
for further information.
|
(5)
|
For the year ended December 31, 2017, net income, basic earnings per share, and diluted earnings per share were impacted by the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017. Refer to
Note 5 of the Notes to our Audited Consolidated Financial Statements
for further information.
|
(in millions, except per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
||||||||
For the Year Ended December 31,
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
||||||||
2017
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales
|
$
|
1,510
|
|
|
$
|
1,797
|
|
|
$
|
1,740
|
|
|
$
|
1,643
|
|
Gross profit
|
903
|
|
|
1,079
|
|
|
1,033
|
|
|
980
|
|
||||
Net income
(1)
|
177
|
|
|
188
|
|
|
203
|
|
|
508
|
|
||||
Earnings per common share — basic
(1)
|
$
|
0.97
|
|
|
$
|
1.02
|
|
|
$
|
1.12
|
|
|
$
|
2.82
|
|
Earnings per common share — diluted
(1)
|
0.96
|
|
|
1.02
|
|
|
1.11
|
|
|
2.81
|
|
||||
Weighted average common shares outstanding — basic
|
183.4
|
|
|
183.2
|
|
|
181.4
|
|
|
180.1
|
|
||||
Weighted average common shares outstanding — diluted
|
184.6
|
|
|
183.7
|
|
|
182.1
|
|
|
180.8
|
|
||||
Dividend declared per share
|
$
|
0.58
|
|
|
$
|
0.58
|
|
|
$
|
0.58
|
|
|
$
|
0.58
|
|
Common stock price
|
|
|
|
|
|
|
|
||||||||
High
|
$
|
98.17
|
|
|
$
|
99.47
|
|
|
$
|
93.77
|
|
|
$
|
97.84
|
|
Low
|
89.06
|
|
|
89.88
|
|
|
87.28
|
|
|
81.70
|
|
||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales
|
$
|
1,487
|
|
|
$
|
1,695
|
|
|
$
|
1,680
|
|
|
$
|
1,578
|
|
Gross profit
|
885
|
|
|
1,025
|
|
|
997
|
|
|
951
|
|
||||
Net income
|
182
|
|
|
260
|
|
|
240
|
|
|
165
|
|
||||
Earnings per common share — basic
|
$
|
0.97
|
|
|
$
|
1.40
|
|
|
$
|
1.30
|
|
|
$
|
0.90
|
|
Earnings per common share — diluted
|
0.96
|
|
|
1.39
|
|
|
1.29
|
|
|
0.90
|
|
||||
Weighted average common shares outstanding — basic
|
187.6
|
|
|
185.7
|
|
|
184.8
|
|
|
183.6
|
|
||||
Weighted average common shares outstanding — diluted
|
189.0
|
|
|
186.5
|
|
|
185.7
|
|
|
184.7
|
|
||||
Dividend declared per share
|
$
|
0.53
|
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
Common stock price
|
|
|
|
|
|
|
|
||||||||
High
|
$
|
95.87
|
|
|
$
|
96.65
|
|
|
$
|
98.80
|
|
|
$
|
91.14
|
|
Low
|
87.18
|
|
|
86.03
|
|
|
89.45
|
|
|
81.05
|
|
(1)
|
Net income and basic and diluted earnings per share in the fourth quarter of the year ended
December 31, 2017
were impacted by the legislation commonly referred to as the Tax Cuts and Jobs Act.
|
•
|
Changes in consumer preferences.
We are impacted by shifting consumer demographics and needs. We believe marketing and product innovations that target fast growing population segments, such as the Hispanic community in the U.S., could drive market growth. Additionally, as more consumers are faced with a busy and on-the-go lifestyle, sales of single-serve beverages could increase, which typically have higher margins.
|
•
|
Allied brand relationships.
Allied brands could terminate their distribution agreements, primarily as a result of ownership changes of these brand companies.
|
•
|
Volatility in the costs of raw materials.
The costs of a substantial portion of the raw materials used in the beverage industry are dependent on commodity prices for resin, aluminum, diesel fuel, corn, apple juice concentrate, sucrose, natural gas and other commodities. We are also dependent on commodity prices for apples related to our applesauce production. Commodity price volatility has, from time to time, exerted pressure on industry margins and operating results.
|
•
|
Increased government regulation.
Government agencies, as a result of concerns about the public health consequences and health care costs associated with obesity, have been proposing and, in some cases, enacting new taxes or regulations on sugar-sweetened and diet beverages. Any changes of regulations or imposed taxes could reduce demand and/or cause us to raise our prices.
|
•
|
Increased health consciousness.
Consumers are increasingly becoming more concerned about health and wellness, focusing on caloric intake and sugar content in both regular CSDs and juices, the use of artificial sweeteners in diet CSDs and the use of natural, organic or simple ingredients in LRB products. We believe the main beneficiaries of this trend include bottled waters, naturally sweetened, low calorie drinks, all natural and organic beverages and ready-to-drink teas. Our completion of the Bai Brands Merger on
January 31, 2017
will allow us to continue distribution and capture additional growth as a result of this key trend.
|
•
|
Increased competition in the LRB market.
A number of our competitors are large corporations with significant financial resources. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities, which could reduce the demand for our products.
|
•
|
Fluctuations in foreign exchange rates.
We are exposed to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in currencies other than our Mexican and Canadian entities' functional currencies. We use derivative instruments such as foreign exchange forward contracts to mitigate a portion of our exposure in these expected future cash flows to changes in foreign exchange rates. Significant changes in these exchange rates will impact our results of operations.
|
•
|
Product and packaging innovation.
We believe brand owners and bottling companies will continue to create new products and packages, such as beverages with new ingredients and new premium flavors and innovative convenient packaging, that address changes in consumer tastes and preferences.
|
•
|
Changing retailer landscape.
As retailers continue to consolidate, we believe retailers will support consumer product companies that can provide an attractive portfolio of products, a strong value proposition and efficient delivery.
|
•
|
The Beverage Concentrates segment reflects sales of the
Company
's branded concentrates and syrup to third party bottlers primarily in the
U.S.
and Canada. Most of the brands in this segment are carbonated soft drink brands.
|
•
|
The Packaged Beverages Excluding Bai 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
DSD
and
WD
.
|
•
|
The Bai segment reflects sales of Bai Brands finished goods to third party distributors, primarily in the U.S., as net sales to the Packaged Beverages Excluding Bai segment are eliminated in consolidation. Refer to
Note 3 of the Notes to our Audited Consolidated Financial Statements
for further information regarding the impact of Bai Brands Merger on the Company's net sales presented in the Consolidated Statements of Income.
|
•
|
The Latin America Beverages segment reflects sales in the Mexico, Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.
|
•
|
Net income increased
$229 million
, driven primarily by the income tax benefits related to the impact of the recent federal tax law change and the adoption of the new accounting standard for stock-based compensation, partially offset by the impact of the Bai Brands Merger, losses on early extinguishment of debt completed during the second and third quarter of 2017, and the unfavorable comparison to the gain on the extinguishment of a multi-employer pension plan withdrawal liability recorded in the prior year.
|
•
|
On December 22, 2017, the federal government enacted the legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). Under the TCJA, our U.S. federal statutory tax rate will be reduced from
35%
to
21%
, beginning in 2018, with some related business deductions and credits either reduced or eliminated. As a result, we have recognized an income tax benefit of
$297 million
, primarily driven by the revaluation of our deferred tax liabilities, which increased diluted earnings per share by
$1.62
for the
year ended December 31, 2017
. Beginning in 2018, we believe our effective tax rate will be approximately
26%
-
27%
.
|
•
|
On January 31, 2017, we completed the Bai Brands Merger. For the
year ended December 31, 2017
, the primary impacts of the Bai Brands Merger decreased diluted earnings per share in total by
$0.26
.
|
◦
|
The interest expense associated with the financing to complete the Bai Brands Merger, which decreased diluted earnings per share by
$0.18
for the
year ended December 31, 2017
;
|
◦
|
The operations of Bai Brands, which decreased diluted earnings per share by
$0.17
for the
year ended December 31, 2017
;
|
◦
|
The associated transaction and integration expenses, which decreased diluted earnings per share by
$0.08
for the
year ended December 31, 2017
;
|
◦
|
The gain on the step-acquisition of Bai Brands, which increased diluted earnings per share by
$0.10
for the
year ended December 31, 2017
; and
|
◦
|
The
$21 million
benefit as a result of the renegotiation of a manufacturing contract acquired during the Bai Brands Merger, which increased diluted earnings per share by
$0.07
for the
year ended December 31, 2017
.
|
◦
|
The incremental profit margin benefit we experienced in the
year ended December 31, 2017
as the brand owner for Bai Brands;
|
◦
|
The acquired Bai Brands operations, which includes the shipments to third parties since the Bai Brands Merger, partially offset by the
$9 million
initial profit in stock adjustment recorded during the first quarter of 2017 related to Bai Brands inventories; and
|
◦
|
The associated purchase accounting adjustments (refer to
Note 3 of the Notes to our Audited Consolidated Financial Statements
for further information).
|
•
|
During the years ended
December 31, 2017
,
2016
, and
2015
, we repurchased
4.4 million
,
5.7 million
, and
6.5 million
shares of our common stock, respectively, valued at approximately
$399 million
in
2017
,
$519 million
in
2016
, and
$521 million
in
2015
.
|
•
|
On January 5, 2018, the
Company
acquired a 5.4% equity interest in Core Organics LLC ("Core") for $18 million.
|
•
|
On January 29, 2018, DPS and Keurig announced that the companies have entered into the Merger Agreement to create Keurig Dr Pepper, a 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. Under the terms of the Merger Agreement, which has been unanimously approved by our Board, DPS shareholders will receive $103.75 per share in a special cash dividend and retain their shares in DPS.
|
•
|
During the first quarter of 2018, our Board declared a dividend of $0.58 per share, which will be paid on April 12, 2018, to shareholders of record as of March 21, 2018.
|
|
For the Year Ended December 31,
|
|
|
|
|
|||||||||||||||
|
2017
|
|
2016
|
|
Dollar
|
|
Percentage
|
|||||||||||||
(dollars in millions, except per share data)
|
Dollars
|
|
Percent
|
|
Dollars
|
|
Percent
|
|
Change
|
|
Change
|
|||||||||
Net sales
|
$
|
6,690
|
|
|
100.0
|
%
|
|
$
|
6,440
|
|
|
100.0
|
%
|
|
$
|
250
|
|
|
4
|
%
|
Cost of sales
|
2,695
|
|
|
40.3
|
|
|
2,582
|
|
|
40.1
|
|
|
113
|
|
|
4
|
|
|||
Gross profit
|
3,995
|
|
|
59.7
|
|
|
3,858
|
|
|
59.9
|
|
|
137
|
|
|
4
|
|
|||
Selling, general and administrative expenses
|
2,556
|
|
|
38.2
|
|
|
2,329
|
|
|
36.2
|
|
|
227
|
|
|
10
|
|
|||
Other operating (income) expense, net
|
(51
|
)
|
|
(0.8
|
)
|
|
(3
|
)
|
|
—
|
|
|
(48
|
)
|
|
NM
|
|
|||
Income from operations
|
1,388
|
|
|
20.7
|
|
|
1,433
|
|
|
22.3
|
|
|
(45
|
)
|
|
(3
|
)
|
|||
Interest expense
|
164
|
|
|
2.5
|
|
|
147
|
|
|
2.3
|
|
|
17
|
|
|
12
|
|
|||
Loss on early extinguishment of debt
|
62
|
|
|
0.9
|
|
|
31
|
|
|
0.5
|
|
|
31
|
|
|
NM
|
|
|||
Other income, net
|
(8
|
)
|
|
(0.1
|
)
|
|
(25
|
)
|
|
(0.4
|
)
|
|
17
|
|
|
NM
|
|
|||
Provision for income taxes
|
95
|
|
|
1.4
|
|
|
434
|
|
|
6.7
|
|
|
(339
|
)
|
|
(78
|
)
|
|||
Net income
|
1,076
|
|
|
16.1
|
%
|
|
847
|
|
|
13.2
|
%
|
|
229
|
|
|
27
|
%
|
|||
Effective tax rate
|
8.1
|
%
|
|
NM
|
|
|
33.8
|
%
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
•
|
Increase in shipments, excluding the loss of the Rockstar distribution rights, which grew net sales by
2.0%
;
|
•
|
Favorable product and package mix, which increased net sales by
1.5%
;
|
•
|
$64 million
of acquired Bai Brands shipments to third parties since the Bai Brands Merger, which raised net sales by
1.0%
;
|
•
|
Higher pricing and lower discounts as a result of a favorable comparison of the annual true-up of our estimated customer incentive liability, which increased net sales by
0.5%
;
|
•
|
Unfavorable segment mix, which reduced our net sales by
0.5%
; and
|
•
|
The loss of the Rockstar distribution rights, which lowered net sales by
0.5%
.
|
•
|
Unfavorable product and package mix, which reduced our gross margin by
0.5%
;
|
•
|
Increase in our other manufacturing costs, which includes the impact of a
$6 million
default by a supplier of resin to our operations in Mexico, reduced our gross margin by
0.4%
.
|
•
|
The unfavorable change in our last-in, first-out ("LIFO") inventory provision, driven primarily by apples, combined with higher commodity costs, led by packaging, reduced our gross margin by
0.4%
;
|
•
|
Unfavorable foreign currency effects, which decreased our gross margin by
0.1%
; and
|
•
|
Increase in our gross margin of
0.7%
related to the incremental profit margin benefit we experienced as a result of becoming the brand owner for Bai Brands and the acquired Bai Brands shipments to third parties since the Bai Brands Merger, partially offset by the
$9 million
initial profit in stock adjustment as a result of the Bai Brands Merger recorded during the first quarter of 2017;
|
•
|
Favorable segment mix, which raised our gross margin by
0.2%
;
|
•
|
Higher pricing and lower discounts as a primary result of a favorable comparison of the annual true-up of our estimated customer incentive liability, which raised our gross margin by
0.2%
; and
|
•
|
Ongoing productivity improvements, which increased our gross margin by
0.2%
.
|
|
For the Year Ended
|
||||||
|
December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Segment Results — Net sales
|
|
|
|
||||
Beverage Concentrates
|
$
|
1,332
|
|
|
$
|
1,284
|
|
Packaged Beverages
|
4,871
|
|
|
4,696
|
|
||
Latin America Beverages
|
487
|
|
|
460
|
|
||
Net sales
|
$
|
6,690
|
|
|
$
|
6,440
|
|
|
|
|
|
||||
|
For the Year Ended
|
||||||
|
December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Segment Results — SOP
|
|
|
|
||||
Beverage Concentrates
|
$
|
865
|
|
|
$
|
834
|
|
Packaged Beverages
|
691
|
|
|
771
|
|
||
Latin America Beverages
|
62
|
|
|
78
|
|
||
Total SOP
|
1,618
|
|
|
1,683
|
|
||
Unallocated corporate costs
|
281
|
|
|
253
|
|
||
Other operating (income) expense, net
|
(51
|
)
|
|
(3
|
)
|
||
Income from operations
|
1,388
|
|
|
1,433
|
|
||
Interest expense, net
|
161
|
|
|
144
|
|
||
Loss on early extinguishment of debt
|
62
|
|
|
31
|
|
||
Other income, net
|
(8
|
)
|
|
(25
|
)
|
||
Income before provision for income taxes and equity in (loss) earnings of unconsolidated subsidiaries
|
$
|
1,173
|
|
|
$
|
1,283
|
|
|
For the Year Ended
|
|
|
|
|
|||||||||
|
December 31,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
1,332
|
|
|
$
|
1,284
|
|
|
$
|
48
|
|
|
4
|
%
|
SOP
|
865
|
|
|
834
|
|
|
31
|
|
|
4
|
|
|
For the Year Ended
|
|
|
|
|
|||||||||
|
December 31,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
4,871
|
|
|
$
|
4,696
|
|
|
$
|
175
|
|
|
4
|
%
|
SOP
|
691
|
|
|
771
|
|
|
(80
|
)
|
|
(10
|
)
|
|
For the Year Ended
|
|
|
|
|
|||||||||
|
December 31,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
487
|
|
|
$
|
460
|
|
|
$
|
27
|
|
|
6
|
%
|
SOP
|
62
|
|
|
78
|
|
|
(16
|
)
|
|
(21
|
)
|
|
For the Year Ended December 31, 2017
|
||||||||||||||||||
|
Reported
|
|
Mark to Market
|
|
Workforce Reduction Costs
|
|
Transition and Integration Expenses
|
|
Core
|
||||||||||
Income from operations
|
$
|
1,388
|
|
|
$
|
(23
|
)
|
|
$
|
3
|
|
|
$
|
23
|
|
|
$
|
1,391
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|||||||||||||||
|
2016
|
|
2015
|
|
Dollar
|
|
Percentage
|
|||||||||||||
(dollars in millions, except per share data)
|
Dollars
|
|
Percent
|
|
Dollars
|
|
Percent
|
|
Change
|
|
Change
|
|||||||||
Net sales
|
$
|
6,440
|
|
|
100.0
|
%
|
|
$
|
6,282
|
|
|
100.0
|
%
|
|
$
|
158
|
|
|
3
|
%
|
Cost of sales
|
2,582
|
|
|
40.1
|
|
|
2,559
|
|
|
40.7
|
|
|
23
|
|
|
1
|
|
|||
Gross profit
|
3,858
|
|
|
59.9
|
|
|
3,723
|
|
|
59.3
|
|
|
135
|
|
|
4
|
|
|||
Selling, general and administrative expenses
|
2,329
|
|
|
36.2
|
|
|
2,313
|
|
|
36.8
|
|
|
16
|
|
|
1
|
|
|||
Other operating (income) expense, net
|
(3
|
)
|
|
—
|
|
|
7
|
|
|
0.1
|
|
|
(10
|
)
|
|
(143
|
)
|
|||
Income from operations
|
1,433
|
|
|
22.3
|
|
|
1,298
|
|
|
20.7
|
|
|
135
|
|
|
10
|
|
|||
Interest expense
|
147
|
|
|
2.3
|
|
|
117
|
|
|
1.9
|
|
|
30
|
|
|
26
|
|
|||
Loss on early extinguishment of debt
|
31
|
|
|
0.8
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
NM
|
|
|||
Other income, net
|
(25
|
)
|
|
(0.4
|
)
|
|
(1
|
)
|
|
—
|
|
|
(24
|
)
|
|
NM
|
|
|||
Income before provision for income taxes and equity in (loss) earnings of unconsolidated subsidiaries
|
1,283
|
|
|
19.9
|
|
|
1,184
|
|
|
18.8
|
|
|
99
|
|
|
NM
|
|
|||
Provision for income taxes
|
434
|
|
|
6.7
|
|
|
420
|
|
|
6.7
|
|
|
14
|
|
|
3
|
|
|||
Net income
|
847
|
|
|
13.2
|
|
|
764
|
|
|
12.2
|
|
|
83
|
|
|
11
|
%
|
|||
Effective tax rate
|
33.8
|
%
|
|
NM
|
|
|
35.5
|
%
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
•
|
favorable product and package mix, which increased net sales by about 2.5%;
|
•
|
increase in shipments, which increased net sales by 1.0%;
|
•
|
higher pricing, which increased net sales by 1.0%;
|
•
|
unfavorable foreign currency translation of $79 million, which decreased net sales by 1.0%; and
|
•
|
unfavorable segment mix, which decreased net sales by 0.5%.
|
•
|
favorable comparison in our mark-to-market activity on commodity derivative contracts, which increased our gross margin by 0.5%.
|
•
|
lower commodity costs, led by packaging, and the change in our LIFO inventory provision, which increased our gross margin by 0.5%;
|
•
|
increase in our net pricing, which increased our gross margin by
0.4%
;
|
•
|
ongoing productivity improvements, which increased our gross margin by 0.4%;
|
•
|
unfavorable product, package and segment mix, which decreased our gross margin by 0.7%;
|
•
|
unfavorable foreign currency effects, which decreased our gross margin by 0.3%; and
|
•
|
increase in our other manufacturing costs, which decreased our gross margin by 0.2%.
|
•
|
$12 million of mark-to-market activity recorded during the fourth quarter of 2016 for four derivative instruments, as the hedging relationships between the four outstanding interest rate swaps and our 2.70% senior notes due November 15, 2022 were de-designated on October 1, 2016;
|
•
|
$5 million of amortization of deferred financing costs associated with the 364-day bridge loan facility (the "Bridge Facility");
|
•
|
higher average debt balance and higher average interest rates attributable to the issuance of our 3.40% senior notes due November 15, 2025 (the "2025 Notes") and 4.50% senior notes due November 15, 2045 (the "2045 Notes") during the fourth quarter of 2015; and
|
•
|
the issuance of the senior unsecured notes during the fourth quarter of 2016 for the Bai Brands Merger.
|
|
For the Year Ended
|
||||||
|
December 31,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Segment Results — Net sales
|
|
|
|
||||
Beverage Concentrates
|
$
|
1,284
|
|
|
$
|
1,241
|
|
Packaged Beverages
|
4,696
|
|
|
4,544
|
|
||
Latin America Beverages
|
460
|
|
|
497
|
|
||
Net sales
|
$
|
6,440
|
|
|
$
|
6,282
|
|
|
|
|
|
||||
|
|
|
|
||||
|
For the Year Ended
|
||||||
|
December 31,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Segment Results — SOP
|
|
|
|
||||
Beverage Concentrates
|
$
|
834
|
|
|
$
|
807
|
|
Packaged Beverages
|
771
|
|
|
709
|
|
||
Latin America Beverages
|
78
|
|
|
88
|
|
||
Total SOP
|
1,683
|
|
|
1,604
|
|
||
Unallocated corporate costs
|
253
|
|
|
299
|
|
||
Other operating (income) expense, net
|
(3
|
)
|
|
7
|
|
||
Income from operations
|
1,433
|
|
|
1,298
|
|
||
Interest expense, net
|
144
|
|
|
115
|
|
||
Loss on early extinguishment of debt
|
31
|
|
|
—
|
|
||
Other income, net
|
(25
|
)
|
|
(1
|
)
|
||
Income before provision for income taxes and equity in (loss) earnings of unconsolidated subsidiaries
|
$
|
1,283
|
|
|
$
|
1,184
|
|
|
For the Year Ended
|
|
|
|
|
|||||||||
|
December 31,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
1,284
|
|
|
$
|
1,241
|
|
|
$
|
43
|
|
|
3
|
%
|
SOP
|
834
|
|
|
807
|
|
|
27
|
|
|
3
|
|
|
For the Year Ended
|
|
|
|
|
|||||||||
|
December 31,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
4,696
|
|
|
$
|
4,544
|
|
|
$
|
152
|
|
|
3
|
%
|
SOP
|
771
|
|
|
709
|
|
|
62
|
|
|
9
|
|
|
For the Year Ended
|
|
|
|
|
|||||||||
|
December 31,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
460
|
|
|
$
|
497
|
|
|
$
|
(37
|
)
|
|
(7
|
)%
|
SOP
|
78
|
|
|
88
|
|
|
(10
|
)
|
|
(11
|
)
|
•
|
upon consummation of the Transaction, we will incur substantial third party indebtedness;
|
•
|
our ability to issue unsecured commercial paper notes ("Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of
$500 million
, which has been limited to $200 million subject to Keurig's approval upon execution of the Merger Agreement;
|
•
|
continued payment of dividends;
|
•
|
continued capital expenditures;
|
•
|
fluctuations in our tax obligations;
|
•
|
seasonality of our operating cash flows could impact short-term liquidity;
|
•
|
our integration of Bai Brands following completion of the Bai Brands Merger;
|
•
|
future equity investments in allied brands; and
|
•
|
future mergers or acquisitions of regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage.
|
|
For the Year Ended
|
||||||||||
|
December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Net cash provided by operating activities
|
$
|
1,038
|
|
|
$
|
961
|
|
|
$
|
1,014
|
|
Net cash used in investing activities
|
(1,763
|
)
|
|
(189
|
)
|
|
(194
|
)
|
|||
Net cash provided by (used in) financing activities
|
(907
|
)
|
|
108
|
|
|
(137
|
)
|
•
|
the repayment of the Company's 2018 Notes and a portion of the 2038 Notes of
$562 million
, which includes both the aggregate principal amounts of approximately
$364 million
of the 2018 Notes and
$125 million
of the 2038 Notes, as well as the tender offer premium of
$60 million
and the make whole premium of
$13 million
;
|
•
|
dividend payments of
$414 million
; and
|
•
|
stock repurchases of
$399 million
; which was partially offset by
|
•
|
the proceeds from the issuance of our
3.43%
Senior Notes due June 15, 2027 (the "2027 Notes") and our 4.50% Senior Notes due November 15, 2045 (the "2045 Notes"), with an aggregate principal amount of
$400 million
and a premium of
$16 million
; and
|
•
|
the proceeds from the net issuance of commercial paper of
$66 million
.
|
Rating Agency
|
Long-Term Debt Rating
(1)
|
Commercial Paper Rating
|
Outlook
|
Date of Last Change
|
Moody's
|
Baa1
|
P-2
|
Stable
|
May 18, 2011
|
S&P
|
BBB+
|
A-2
|
Stable
|
November 13, 2013
|
(1)
|
Subsequent to
December 31, 2017
, and as a result of the Transaction, Moody's and S&P have changed their outlook. Moody's has placed DPS ratings under review for downgrade and S&P has placed DPS as Creditwatch Negative.
|
Our Board declared aggregate dividends per share during the years ended December 31, 2017, 2016 and 2015 of $2.32, $2.12 and $1.92, respectively, and we continued common stock repurchases based upon authorizations from our Board. The following chart details these payments during the years ended December 31, 2017, 2016 and 2015.
|
|
Refer to Part II, Item 5 "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" of this Annual Report on Form 10-K for additional information regarding these repurchases.
|
|
|
|
Payments Due in Year
|
||||||||||||||||||||||||
(in millions)
|
Total
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
After 2022
|
||||||||||||||
Senior unsecured notes
(1)
|
$
|
4,225
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
500
|
|
|
$
|
250
|
|
|
$
|
2,975
|
|
Commercial paper
|
66
|
|
|
66
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Bai Brands Merger consideration
(2)
|
7
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Capital leases
(3)
|
220
|
|
|
24
|
|
|
24
|
|
|
23
|
|
|
22
|
|
|
22
|
|
|
105
|
|
|||||||
Operating leases
(4)
|
260
|
|
|
39
|
|
|
35
|
|
|
31
|
|
|
28
|
|
|
23
|
|
|
104
|
|
|||||||
Purchase obligations
(5)(6)
|
1,002
|
|
|
645
|
|
|
159
|
|
|
96
|
|
|
36
|
|
|
28
|
|
|
38
|
|
|||||||
Interest payments
(7)
|
1,986
|
|
|
141
|
|
|
142
|
|
|
135
|
|
|
134
|
|
|
117
|
|
|
1,317
|
|
|||||||
Payable to Mondelēz International, Inc.
|
22
|
|
|
6
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Total
|
$
|
7,788
|
|
|
$
|
928
|
|
|
$
|
626
|
|
|
$
|
535
|
|
|
$
|
720
|
|
|
$
|
440
|
|
|
$
|
4,539
|
|
(1)
|
Amounts represent payment for the senior unsecured notes issued by us. Please refer to
Note 7 of the Notes to our Audited Consolidated Financial Statements
for further information.
|
(2)
|
Amount represents consideration for the Bai Brands Merger held in the holdback liability that is fixed in amount and timing. Please refer to Note 3 of the Notes to our Audited Consolidated Financial Statements for further information.
|
(3)
|
Amounts represent our contractual payment obligations for our lease arrangements classified as capital leases. These amounts exclude renewal options not yet executed but were included in the lease term to determine the capital lease obligation as the lease imposes a penalty on us in such amount that the renewal appeared reasonably assured at lease inception.
|
(4)
|
Amounts represent minimum rental commitments under non-cancelable operating leases.
|
(5)
|
Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital obligations and long-term contractual obligations. Long-term contractual obligations include, but are not limited to, commodity commitments and marketing commitments including sponsorships. Amounts exclude any gain or loss upon settlement of commodity derivative instruments. Refer to
Note 8 of the Notes to our Audited Consolidated Financial Statements
for further information.
|
(6)
|
Subsequent to
December 31, 2017
, we executed a new arrangement that committed us to $253 million of additional purchase obligations over a six year term beginning in 2020.
|
(7)
|
Amounts represent our estimated interest payments based on specified interest rates for fixed rate debt and the impact of interest rate swaps that effectively convert fixed interest rates to variable interest rates. Amounts exclude any gain or loss upon settlement of related interest rate swaps. Refer to
Note 8 of the Notes to our Audited Consolidated Financial Statements
for further information.
|
Description
|
|
Judgments and Uncertainties
|
|
Effect if Actual Results Differ from Assumptions
|
||||||||||||||||
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
||||||||||
We have several pension plans covering employees who satisfy age and length of service requirements. Depending on the plan, pension benefits are based on a combination of factors, which may include salary, age and years of service.
Our largest U.S. defined benefit pension plan, which is a cash balance plan, was suspended and the accrued benefit was frozen effective December 31, 2008. Participants in this plan no longer earn additional benefits for future services or salary increases.
Employee benefit plan obligations and expenses included in our Consolidated Financial Statements are determined from actuarial analyses based on plan assumptions, employee demographic data, years of service, compensation, benefits paid and employer contributions.
|
|
The calculation of pension plan obligations and related expenses is dependent on several assumptions used to estimate the present value of the benefits earned while the employee is eligible to participate in the plans.
The key assumptions we use in the actuarial methods to determine the plan obligations and related expenses include: (1) the discount rate used to calculate the present value of the plan liabilities; (2) retirement age and mortality; and (3) the expected return on plan assets. Our assumptions reflect our historical experience and our best judgment regarding future performance.
Refer to
Note 6 of the Notes to our Audited Consolidated Financial Statements
for further information about the key assumptions.
|
|
The effect of a 1% increase or decrease in the weighted-average discount rate used to determine the pension benefit obligations for U.S. plans would change the benefit obligation as of December 31, 2017 by approximately a $25 million decrease and a $31 million increase, respectively.
The effect of a 1% increase or decrease in the weighted-average discount rate used to determine the net periodic pension costs would change the costs for the year ended December 31, 2017 by approximately $2 million decrease and a $3 million increase, respectively.
The effect of a 1% increase or decrease in the expected return on plan assets used to determine the net periodic pension costs would change the costs for the year ended December 31, 2017 by approximately $2 million.
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Management Programs
|
|
|
|
|
|
|
|
|
|
|
||||||||||
We retain selected levels of property, casualty, workers' compensation, health and other business risks. Many of these risks are covered under conventional insurance programs with high deductibles or self-insured retentions.
|
|
We believe the use of actuarial methods to estimate our future losses provides a consistent and effective way to measure our self-insured liabilities. However, the estimation of our liability is judgmental and uncertain given the nature of claims involved and length of time until their ultimate cost is known.
Accrued liabilities related to the retained casualty and health risks are calculated based on loss experience and development factors, which contemplate a number of variables including claim history and expected trends. These loss development factors are established in consultation with actuaries.
|
|
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities as compared to prior periods. The final settlement amount of claims can differ materially from our estimate as a result of changes in factors such as the frequency and severity of accidents, medical cost inflation, legislative actions, uncertainty around jury verdicts and awards and other factors outside of our control.
A 10% change in our accrued liabilities related to the retained risks, net of associated receivables, as of December 31, 2017 would have affected income from operations by approximately $8 million for the year ended December 31, 2017.
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
||||||||||
We establish income tax liabilities to remove some or all of the income tax benefit of any of our income tax positions based upon one of the following: (1) the tax position is not “more likely than not” to be sustained, (2) the tax position is “more likely than not” to be sustained, but for a lesser amount, or (3) the tax position is “more likely than not” to be sustained , but not in the financial period in which the tax position was originally taken.
We assess the likelihood of realizing our deferred tax assets. Valuation allowances reduce deferred tax assets to the amount more likely than not to be realized.
|
|
Our liability for uncertain tax positions contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various tax positions.
We base our judgment of the recoverability of our deferred tax asset primarily on historical earnings, our estimate of current and expected future earnings and prudent and feasible tax planning strategies.
|
|
Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding our tax positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. As these audits progress, events may occur that cause us to change our liability for uncertain tax positions.
To the extent we prevail in matters for which a liability for uncertain tax positions has been established, or are required to pay amounts in excess of our established liability, our effective tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective tax rate in the period of resolution.
If results differ from our assumptions, a valuation allowance against deferred tax assets may be increased or decreased which would impact our effective tax rate.
|
Description
|
|
Judgments and Uncertainties
|
|
Effect if Actual Results Differ from Assumptions
|
||||||||||||||||
Business Combinations
|
|
|
|
|
|
|
|
|
|
|
||||||||||
We record acquisitions using the purchase method of accounting. All of the assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.
|
|
The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable.
|
|
If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements may be exposed to potential impairment of the intangible assets and goodwill, as discussed in the
Goodwill and Other Indefinite Lived Intangible Assets
critical accounting estimate section.
|
Sensitivity Analysis
|
||||
Hypothetical Change in Interest Rates
|
|
Annual Impact to Interest Expense
|
|
Change in Fair Value
(2)
|
1-percent decrease
(1)
|
|
$11 million decrease
|
|
$49 million increase
|
1-percent increase
|
|
$11 million increase
|
|
$46 million decrease
|
(1)
|
We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of interest rate swaps on certain debt instruments. See
Note 8 of the Notes to our Audited Consolidated Financial Statements
for further information.
|
(2)
|
See Note 2 and
Note 8 of the Notes to our Audited Consolidated Financial Statements
for additional information on classification and quantification of these derivative positions.
|
Audited Consolidated Financial Statements:
|
Page Number
|
/s/ DELOITTE & TOUCHE LLP
|
|
/s/ DELOITTE & TOUCHE LLP
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions, except per share data)
|
2017
|
|
2016
|
|
2015
|
||||||
Net sales
|
$
|
6,690
|
|
|
$
|
6,440
|
|
|
$
|
6,282
|
|
Cost of sales
|
2,695
|
|
|
2,582
|
|
|
2,559
|
|
|||
Gross profit
|
3,995
|
|
|
3,858
|
|
|
3,723
|
|
|||
Selling, general and administrative expenses
|
2,556
|
|
|
2,329
|
|
|
2,313
|
|
|||
Depreciation and amortization
|
102
|
|
|
99
|
|
|
105
|
|
|||
Other operating (income) expense, net
|
(51
|
)
|
|
(3
|
)
|
|
7
|
|
|||
Income from operations
|
1,388
|
|
|
1,433
|
|
|
1,298
|
|
|||
Interest expense
|
164
|
|
|
147
|
|
|
117
|
|
|||
Interest income
|
(3
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|||
Loss on early extinguishment of debt
|
62
|
|
|
31
|
|
|
—
|
|
|||
Other income, net
|
(8
|
)
|
|
(25
|
)
|
|
(1
|
)
|
|||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
1,173
|
|
|
1,283
|
|
|
1,184
|
|
|||
Provision for income taxes
|
95
|
|
|
434
|
|
|
420
|
|
|||
Income before equity in loss of unconsolidated subsidiaries
|
1,078
|
|
|
849
|
|
|
764
|
|
|||
Equity in loss of unconsolidated subsidiaries, net of tax
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|||
Net income
|
$
|
1,076
|
|
|
$
|
847
|
|
|
$
|
764
|
|
Earnings per common share:
|
|
|
|
|
|
||||||
Basic
|
$
|
5.91
|
|
|
$
|
4.57
|
|
|
$
|
4.00
|
|
Diluted
|
5.89
|
|
|
4.54
|
|
|
3.97
|
|
|||
Weighted average common shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
182.0
|
|
|
185.4
|
|
|
190.9
|
|
|||
Diluted
|
182.8
|
|
|
186.6
|
|
|
192.4
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Net income
|
$
|
1,076
|
|
|
$
|
847
|
|
|
$
|
764
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
||||||
Foreign currency translation adjustments
|
16
|
|
|
(39
|
)
|
|
(64
|
)
|
|||
Net change in pension and post-retirement liability, net of tax of $3, $0 and $1
|
5
|
|
|
(1
|
)
|
|
4
|
|
|||
Net change in cash flow hedges, net of tax of $4, $4 and $1
|
6
|
|
|
6
|
|
|
2
|
|
|||
Total other comprehensive income (loss), net of tax
|
27
|
|
|
(34
|
)
|
|
(58
|
)
|
|||
Comprehensive income
|
$
|
1,103
|
|
|
$
|
813
|
|
|
$
|
706
|
|
|
December 31,
|
|
December 31,
|
||||
(in millions, except share and per share data)
|
2017
|
|
2016
|
||||
Assets
|
|||||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
61
|
|
|
$
|
1,787
|
|
Restricted cash and restricted cash equivalents
|
18
|
|
|
—
|
|
||
Accounts receivable:
|
|
|
|
||||
Trade, net
|
668
|
|
|
595
|
|
||
Other
|
42
|
|
|
51
|
|
||
Inventories
|
229
|
|
|
202
|
|
||
Prepaid expenses and other current assets
|
99
|
|
|
101
|
|
||
Total current assets
|
1,117
|
|
|
2,736
|
|
||
Property, plant and equipment, net
|
1,198
|
|
|
1,138
|
|
||
Investments in unconsolidated subsidiaries
|
24
|
|
|
23
|
|
||
Goodwill
|
3,561
|
|
|
2,993
|
|
||
Other intangible assets, net
|
3,781
|
|
|
2,656
|
|
||
Other non-current assets
|
279
|
|
|
183
|
|
||
Deferred tax assets
|
62
|
|
|
62
|
|
||
Total assets
|
$
|
10,022
|
|
|
$
|
9,791
|
|
Liabilities and Stockholders' Equity
|
|||||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
365
|
|
|
$
|
303
|
|
Deferred revenue
|
64
|
|
|
64
|
|
||
Short-term borrowings and current portion of long-term obligations
|
79
|
|
|
10
|
|
||
Income taxes payable
|
11
|
|
|
4
|
|
||
Other current liabilities
|
719
|
|
|
670
|
|
||
Total current liabilities
|
1,238
|
|
|
1,051
|
|
||
Long-term obligations
|
4,400
|
|
|
4,468
|
|
||
Deferred tax liabilities
|
614
|
|
|
812
|
|
||
Non-current deferred revenue
|
1,055
|
|
|
1,117
|
|
||
Other non-current liabilities
|
264
|
|
|
209
|
|
||
Total liabilities
|
7,571
|
|
|
7,657
|
|
||
Commitments and contingencies
|
|
|
|
||||
Stockholders' equity:
|
|
|
|
||||
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value, 800,000,000 shares authorized, 179,743,028 and 183,119,843 shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively
|
2
|
|
|
2
|
|
||
Additional paid-in capital
|
—
|
|
|
95
|
|
||
Retained earnings
|
2,651
|
|
|
2,266
|
|
||
Accumulated other comprehensive loss
|
(202
|
)
|
|
(229
|
)
|
||
Total stockholders' equity
|
2,451
|
|
|
2,134
|
|
||
Total liabilities and stockholders' equity
|
$
|
10,022
|
|
|
$
|
9,791
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Operating activities:
|
|
|
|
|
|
||||||
Net income
|
$
|
1,076
|
|
|
$
|
847
|
|
|
$
|
764
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Depreciation expense
|
198
|
|
|
191
|
|
|
192
|
|
|||
Amortization expense
|
31
|
|
|
33
|
|
|
35
|
|
|||
Amortization of deferred revenue
|
(64
|
)
|
|
(64
|
)
|
|
(64
|
)
|
|||
Impairment of intangible asset
|
1
|
|
|
—
|
|
|
7
|
|
|||
Employee stock-based compensation expense
|
36
|
|
|
45
|
|
|
44
|
|
|||
Deferred income taxes
|
(201
|
)
|
|
29
|
|
|
29
|
|
|||
Loss on early extinguishment of debt
|
62
|
|
|
31
|
|
|
—
|
|
|||
Gain on step acquisition of unconsolidated subsidiaries
|
(28
|
)
|
|
(5
|
)
|
|
—
|
|
|||
Gain on extinguishment of multi-employer plan withdrawal liability
|
—
|
|
|
(21
|
)
|
|
—
|
|
|||
Unrealized (gains) losses on economic hedges
|
(24
|
)
|
|
(40
|
)
|
|
5
|
|
|||
Other, net
|
(4
|
)
|
|
13
|
|
|
8
|
|
|||
Changes in assets and liabilities, net of effects of acquisition:
|
|
|
|
|
|
||||||
Trade accounts receivable
|
(47
|
)
|
|
(31
|
)
|
|
(26
|
)
|
|||
Other accounts receivable
|
9
|
|
|
3
|
|
|
1
|
|
|||
Inventories
|
—
|
|
|
3
|
|
|
(11
|
)
|
|||
Other current and non-current assets
|
(20
|
)
|
|
(50
|
)
|
|
8
|
|
|||
Other current and non-current liabilities
|
(19
|
)
|
|
(53
|
)
|
|
(11
|
)
|
|||
Trade accounts payable
|
24
|
|
|
32
|
|
|
(9
|
)
|
|||
Income taxes payable
|
8
|
|
|
(2
|
)
|
|
42
|
|
|||
Net cash provided by operating activities
|
1,038
|
|
|
961
|
|
|
1,014
|
|
|||
Investing activities:
|
|
|
|
|
|
||||||
Acquisition of business
|
(1,556
|
)
|
|
(15
|
)
|
|
—
|
|
|||
Cash acquired in step acquisition of unconsolidated subsidiaries
|
4
|
|
|
17
|
|
|
—
|
|
|||
Purchase of property, plant and equipment
|
(202
|
)
|
|
(180
|
)
|
|
(179
|
)
|
|||
Purchase of intangible assets
|
(6
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|||
Investment in unconsolidated subsidiaries
|
(3
|
)
|
|
(6
|
)
|
|
(20
|
)
|
|||
Purchase of cost method investments
|
—
|
|
|
(1
|
)
|
|
(15
|
)
|
|||
Proceeds from disposals of property, plant and equipment
|
3
|
|
|
6
|
|
|
20
|
|
|||
Other, net
|
(3
|
)
|
|
(8
|
)
|
|
1
|
|
|||
Net cash used in investing activities
|
(1,763
|
)
|
|
(189
|
)
|
|
(194
|
)
|
|||
Financing activities:
|
|
|
|
|
|
||||||
Proceeds from issuance of senior unsecured notes
|
400
|
|
|
1,950
|
|
|
750
|
|
|||
Repayment of senior unsecured notes
|
(562
|
)
|
|
(891
|
)
|
|
—
|
|
|||
Net issuance of commercial paper
|
66
|
|
|
—
|
|
|
—
|
|
|||
Repurchase of shares of common stock
|
(399
|
)
|
|
(519
|
)
|
|
(521
|
)
|
|||
Dividends paid
|
(414
|
)
|
|
(386
|
)
|
|
(355
|
)
|
|||
Tax withholdings related to net share settlements of certain stock awards
|
(30
|
)
|
|
(31
|
)
|
|
(27
|
)
|
|||
Proceeds from stock options exercised
|
20
|
|
|
14
|
|
|
30
|
|
|||
Premium (discount) on issuance of senior unsecured notes
|
16
|
|
|
(1
|
)
|
|
(4
|
)
|
|||
Proceeds from termination of interest rate swap
|
13
|
|
|
—
|
|
|
—
|
|
|||
Deferred financing charges paid
|
(5
|
)
|
|
(19
|
)
|
|
(6
|
)
|
|||
Capital lease payments
|
(12
|
)
|
|
(9
|
)
|
|
(5
|
)
|
|||
Other, net
|
—
|
|
|
—
|
|
|
1
|
|
|||
Net cash provided by (used in) financing activities
|
(907
|
)
|
|
108
|
|
|
(137
|
)
|
|||
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
|
|
|
|
|
|
||||||
Operating, investing and financing activities
|
(1,632
|
)
|
|
880
|
|
|
683
|
|
|||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
|
3
|
|
|
(4
|
)
|
|
(9
|
)
|
|||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of year
|
1,787
|
|
|
911
|
|
|
237
|
|
|||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year
|
$
|
158
|
|
|
$
|
1,787
|
|
|
$
|
911
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|||||||||||
|
Common Stock
|
|
Additional
|
|
|
|
Other
|
|
|
|||||||||||||
|
Issued
|
|
Paid-In
|
|
Retained
|
|
Comprehensive
|
|
Total
|
|||||||||||||
(in millions, except per share data)
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Equity
|
|||||||||||
Balance as of January 1, 2015
|
193.0
|
|
|
$
|
2
|
|
|
$
|
658
|
|
|
$
|
1,771
|
|
|
$
|
(137
|
)
|
|
$
|
2,294
|
|
Shares issued under employee stock-based compensation plans and other
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
764
|
|
|
—
|
|
|
764
|
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
|
(58
|
)
|
|||||
Dividends declared, $1.92 per share
|
—
|
|
|
—
|
|
|
4
|
|
|
(370
|
)
|
|
—
|
|
|
(366
|
)
|
|||||
Stock options exercised and stock-based compensation, net of tax of ($23)
|
—
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|||||
Common stock repurchases
|
(6.5
|
)
|
|
—
|
|
|
(521
|
)
|
|
—
|
|
|
—
|
|
|
(521
|
)
|
|||||
Balance as of December 31, 2015
|
187.9
|
|
|
2
|
|
|
211
|
|
|
2,165
|
|
|
(195
|
)
|
|
2,183
|
|
|||||
Shares issued under employee stock-based compensation plans and other
|
0.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
847
|
|
|
—
|
|
|
847
|
|
|||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
(34
|
)
|
|||||
Dividends declared, $2.12 per share
|
—
|
|
|
—
|
|
|
3
|
|
|
(396
|
)
|
|
—
|
|
|
(393
|
)
|
|||||
Stock options exercised and stock-based compensation, net of tax of ($22)
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|||||
Common stock repurchases
|
(5.7
|
)
|
|
—
|
|
|
(169
|
)
|
|
(350
|
)
|
|
—
|
|
|
(519
|
)
|
|||||
Balance as of December 31, 2016
|
183.1
|
|
|
2
|
|
|
95
|
|
|
2,266
|
|
|
(229
|
)
|
|
2,134
|
|
|||||
Shares issued under employee stock-based compensation plans and other
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
1,076
|
|
|
—
|
|
|
1,076
|
|
|||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
27
|
|
|||||
Dividends declared, $2.32 per share
|
—
|
|
|
—
|
|
|
4
|
|
|
(424
|
)
|
|
—
|
|
|
(420
|
)
|
|||||
Deemed capital contribution from former shareholders of Bai Brands LLC
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|||||
Stock options exercised and stock-based compensation
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|||||
Common stock repurchases
|
(4.4
|
)
|
|
—
|
|
|
(132
|
)
|
|
(267
|
)
|
|
—
|
|
|
(399
|
)
|
|||||
Balance as of December 31, 2017
|
179.7
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2,651
|
|
|
$
|
(202
|
)
|
|
$
|
2,451
|
|
1
.
|
Business and Basis of Presentation
|
2
.
|
Significant Accounting Policies
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Balance, beginning of the year
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Charges to bad debt expense
|
2
|
|
|
1
|
|
|
2
|
|
|||
Write-offs and adjustments
|
(3
|
)
|
|
—
|
|
|
(2
|
)
|
|||
Balance, end of the year
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Net sales
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
9
|
|
Selling, general and administrative ("SG&A") expenses
|
|
2
|
|
|
3
|
|
|
4
|
|
|||
|
|
$
|
12
|
|
|
$
|
13
|
|
|
$
|
13
|
|
Mexican Peso to U.S. Dollar Exchange Rate
|
End of Year Rates
|
|
Annual Average Rates
|
||
2017
|
19.66
|
|
|
18.92
|
|
2016
|
20.62
|
|
|
18.68
|
|
2015
|
17.25
|
|
|
15.87
|
|
Canadian Dollar to U.S. Dollar Exchange Rate
|
End of Year Rates
|
|
Annual Average Rates
|
||
2017
|
1.25
|
|
|
1.30
|
|
2016
|
1.34
|
|
|
1.33
|
|
2015
|
1.38
|
|
|
1.28
|
|
3
.
|
Acquisitions and Investments in Unconsolidated Subsidiaries
|
•
|
The Company paid certain seller transaction costs, which included
$2 million
to reimburse Bai Brands for payments made on behalf of the Company for buyer acquisition-related costs, which were recorded as SG&A expenses. The remainder of the seller transaction costs paid by the Company were accounted for by the Company as part of the consideration transferred.
|
•
|
Bai Brands had an executory contract as of
January 31, 2017
, which compensated certain counterparties with Profit Interest Units from Bai Brands (the “Predecessor PIUs”). The Predecessor PIUs were based upon the counterparties completing service requirements and various performance criteria. As a result of the Bai Brands Merger, these Predecessor PIUs have fully vested and were converted into cash as of
January 31, 2017
based upon the consideration paid by the Company to acquire Bai Brands. The cash was placed in escrow and is released from escrow to the counterparties on certain anniversary dates, as long as the counterparties are not in breach of the executory contract. Although none of the costs of these benefits have been paid by the Company, DPS will record SG&A expenses for the deferred compensation amounts payable to these counterparties by Bai Brands. For the
year ended December 31, 2017
, the Company recognized approximately
$6 million
of compensation expense related to performance on the executory contract. As of
December 31, 2017
, the total unrecognized compensation cost is
$7 million
and the period over which these costs are expected to be recognized is
9 months
.
|
(in millions)
|
Preliminary Purchase Price
|
||
Cash paid to consummate Bai Brands Merger, net of the Company's previous ownership interest and cash acquired in the step acquisition
|
$
|
1,552
|
|
Remaining holdback placed in escrow
|
86
|
|
|
Less: Seller transaction costs reimbursed to Bai Brands for payments made on behalf of the Company for its acquisition-related costs
|
(2
|
)
|
|
Preliminary Purchase Price
(1)
|
$
|
1,636
|
|
(1)
|
The preliminary purchase price excludes the impact of the Company's pre-existing ownership interest.
|
(in millions)
|
|
Indemnification Escrow
(One Year)
(2)
|
|
Indemnification Escrow
(Four Years)
(3)
|
|
Unrecognized Compensation Costs
|
|
Total Holdback Liability
|
||||||||
Balance as of January 31, 2017
|
|
$
|
80
|
|
|
$
|
10
|
|
|
$
|
13
|
|
|
$
|
103
|
|
Working capital adjustment
(1)
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
||||
Recognized compensation costs
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
||||
Balance as of December 31, 2017
|
|
$
|
69
|
|
|
$
|
10
|
|
|
$
|
7
|
|
|
$
|
86
|
|
(1)
|
Amounts were initially placed in escrow to secure indemnification obligations of the sellers relating to the accuracy of representations and warranties and a working capital adjustment. During the
year ended December 31, 2017
, the Company and the former shareholders of Bai Brands agreed upon a working capital adjustment of
$11 million
. The Company is currently in arbitration under the terms of the Bai Merger Agreement for one remaining matter related to the working capital adjustment. The
$11 million
agreed-upon adjustment will be released back to the Company from escrow upon completion of arbitration.
|
(2)
|
The initial term that these amounts were to be held in escrow was one year from the date of the acquisition. In January 2018, the Company notified the trustee that the funds should remain in escrow pending resolution of certain indemnification obligations. As a result, the Company has reclassified this portion of the restricted cash and the corresponding holdback liability to non-current.
|
(3)
|
The escrow and corresponding holdback liability, net of any claims, is anticipated to be released approximately 4 years after the acquisition date, subject to certain administrative conditions and resolution of certain indemnification obligations.
|
(in millions)
|
|
Fair Value
|
|
Useful Life
|
||
Property, plant & equipment
|
|
$
|
4
|
|
|
5 - 10 years
|
Customer relationships
|
|
30
|
|
|
7 years
|
|
Non-compete agreements
|
|
22
|
|
|
2 - 4 years
|
|
Brands
|
|
1,073
|
|
|
Indefinite
|
|
Goodwill
|
|
568
|
|
|
Indefinite
|
|
Assumed liabilities, net of acquired assets
|
|
(18
|
)
|
|
N/A
|
|
Total
|
|
$
|
1,679
|
|
|
|
(in millions)
|
For the Year Ended December 31, 2017
|
||
Net sales - Bai Brands
|
$
|
222
|
|
Intercompany sales to Packaged Beverages Excluding Bai
(1)
|
(158
|
)
|
|
Incremental impact to consolidated net sales
|
$
|
64
|
|
|
|
||
Net loss - Bai Brands
|
$
|
(17
|
)
|
Impact of intercompany activity with Packaged Beverages Excluding Bai
(1)
|
(4
|
)
|
|
Incremental impact to consolidated net income
|
$
|
(21
|
)
|
(1)
|
Impact of intercompany activity includes the elimination of intercompany net sales and the deferral of gross profit recognition on shipments of product still in Packaged Beverages Excluding Bai inventory for the
year ended December 31, 2017
, net of tax.
|
(in millions)
|
|
Fair Value
|
|
Useful Life
|
||
Property, plant & equipment
|
|
$
|
2
|
|
|
1 - 5 years
|
Brands: indefinite-lived
|
|
1
|
|
|
—
|
|
Goodwill
(1)
|
|
8
|
|
|
—
|
|
Cash
|
|
17
|
|
|
—
|
|
All other assets, net of liabilities assumed
|
|
2
|
|
|
—
|
|
Total
|
|
$
|
30
|
|
|
|
(1)
|
The goodwill associated with this step-acquisition was recorded to the Company's Latin America Beverages reporting unit and is not deductible for tax purposes.
|
(in millions)
|
Beverage Concentrates
|
|
WD Reporting Unit
(1)
|
|
DSD Reporting Unit
(1)
|
|
Bai
|
|
Latin America Beverages
|
|
Total
|
||||||||||||
Balance as of January 1, 2016
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
189
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
3,168
|
|
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
(180
|
)
|
||||||
|
1,733
|
|
|
1,222
|
|
|
9
|
|
|
—
|
|
|
24
|
|
|
2,988
|
|
||||||
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
||||||
Acquisition
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
||||||
Balance as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill
|
1,733
|
|
|
1,222
|
|
|
189
|
|
|
—
|
|
|
29
|
|
|
3,173
|
|
||||||
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
(180
|
)
|
||||||
|
1,733
|
|
|
1,222
|
|
|
9
|
|
|
—
|
|
|
29
|
|
|
2,993
|
|
||||||
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Acquisition
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
—
|
|
|
568
|
|
||||||
Balance as of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill
|
1,733
|
|
|
1,222
|
|
|
189
|
|
|
568
|
|
|
29
|
|
|
3,741
|
|
||||||
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
(180
|
)
|
||||||
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
9
|
|
|
$
|
568
|
|
|
$
|
29
|
|
|
$
|
3,561
|
|
(1)
|
The Packaged Beverages Excluding Bai segment is comprised of two reporting units, the Direct Store Delivery ("
DSD
") system and the Warehouse Direct ("
WD
") system.
|
(2)
|
Goodwill was recorded to the Latin America Beverages reporting unit during 2016 as a result of the step acquisition of IEBM and EMA.
Refer to Note 3 for additional information
.
|
(3)
|
Goodwill was recorded to Bai during 2017 as a result of the Bai Brands Merger.
Refer to Note 3 for additional information
about the Bai Brands Merger.
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||||||||||
|
Gross
|
|
Accumulated
|
|
Net
|
|
Gross
|
|
Accumulated
|
|
Net
|
||||||||||||
(in millions)
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
||||||||||||
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Brands
(1)
|
$
|
3,694
|
|
|
$
|
—
|
|
|
$
|
3,694
|
|
|
$
|
2,621
|
|
|
$
|
—
|
|
|
$
|
2,621
|
|
Distribution rights
(2)
|
32
|
|
|
—
|
|
|
32
|
|
|
27
|
|
|
—
|
|
|
27
|
|
||||||
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Customer relationships
(1)
|
106
|
|
|
(79
|
)
|
|
27
|
|
|
76
|
|
|
(76
|
)
|
|
—
|
|
||||||
Non-compete agreements
(1)
|
22
|
|
|
(2
|
)
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Distribution rights
|
18
|
|
|
(10
|
)
|
|
8
|
|
|
16
|
|
|
(8
|
)
|
|
8
|
|
||||||
Brands
|
29
|
|
|
(29
|
)
|
|
—
|
|
|
29
|
|
|
(29
|
)
|
|
—
|
|
||||||
Bottler agreements
|
19
|
|
|
(19
|
)
|
|
—
|
|
|
19
|
|
|
(19
|
)
|
|
—
|
|
||||||
Total
|
$
|
3,920
|
|
|
$
|
(139
|
)
|
|
$
|
3,781
|
|
|
$
|
2,788
|
|
|
$
|
(132
|
)
|
|
$
|
2,656
|
|
(1)
|
As a result of the Bai Brands Merger, the Company recorded indefinite lived brand assets of
$1,073 million
and definite lived customer relationships and non-compete agreements of
$30 million
and
$22 million
respectively.
Refer to Note 3 for additional information
. Indefinite lived brand assets were additionally impacted by a
$1 million
increase due to foreign currency translation, which was offset by the
$1 million
write-off of the Aguafiel brand as described below in
Results of Our Impairment Analyses.
|
(2)
|
In 2017, the Company reacquired certain indefinite lived distribution rights for
$5 million
.
|
|
For the Years Ended December 31,
|
||||||||||||||||||
(in millions)
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
||||||||||
Projected amortization expense for intangible assets with finite lives
|
$
|
15
|
|
|
$
|
14
|
|
|
$
|
9
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
|
2017 Range
|
|
2016 Range
|
|
2015 Range
|
||||||||||||
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
||||||
Goodwill
|
|
5.00
|
%
|
|
8.00
|
%
|
|
5.00
|
%
|
|
9.00
|
%
|
|
5.00
|
%
|
|
9.10
|
%
|
Intangible assets - brands
|
|
6.70
|
%
|
|
8.00
|
%
|
|
7.25
|
%
|
|
10.25
|
%
|
|
7.25
|
%
|
|
10.35
|
%
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||||||||
Headroom Percentage
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
||||||||||||
0 - 10%
(1)
|
|
$
|
1,122
|
|
|
$
|
1,073
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
11 - 20%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
21 - 50%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
51 - 100%
|
|
1,011
|
|
|
655
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
> 100%
|
|
16,508
|
|
|
1,971
|
|
|
17,745
|
|
|
2,622
|
|
|
15,647
|
|
|
2,628
|
|
||||||
|
|
$
|
18,641
|
|
|
$
|
3,699
|
|
|
$
|
17,745
|
|
|
$
|
2,622
|
|
|
$
|
15,647
|
|
|
$
|
2,628
|
|
(1)
|
The Bai brand was acquired nine months prior to the impairment measurement date.
|
•
|
An income tax benefit of
$328 million
primarily due to reducing its net U.S. deferred tax liabilities for the 14% decrease in the U.S. federal statutory tax rate.
|
•
|
Income tax expense of
$31 million
due to the establishment of a valuation allowance for all unused foreign tax credit carryforwards as of December 31, 2017 as the Company no longer believes that any benefit will be realized from these foreign tax credit carryforwards due to U.S. Tax Reform changes including the elimination of tax on foreign dividends.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Current:
|
|
|
|
|
|
|
|
|
|||
Federal
|
$
|
240
|
|
|
$
|
311
|
|
|
$
|
307
|
|
State
|
37
|
|
|
50
|
|
|
52
|
|
|||
Non-U.S.
|
19
|
|
|
44
|
|
|
32
|
|
|||
Total current provision
|
296
|
|
|
405
|
|
|
391
|
|
|||
Deferred:
|
|
|
|
|
|
||||||
Federal
(1)
|
(218
|
)
|
|
18
|
|
|
21
|
|
|||
State
|
14
|
|
|
8
|
|
|
7
|
|
|||
Non-U.S.
|
3
|
|
|
3
|
|
|
1
|
|
|||
Total deferred provision
|
(201
|
)
|
|
29
|
|
|
29
|
|
|||
Total provision for income taxes
|
$
|
95
|
|
|
$
|
434
|
|
|
$
|
420
|
|
(1)
|
For the year ended
December 31, 2017
, the deferred federal provision for income taxes was impacted by the TCJA.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Statutory federal income tax of 35%
|
$
|
411
|
|
|
$
|
449
|
|
|
$
|
414
|
|
State income taxes, net
(1)
|
34
|
|
|
38
|
|
|
39
|
|
|||
U.S. federal domestic manufacturing benefit
|
(27
|
)
|
|
(29
|
)
|
|
(29
|
)
|
|||
Impact of non-U.S. operations
|
(11
|
)
|
|
(8
|
)
|
|
(7
|
)
|
|||
Impact of the TCJA
|
(297
|
)
|
|
—
|
|
|
—
|
|
|||
Other
(2)(3)
|
(15
|
)
|
|
(16
|
)
|
|
3
|
|
|||
Total provision for income taxes
|
$
|
95
|
|
|
$
|
434
|
|
|
$
|
420
|
|
Effective tax rate
|
8.1
|
%
|
|
33.8
|
%
|
|
35.5
|
%
|
(1)
|
For the year ended
December 31, 2017
, the provision for income taxes included an income tax benefit of
$5 million
due primarily to an agreement for an improved filing group with a state tax authority.
|
(2)
|
For the year ended
December 31, 2017
, the provision for income taxes included an income tax benefit of
$19 million
due to the adoption of ASU 2016-09. Refer to Notes 1 and 2 for additional information on the impact of the adoption of ASU 2016-09 on the Company's consolidated financial statements.
|
(3)
|
For the year ended December 31, 2016, the provision for income taxes included an income tax benefit of
$17 million
driven primarily by a restructuring of the ownership of our Canadian business.
|
|
December 31,
|
|
December 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||||
Deferred income tax assets:
|
|
|
|
|
|
||
Deferred revenue
|
$
|
282
|
|
|
$
|
449
|
|
Accrued liabilities
|
50
|
|
|
67
|
|
||
Net operating loss and credit carryforwards
|
39
|
|
|
37
|
|
||
Compensation
|
29
|
|
|
51
|
|
||
Pension and PRMB
|
4
|
|
|
14
|
|
||
Other
|
20
|
|
|
28
|
|
||
|
424
|
|
|
646
|
|
||
Deferred income tax liabilities:
|
|
|
|
||||
Intangible assets and goodwill
|
(793
|
)
|
|
(1,174
|
)
|
||
Fixed assets
|
(123
|
)
|
|
(189
|
)
|
||
Other
|
(19
|
)
|
|
(19
|
)
|
||
|
(935
|
)
|
|
(1,382
|
)
|
||
Valuation allowance
(1)
|
(41
|
)
|
|
(14
|
)
|
||
Net deferred income tax liability
(2)
|
$
|
(552
|
)
|
|
$
|
(750
|
)
|
(1)
|
As of
December 31, 2017
, the Company's valuation allowance was comprised of
$5 million
related to a foreign operation which was established as part of the separation transaction and
$36 million
of foreign tax credits as the Company does not believe that the benefits will be realized in future years as a result of the TCJA, as discussed above.
|
(2)
|
As of
December 31, 2017
, the Company's net deferred income tax liability was impacted by the TCJA.
|
|
December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Beginning balance
|
$
|
27
|
|
|
$
|
19
|
|
|
$
|
13
|
|
Increases related to tax positions taken during the current year
|
—
|
|
|
—
|
|
|
—
|
|
|||
Increases related to tax positions taken during the prior year
|
2
|
|
|
12
|
|
|
10
|
|
|||
Decreases related to tax positions taken during the prior year
|
(4
|
)
|
|
—
|
|
|
(1
|
)
|
|||
Decreases related to settlements with taxing authorities
|
(7
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|||
Decreases related to lapse of applicable statute of limitations
|
(1
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|||
Ending balance
|
$
|
17
|
|
|
$
|
27
|
|
|
$
|
19
|
|
|
As of December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Projected Benefit Obligations
|
|
|
|
|
|
||
As of beginning of year
|
$
|
216
|
|
|
$
|
206
|
|
Service cost
|
3
|
|
|
3
|
|
||
Interest cost
|
9
|
|
|
10
|
|
||
Actuarial losses (gains), net
|
12
|
|
|
9
|
|
||
Benefits paid
|
(3
|
)
|
|
(3
|
)
|
||
Currency exchange adjustments
|
—
|
|
|
(1
|
)
|
||
Settlements
|
(7
|
)
|
|
(8
|
)
|
||
As of end of year
|
$
|
230
|
|
|
$
|
216
|
|
Fair Value of Plan Assets
|
|
|
|
||||
As of beginning of year
|
$
|
177
|
|
|
$
|
169
|
|
Actual return on plan assets
|
23
|
|
|
11
|
|
||
Employer contributions
|
23
|
|
|
8
|
|
||
Benefits paid
|
(3
|
)
|
|
(3
|
)
|
||
Currency exchange adjustments
|
—
|
|
|
—
|
|
||
Settlements
|
(7
|
)
|
|
(8
|
)
|
||
As of end of year
|
$
|
213
|
|
|
$
|
177
|
|
|
|
|
|
||||
Funded status of plan / net amount recognized
|
$
|
(17
|
)
|
|
$
|
(39
|
)
|
|
|
|
|
||||
Net amount recognized consists of:
|
|
|
|
||||
Current liabilities
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Non-current liabilities
|
(16
|
)
|
|
(38
|
)
|
||
Net amount recognized
|
$
|
(17
|
)
|
|
$
|
(39
|
)
|
|
As of December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Aggregate projected benefit obligation
|
$
|
92
|
|
|
$
|
201
|
|
Aggregate accumulated benefit obligation
|
91
|
|
|
200
|
|
||
Aggregate fair value of plan assets
|
75
|
|
|
163
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Net Periodic Benefit Costs
|
|
|
|
|
|
|
|
|
|||
Service cost
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Interest cost
|
9
|
|
|
10
|
|
|
9
|
|
|||
Expected return on assets
|
(8
|
)
|
|
(8
|
)
|
|
(9
|
)
|
|||
Amortization of net actuarial loss
|
4
|
|
|
3
|
|
|
4
|
|
|||
Settlements
|
1
|
|
|
2
|
|
|
3
|
|
|||
Net periodic benefit costs
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
10
|
|
Changes Recognized in OCI
|
|
|
|
|
|
||||||
Settlement effects
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
Current year net actuarial (gain) loss
|
(3
|
)
|
|
7
|
|
|
2
|
|
|||
Recognition of net actuarial loss
|
(4
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|||
Total recognized in OCI
|
$
|
(8
|
)
|
|
$
|
1
|
|
|
$
|
(5
|
)
|
|
As of December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Prior service cost
|
$
|
1
|
|
|
$
|
1
|
|
Net losses
|
46
|
|
|
54
|
|
||
Amounts in AOCL
|
$
|
47
|
|
|
$
|
55
|
|
|
Projected
|
|
For the Year ended December 31,
|
||||||||
(in millions)
|
2018
|
|
2017
|
|
2016
|
||||||
Pension Plan Contributions
(1)
|
$
|
1
|
|
|
$
|
23
|
|
|
$
|
8
|
|
(1)
|
The contributions for the years ended December 31,
2017
and
2016
included
$22 million
and
$7 million
, respectively, of discretionary contributions.
|
(in millions)
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023-2027
|
||||||||||||
Pension plan expected future benefit payments
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
66
|
|
|
Fixed Income
|
|
Equity
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
||||||
Asset Allocation Assumption
|
80
|
%
|
|
75
|
%
|
|
75
|
%
|
|
20
|
%
|
|
25
|
%
|
|
25
|
%
|
Expected rate of long term return
|
4.40
|
%
|
|
3.20
|
%
|
|
3.70
|
%
|
|
7.80
|
%
|
|
8.50
|
%
|
|
8.70
|
%
|
|
U.S. Pension Plans
|
|
Foreign Pension Plans
|
||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Weighted-average discount rate
|
3.70
|
%
|
|
4.25
|
%
|
|
4.90
|
%
|
|
5.25
|
%
|
Rate of increase in compensation levels
|
3.00
|
%
|
|
3.00
|
%
|
|
3.89
|
%
|
|
3.89
|
%
|
|
Target Range
|
||
Asset Category
|
2017
|
|
2016
|
U.S. equity securities
|
5% - 15%
|
|
16% - 20%
|
International equity securities
|
5% - 15%
|
|
6% - 8%
|
U.S. fixed income
|
70% - 90%
|
|
69% - 81%
|
|
Target
|
|
As of December 31,
|
|||||
Asset Category
|
2018
|
|
2017
|
|
2016
|
|||
Equity securities
|
20
|
%
|
|
20
|
%
|
|
25
|
%
|
Fixed income
|
80
|
%
|
|
80
|
%
|
|
75
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Fair Value Measurements as of December 31, 2017
|
||||||||||||
|
Fair Value Hierarchy Level
|
|
|
|
Pension Assets
|
|
PRMB Assets
|
||||||
(in millions)
|
|
Total
|
|
|
|||||||||
Cash and cash equivalents
|
Level 1
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Equity securities
(1)
|
|
|
|
|
|
|
|
||||||
U.S. Large-Cap equities
(2)
|
Level 2
|
|
21
|
|
|
20
|
|
|
1
|
|
|||
International equities
(2)
|
Level 2
|
|
17
|
|
|
17
|
|
|
—
|
|
|||
Fixed income securities
|
|
|
|
|
|
|
|
||||||
International bonds
(2)
|
Level 2
|
|
16
|
|
|
16
|
|
|
—
|
|
|||
Fixed income commingled funds
(3)
|
Level 2
|
|
164
|
|
|
158
|
|
|
6
|
|
|||
Total assets
|
|
|
$
|
220
|
|
|
$
|
213
|
|
|
$
|
7
|
|
|
Fair Value Measurements as of December 31, 2016
|
||||||||||||
|
Fair Value Hierarchy Level
|
|
|
|
Pension Assets
|
|
PRMB Assets
|
||||||
(in millions)
|
|
Total
|
|
|
|||||||||
Cash and cash equivalents
|
Level 1
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Equity securities
(1)
|
|
|
|
|
|
|
|
||||||
U.S. Large-Cap equities
(2)
|
Level 2
|
|
30
|
|
|
29
|
|
|
1
|
|
|||
International equities
(2)
|
Level 2
|
|
14
|
|
|
13
|
|
|
1
|
|
|||
Fixed income securities
|
|
|
|
|
|
|
|
||||||
International bonds
(2)
|
Level 2
|
|
13
|
|
|
13
|
|
|
—
|
|
|||
Fixed income commingled funds
(3)
|
Level 2
|
|
122
|
|
|
118
|
|
|
4
|
|
|||
Total assets
|
|
|
$
|
183
|
|
|
$
|
177
|
|
|
$
|
6
|
|
(1)
|
Equity securities are comprised of actively managed
U.S.
index funds and Europe, Australia, Far East ("
EAFE
") index funds.
|
(2)
|
The NAV is based on the fair value of the underlying assets owned by the equity index fund or fixed income investment vehicle per share multiplied by the number of units held as of the measurement date and are classified as Level 2 assets.
|
(3)
|
Fixed income commingled funds are comprised of a diversified portfolio of investment-grade corporate and government securities. Investments are provided by the investment managers using a unit price or NAV based on the fair value of the underlying investments of the funds.
|
•
|
Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
|
•
|
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
•
|
If the
Company
chooses to stop participating in some of its multi-employer plans, the
Company
may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Multi-employer Plan Expense
|
|
|
|
|
|
|
|
|
|||
Contributions to individually significant multi-employer plan
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Contributions to all other multi-employer plans
|
4
|
|
|
3
|
|
|
3
|
|
|||
Total
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Legal name of the plan
|
|
Central States, Southeast and Southwest Areas Pension Fund ("Central States")
|
Plan's Employer Identification Number
|
|
36-6044243
|
Plan Number
|
|
001
|
Expiration dates of the collective bargaining agreements
|
|
February 17, 2018 - May 1, 2020
(2)
|
FIP/RP Status Pending/Implemented
(1)
|
|
Yes
|
PPA zone status as of December 31, 2016 and 2015
|
|
Red
|
Surcharge imposed
|
|
Yes
|
(1)
|
FIP/RP Status Pending/Implemented indicates the plan for which a financial improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or implemented.
|
(2)
|
Central States
includes
eight
collective bargaining agreements. The largest agreement, which is set to expire February 29, 2020, covers approximately
50%
of the employees included in
Central States
. Three of the collective bargaining agreements are set to expire during 2018, covering approximately
11%
of the employees included in
Central States
.
|
|
For the Years Ended December 31,
|
||||||||||||||||||
(in millions)
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
||||||||||
Future estimated contributions to the Central States
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fair Value Hierarchy Level
|
|
For the Year Ended December 31,
|
||||||
(in millions)
|
|
2017
|
|
2016
|
|||||
Marketable securities - trading
|
Level 1
|
|
$
|
48
|
|
|
$
|
35
|
|
7
.
|
Long-term Obligations and Borrowing Arrangements
|
|
December 31,
|
|
December 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||||
Senior unsecured notes
|
$
|
4,230
|
|
|
$
|
4,325
|
|
Capital lease obligations
|
183
|
|
|
153
|
|
||
Subtotal
|
4,413
|
|
|
4,478
|
|
||
Less — current portion
|
(13
|
)
|
|
(10
|
)
|
||
Long-term obligations
|
$
|
4,400
|
|
|
$
|
4,468
|
|
|
Fair Value Hierarchy Level
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
(in millions)
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|||||||||
Commercial paper
|
1
|
|
$
|
66
|
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current portion of long-term obligations:
|
|
|
|
|
|
|
|
|
|
||||||||
Capital lease obligations
(1)
|
N/A
|
|
13
|
|
|
|
|
10
|
|
|
|
||||||
Short-term borrowings and current portion of long-term obligations
|
|
|
$
|
79
|
|
|
$
|
66
|
|
|
$
|
10
|
|
|
$
|
—
|
|
(1)
|
Capital lease obligations are specifically excluded from the calculation of fair value under U.S. GAAP.
|
(in millions)
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
Issuance
|
|
Maturity Date
|
|
Rate
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|||||||||
2018 Notes
(1)
|
|
May 1, 2018
|
|
6.82%
|
|
2
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
364
|
|
|
$
|
389
|
|
2019 Notes
|
|
January 15, 2019
|
|
2.60%
|
|
2
|
|
250
|
|
|
251
|
|
|
250
|
|
|
254
|
|
||||
2020 Notes
|
|
January 15, 2020
|
|
2.00%
|
|
2
|
|
250
|
|
|
248
|
|
|
250
|
|
|
248
|
|
||||
2021-A Notes
|
|
November 15, 2021
|
|
3.20%
|
|
2
|
|
250
|
|
|
255
|
|
|
250
|
|
|
256
|
|
||||
2021-B Notes
|
|
November 15, 2021
|
|
2.53%
|
|
2
|
|
250
|
|
|
249
|
|
|
250
|
|
|
248
|
|
||||
2022 Notes
|
|
November 15, 2022
|
|
2.70%
|
|
2
|
|
250
|
|
|
248
|
|
|
250
|
|
|
247
|
|
||||
2023 Notes
|
|
December 15, 2023
|
|
3.13%
|
|
2
|
|
500
|
|
|
504
|
|
|
500
|
|
|
500
|
|
||||
2025 Notes
|
|
November 15, 2025
|
|
3.40%
|
|
2
|
|
500
|
|
|
508
|
|
|
500
|
|
|
498
|
|
||||
2026 Notes
|
|
September 15, 2026
|
|
2.55%
|
|
2
|
|
400
|
|
|
378
|
|
|
400
|
|
|
370
|
|
||||
2027 Notes
(2)
|
|
June 15, 2027
|
|
3.43%
|
|
2
|
|
500
|
|
|
501
|
|
|
400
|
|
|
398
|
|
||||
2038 Notes
(1)
|
|
May 1, 2038
|
|
7.45%
|
|
2
|
|
125
|
|
|
179
|
|
|
250
|
|
|
347
|
|
||||
2045 Notes
(2)
|
|
November 15, 2045
|
|
4.50%
|
|
2
|
|
550
|
|
|
588
|
|
|
250
|
|
|
253
|
|
||||
2046 Notes
|
|
December 15, 2046
|
|
4.42%
|
|
2
|
|
400
|
|
|
424
|
|
|
400
|
|
|
407
|
|
||||
Principal amount
|
|
|
|
|
|
|
|
4,225
|
|
|
4,333
|
|
|
4,314
|
|
|
4,415
|
|
||||
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unamortized premiums, discounts, and debt issuance costs
|
|
|
|
(13
|
)
|
|
|
|
(30
|
)
|
|
|
||||||||||
Adjustments to carrying value for interest rate swaps
(3)
|
|
|
|
18
|
|
|
|
|
41
|
|
|
|
||||||||||
Carrying amount
|
|
|
|
|
|
$
|
4,230
|
|
|
|
|
$
|
4,325
|
|
|
|
(1)
|
In June 2017, the
Company
completed a tender offer for a portion of its
2018 Notes
and its
2038 Notes
, and in July 2017, the
Company
redeemed the remainder of its
2018 Notes
. As a result of these transactions, the
Company
retired, at a premium, an aggregate principal amount of approximately
$364 million
of the
2018 Notes
and approximately
$125 million
of the
2038 Notes
. The total loss on early extinguishment of the
2018 Notes
and the
2038 Notes
was approximately
$62 million
, comprised of
$75 million
for the principal amount, the early tender premium, the make-whole premium, and the write off of deferred financing costs, partially offset by a
$13 million
gain on the termination of interest rate swap related to the
2038 Notes
.
Refer to Note 8 for additional information
on the termination of the interest rate swap.
|
(2)
|
In June 2017, the
Company
issued
$400 million
of senior unsecured notes, consisting of
$100 million
aggregate principal amount of
2027 Notes
and
$300 million
aggregate principal amount of
2045 Notes
in a private offering under Rule 144A under the Securities Act of 1933, as amended. The
2027 Notes
and
2045 Notes
have substantially identical terms, other than with respect to transfer restrictions and registration rights, as the previously issued
2027 Notes
and
2045 Notes
. A portion of the proceeds from the issuance of the
2027 Notes
and
2045 Notes
was used to complete the June 2017 tender offer and July 2017 redemption described in (1) above.
|
(3)
|
Refer to Note 8 for additional information
on the
Company
's interest rate swaps.
|
(in millions)
|
Amount Utilized
|
|
Balances Available
|
||||
Revolver
|
$
|
—
|
|
|
$
|
434
|
|
Letters of credit
|
—
|
|
|
75
|
|
(in millions, except number of instruments)
|
|
|
|
|
|
Impact to the carrying value of long-term debt
|
||||||||||||
Period entered
|
|
Hedging relationship
|
|
Number of instruments
|
|
Method of measuring effectiveness
|
|
Notional value
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||
November 2011
|
|
2019 Notes
|
|
2
|
|
Short cut method
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
November 2011
|
|
2021-A Notes
|
|
2
|
|
Short cut method
|
|
150
|
|
|
(1
|
)
|
|
—
|
|
|||
November 2012
|
|
2020 Notes
|
|
5
|
|
Short cut method
|
|
120
|
|
|
(2
|
)
|
|
(2
|
)
|
|||
December 2016
|
|
2021-B Notes
|
|
2
|
|
Short cut method
|
|
250
|
|
|
(4
|
)
|
|
(2
|
)
|
|||
December 2016
|
|
2023 Notes
|
|
2
|
|
Short cut method
|
|
150
|
|
|
(3
|
)
|
|
(1
|
)
|
|||
January 2017
|
|
2022 Notes
(2)
|
|
4
|
|
Regression
|
|
250
|
|
|
17
|
|
|
24
|
|
|||
June 2017
|
|
2038 Notes
(1)
|
|
1
|
|
Regression
|
|
50
|
|
|
11
|
|
|
22
|
|
|||
|
|
|
|
|
|
|
|
$
|
1,070
|
|
|
$
|
18
|
|
|
$
|
41
|
|
(1)
|
In June 2017, and in connection with the partial redemption of the 2038 Notes, the Company modified and partially terminated the outstanding interest rate swap on the 2038 Notes with a notional amount of
$100 million
and maturing in May 2038. The modified interest rate swap has identical terms to the original interest rate swap, except for a reduced notional amount of
$50 million
. The Company received
$13 million
as settlement for the modification and partial termination of the swap. As a result of this transaction, the Company de-designated the original hedging relationship. Under the original hedging relationship, the Company recorded
$26 million
as an increase to the carrying value of debt due to changes in the fair market value of the debt, pull to par adjustments and ineffectiveness. The Company recognized a
$13 million
gain into earnings, which reduced the loss on early extinguishment of debt, as part of the partial redemption of the 2038 Notes. The remaining
$13 million
increase in the carrying value of the outstanding 2038 Notes will be amortized into earnings over the remaining term of the 2038 Notes. The Company then designated the new interest rate swap contract as a fair value hedge with a notional amount of
$50 million
and maturing in May 2038 in order to effectively convert a portion of the outstanding 2038 Notes from fixed-rate debt to floating-rate debt. The Company uses regression analysis to assess the prospective and retrospective effectiveness of this hedging relationship.
|
(2)
|
In October 2016, the Company de-designated the hedging relationships between the four outstanding interest rate swaps and the 2022 Notes. The Company will amortize
$25 million
into earnings over the remaining term of the 2022 Notes which represents the increase to the carrying value of the debt upon de-designation consisting of changes in fair market value of the debt, pull to par adjustments and ineffectiveness recorded under the previous hedging relationship. The Company recorded the change in the fair value of the interest rate swaps after de-designation into interest expense. In January 2017, the Company re-designated the hedging relationships between the four outstanding interest rate swaps and the 2022 Notes, which were de-designated in 2016. The Company uses regression analysis to assess the prospective and retrospective effectiveness of these hedging relationships.
|
(in millions)
|
Fair Value Hierarchy Level
|
|
Balance Sheet Location
|
|
December 31,
2017 |
|
December 31,
2016 |
||||
Assets:
|
|
|
|
|
|
|
|
||||
Interest rate contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
$
|
3
|
|
|
$
|
6
|
|
FX forward contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
2
|
|
|
—
|
|
||
Interest rate contracts
|
2
|
|
Other non-current assets
|
|
16
|
|
|
21
|
|
||
Liabilities:
|
|
|
|
|
|
|
|
||||
Interest rate contracts
|
2
|
|
Other current liabilities
|
|
3
|
|
|
1
|
|
||
Interest rate contracts
|
2
|
|
Other non-current liabilities
|
|
8
|
|
|
7
|
|
(in millions)
|
Fair Value Hierarchy Level
|
|
Balance Sheet Location
|
|
December 31,
2017 |
|
December 31,
2016 |
||||
Assets:
|
|
|
|
|
|
|
|
||||
Interest rate contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
$
|
4
|
|
Commodity contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
27
|
|
|
9
|
|
||
Interest rate contracts
|
2
|
|
Other non-current assets
|
|
—
|
|
|
8
|
|
||
Commodity contracts
|
2
|
|
Other non-current assets
|
|
17
|
|
|
12
|
|
||
Liabilities:
|
|
|
|
|
|
|
|
||||
Commodity contracts
|
2
|
|
Other current liabilities
|
|
—
|
|
|
1
|
|
(in millions)
|
Amount of (Loss) Gain Recognized in Other Comprehensive Loss ("OCL")
|
|
Amount of (Loss) Gain Reclassified from AOCL into Income
|
|
Location of (Loss) Gain Reclassified from AOCL into Income
|
||||
For the year ended December 31, 2017:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
Interest expense
|
Foreign exchange forward contracts
|
(8
|
)
|
|
(9
|
)
|
|
Cost of sales
|
||
Total
|
$
|
(8
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
||||
For the year ended December 31, 2016:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
2
|
|
|
$
|
(8
|
)
|
|
Interest expense
|
Foreign exchange forward contracts
|
(2
|
)
|
|
(1
|
)
|
|
Cost of sales
|
||
Total
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
||||
For the year ended December 31, 2015:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
(5
|
)
|
|
$
|
(8
|
)
|
|
Interest expense
|
Foreign exchange forward contracts
|
2
|
|
|
2
|
|
|
Cost of sales
|
||
Total
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
|
(in millions)
|
|
Amount of Gain (Loss) Recognized in Income
|
|
Location of Gain (Loss)
Recognized in Income
|
||
For the year ended December 31, 2017:
|
|
|
|
|
||
Interest rate contracts
(1)(2)(3)
|
|
$
|
12
|
|
|
Interest expense
|
Interest rate contracts
|
|
13
|
|
|
Loss on early extinguishment of debt
|
|
Total
|
|
$
|
25
|
|
|
|
|
|
|
|
|
||
For the year ended December 31, 2016:
|
|
|
|
|
||
Interest rate contracts
(1)(2)(3)
|
|
$
|
12
|
|
|
Interest expense
|
|
|
|
|
|
||
For the year ended December 31, 2015:
|
|
|
|
|
||
Interest rate contracts
(1)(3)
|
|
$
|
17
|
|
|
Interest expense
|
(1)
|
Includes amortization of the interest rate swap associated with the 2038 Notes which was de-designated in February 2015.
|
(2)
|
Includes amortization of the interest rate swaps associated with the 2022 Notes which were de-designated in October 2016.
|
(3)
|
Includes basis adjustments related to the 2038 Notes and 2022 Notes prior to de-designation.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Hedge ineffectiveness recognized in earnings
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
(in millions)
|
|
Amount of Gain (Loss) Recognized in Income
|
|
Location of Gain (Loss) Recognized in Income
|
||
For the year ended December 31, 2017:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
32
|
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
4
|
|
|
SG&A expenses
|
|
Interest rate contracts
(2)
|
|
1
|
|
|
Interest expense
|
|
Total
|
|
$
|
37
|
|
|
|
|
|
|
|
|
||
For the year ended December 31, 2016:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
11
|
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
18
|
|
|
SG&A expenses
|
|
Interest rate contracts
(2)
|
|
(11
|
)
|
|
Interest expense
|
|
Total
|
|
$
|
18
|
|
|
|
|
|
|
|
|
||
For the year ended December 31, 2015:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
(24
|
)
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
(14
|
)
|
|
SG&A expenses
|
|
Total
|
|
$
|
(38
|
)
|
|
|
(1)
|
Commodity contracts include both realized and unrealized gains and losses.
|
(2)
|
Represents gains and losses on the interest rate contracts related to the 2022 Notes after the hedging relationship was de-designated in October 2016 until it was re-designated in January 2017.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Total stock-based compensation expense
|
$
|
36
|
|
|
$
|
45
|
|
|
$
|
44
|
|
Income tax benefit recognized in the income statement
(1)
|
(9
|
)
|
|
(16
|
)
|
|
(15
|
)
|
|||
Stock-based compensation expense, net of tax
|
$
|
27
|
|
|
$
|
29
|
|
|
$
|
29
|
|
(1)
|
The year ended
December 31, 2017
income tax benefit recognized related to stock-based compensation expense was impacted by the TCJA.
|
Stock Award Type
|
|
Vesting Schedule
|
|
RSUs
|
|
Grants in 2015
|
Vest after three years
|
|
|
Grants in 2016 and 2017
|
Executive officers: vest after three years
All others: vest ratably on each anniversary date over three years
|
PSUs
|
|
|
Vest after three years
|
Stock options
|
|
|
Vest ratably on each anniversary date over three years
|
|
|
For the Year Ended December 31,
|
||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||
Fair value of options at grant date
|
|
$
|
9.95
|
|
|
$
|
9.92
|
|
|
$
|
9.22
|
|
Risk free interest rate
|
|
1.62
|
%
|
|
0.99
|
%
|
|
1.28
|
%
|
|||
Expected term of options (in years)
|
|
3.6
|
|
|
3.6
|
|
|
3.9
|
|
|||
Dividend yield
|
|
2.55
|
%
|
|
2.30
|
%
|
|
2.55
|
%
|
|||
Expected volatility
|
|
17.19
|
%
|
|
18.22
|
%
|
|
18.98
|
%
|
|
Stock Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding as of January 1, 2017
|
1,342,921
|
|
|
$
|
70.83
|
|
|
7.93
|
|
$
|
27
|
|
Granted
|
423,745
|
|
|
94.62
|
|
|
|
|
|
|||
Exercised
|
(379,633
|
)
|
|
53.28
|
|
|
|
|
16
|
|
||
Forfeited or expired
|
(14,427
|
)
|
|
90.18
|
|
|
|
|
|
|||
Outstanding as of December 31, 2017
|
1,372,606
|
|
|
82.83
|
|
|
7.86
|
|
20
|
|
||
Exercisable as of December 31, 2017
|
556,704
|
|
|
70.53
|
|
|
6.90
|
|
15
|
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding as of January 1, 2017
|
1,218,244
|
|
|
$
|
71.08
|
|
|
0.80
|
|
$
|
110
|
|
Granted
|
412,059
|
|
|
94.41
|
|
|
|
|
|
|||
Vested and released
|
(626,453
|
)
|
|
58.43
|
|
|
|
|
59
|
|
||
Forfeited
|
(61,726
|
)
|
|
90.29
|
|
|
|
|
|
|||
Outstanding as of December 31, 2017
|
942,124
|
|
|
88.44
|
|
|
0.82
|
|
91
|
|
|
|
For the Year Ended December 31,
|
|||||||
|
|
2017
|
|
2016
|
|
2015
|
|||
Risk-free interest rate
|
|
1.56
|
%
|
|
0.98
|
%
|
|
1.00
|
%
|
Expected volatility
|
|
17.26
|
%
|
|
17.29
|
%
|
|
16.29
|
%
|
Performance period (years)
|
|
2.8
|
|
|
2.8
|
|
|
2.8
|
|
|
PSUs
|
|
Weighted Average Grant Date Fair Value
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding as of January 1, 2017
|
374,618
|
|
|
$
|
64.86
|
|
|
0.89
|
|
$
|
34
|
|
Granted
|
120,373
|
|
|
84.98
|
|
|
|
|
|
|||
Performance adjustment
(1)
|
146,313
|
|
|
51.68
|
|
|
|
|
|
|||
Vested and released
|
(296,821
|
)
|
|
51.78
|
|
|
|
|
28
|
|
||
Forfeited
|
(14,993
|
)
|
|
80.93
|
|
|
|
|
|
|||
Outstanding as of December 31, 2017
|
329,490
|
|
|
51.69
|
|
|
0.98
|
|
32
|
|
(1)
|
For
PSU
s which vested during the year ended
December 31, 2017
, the Company awarded additional PSUs, as actual results measured at the end of the performance period exceeded target performance levels.
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions, except per share data)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Basic EPS:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
1,076
|
|
|
$
|
847
|
|
|
$
|
764
|
|
Weighted average common shares outstanding
|
|
182.0
|
|
|
185.4
|
|
|
190.9
|
|
|||
Earnings per common share — basic
|
|
$
|
5.91
|
|
|
$
|
4.57
|
|
|
$
|
4.00
|
|
Diluted EPS:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
1,076
|
|
|
$
|
847
|
|
|
$
|
764
|
|
Weighted average common shares outstanding
|
|
182.0
|
|
|
185.4
|
|
|
190.9
|
|
|||
Effect of dilutive securities:
|
|
|
|
|
|
|
||||||
Stock options
|
|
0.2
|
|
|
0.2
|
|
|
0.3
|
|
|||
RSUs
|
|
0.5
|
|
|
0.7
|
|
|
0.9
|
|
|||
PSUs
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
|||
Weighted average common shares outstanding and common stock equivalents
(1)
|
|
182.8
|
|
|
186.6
|
|
|
192.4
|
|
|||
Earnings per common share — diluted
|
|
$
|
5.89
|
|
|
$
|
4.54
|
|
|
$
|
3.97
|
|
(1)
|
For the years ended
December 31, 2017
,
2016
and
2015
, stock options,
RSU
s,
PSU
s and associated
DEUs
totaling
1.0 million
,
0.5 million
and
0.3 million
shares, respectively, were excluded from the diluted weighted average shares outstanding as they were not dilutive.
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Shares repurchased and retired
|
|
4.4
|
|
|
5.7
|
|
|
6.5
|
|
|||
Dollar value of shares repurchased and retired
|
|
$
|
399
|
|
|
$
|
519
|
|
|
$
|
521
|
|
11
.
|
Property, Plant and Equipment
|
|
December 31,
|
|
December 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||||
Land
|
$
|
81
|
|
|
$
|
73
|
|
Buildings and improvements
|
576
|
|
|
533
|
|
||
Machinery and equipment
|
1,664
|
|
|
1,569
|
|
||
Cold drink equipment
|
273
|
|
|
268
|
|
||
Software
|
261
|
|
|
253
|
|
||
Construction in progress
|
48
|
|
|
26
|
|
||
Gross property, plant and equipment
|
2,903
|
|
|
2,722
|
|
||
Less: accumulated depreciation and amortization
|
(1,705
|
)
|
|
(1,584
|
)
|
||
Net property, plant and equipment
|
$
|
1,198
|
|
|
$
|
1,138
|
|
|
December 31,
|
|
December 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||||
Buildings and improvements
|
$
|
53
|
|
|
$
|
49
|
|
Machinery and equipment
|
153
|
|
|
116
|
|
||
Gross property, plant and equipment under capital lease
|
206
|
|
|
165
|
|
||
Less: accumulated depreciation and amortization
|
(39
|
)
|
|
(26
|
)
|
||
Net property, plant and equipment under capital lease
|
$
|
167
|
|
|
$
|
139
|
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Cost of sales
|
|
$
|
103
|
|
|
$
|
95
|
|
|
$
|
93
|
|
Depreciation and amortization
|
|
95
|
|
|
96
|
|
|
99
|
|
|||
|
|
$
|
198
|
|
|
$
|
191
|
|
|
$
|
192
|
|
(in millions)
|
|
Operating Leases
|
|
Capital Leases
|
||||
2018
|
|
$
|
39
|
|
|
$
|
24
|
|
2019
|
|
35
|
|
|
24
|
|
||
2020
|
|
31
|
|
|
23
|
|
||
2021
|
|
28
|
|
|
23
|
|
||
2022
|
|
23
|
|
|
23
|
|
||
Thereafter
|
|
104
|
|
|
201
|
|
||
Total minimum lease payments
|
|
$
|
260
|
|
|
$
|
318
|
|
Less imputed interest
|
|
|
|
(135
|
)
|
|||
Present value of minimum lease payments
|
|
|
|
$
|
183
|
|
13
.
|
Inventories
|
|
December 31,
|
|
December 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||||
Raw materials
|
$
|
81
|
|
|
$
|
77
|
|
Spare parts
|
24
|
|
|
22
|
|
||
Work in process
|
7
|
|
|
5
|
|
||
Finished goods
|
149
|
|
|
130
|
|
||
Inventories at FIFO cost
|
261
|
|
|
234
|
|
||
Reduction to LIFO cost
|
(32
|
)
|
|
(32
|
)
|
||
Inventories
|
$
|
229
|
|
|
$
|
202
|
|
|
December 31,
|
|
December 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||||
Prepaid expenses and other current assets:
|
|
|
|
||||
Customer incentive programs
|
$
|
16
|
|
|
$
|
24
|
|
Derivative instruments
|
32
|
|
|
19
|
|
||
Prepaid income taxes
|
7
|
|
|
18
|
|
||
Current assets held for sale
|
—
|
|
|
1
|
|
||
Other
|
44
|
|
|
39
|
|
||
Total prepaid expenses and other current assets
|
$
|
99
|
|
|
$
|
101
|
|
Other non-current assets:
|
|
|
|
||||
Customer incentive programs
|
$
|
76
|
|
|
$
|
57
|
|
Marketable securities - trading
|
48
|
|
|
35
|
|
||
Derivative instruments
|
33
|
|
|
41
|
|
||
Cost method investments
(1)
|
1
|
|
|
16
|
|
||
Non-current restricted cash and restricted cash equivalents
(2)
|
79
|
|
|
—
|
|
||
Other
|
42
|
|
|
34
|
|
||
Total other non-current assets
|
$
|
279
|
|
|
$
|
183
|
|
|
|
|
|
||||
Other current liabilities:
|
|
|
|
||||
Customer rebates and incentives
|
$
|
299
|
|
|
$
|
280
|
|
Accrued compensation
|
130
|
|
|
134
|
|
||
Insurance liability
|
34
|
|
|
36
|
|
||
Interest accrual
|
20
|
|
|
24
|
|
||
Dividends payable
|
103
|
|
|
97
|
|
||
Derivative instruments
|
3
|
|
|
2
|
|
||
Holdback liability to former Bai Brands shareholders
(2)
|
7
|
|
|
—
|
|
||
Acquired contingent liabilities
(2)
|
14
|
|
|
—
|
|
||
Other
|
109
|
|
|
97
|
|
||
Total other current liabilities
|
$
|
719
|
|
|
$
|
670
|
|
Other non-current liabilities:
|
|
|
|
|
|
||
Long-term payables due to Mondelēz International, Inc.
|
$
|
16
|
|
|
$
|
21
|
|
Long-term pension and PRMB liability
|
19
|
|
|
41
|
|
||
Insurance liability
|
60
|
|
|
67
|
|
||
Derivative instruments
|
8
|
|
|
7
|
|
||
Deferred compensation liability
|
48
|
|
|
35
|
|
||
Holdback liability to former Bai Brands shareholders
(2)
|
79
|
|
|
—
|
|
||
Acquired contingent liabilities
(2)
|
5
|
|
|
—
|
|
||
Other
|
29
|
|
|
38
|
|
||
Total other non-current liabilities
|
$
|
264
|
|
|
$
|
209
|
|
(1)
|
The decrease in cost method investments resulted from our consummation of the Bai Brands Merger, as we had a cost method investment in Bai Brands as of
December 31,
2016.
Refer to Note 3 for additional information
regarding the Bai Brands Merger and treatment of our previously held interest in Bai Brands.
|
(2)
|
Refer to Note 3 for additional information
on non-current restricted cash and restricted cash equivalents, the corresponding holdback liability to former Bai Brands shareholders, and the acquired contingent liabilities, as of
December 31,
2017
.
|
(in millions)
|
Foreign Currency Translation Adjustments
|
|
Net Change in Pension and PRMB Liability
|
|
Net Change in Cash Flow Hedges
|
|
Accumulated Other Comprehensive Loss
|
||||||||
Balance as of January 1, 2015
|
$
|
(61
|
)
|
|
$
|
(40
|
)
|
|
$
|
(36
|
)
|
|
$
|
(137
|
)
|
OCI before reclassifications
|
(64
|
)
|
|
—
|
|
|
(2
|
)
|
|
(66
|
)
|
||||
Amounts reclassified from AOCL
|
—
|
|
|
4
|
|
|
4
|
|
|
8
|
|
||||
Net current year OCI
|
(64
|
)
|
|
4
|
|
|
2
|
|
|
(58
|
)
|
||||
Balance as of December 31, 2015
|
(125
|
)
|
|
(36
|
)
|
|
(34
|
)
|
|
(195
|
)
|
||||
OCI before reclassifications
|
(39
|
)
|
|
(5
|
)
|
|
—
|
|
|
(44
|
)
|
||||
Amounts reclassified from AOCL
|
—
|
|
|
4
|
|
|
6
|
|
|
10
|
|
||||
Net current year OCI
|
(39
|
)
|
|
(1
|
)
|
|
6
|
|
|
(34
|
)
|
||||
Balance as of December 31, 2016
|
(164
|
)
|
|
(37
|
)
|
|
(28
|
)
|
|
(229
|
)
|
||||
OCI before reclassifications
|
16
|
|
|
1
|
|
|
(7
|
)
|
|
10
|
|
||||
Amounts reclassified from AOCL
|
—
|
|
|
4
|
|
|
13
|
|
|
17
|
|
||||
Net current year OCI
|
16
|
|
|
5
|
|
|
6
|
|
|
27
|
|
||||
Balance as of December 31, 2017
|
$
|
(148
|
)
|
|
$
|
(32
|
)
|
|
$
|
(22
|
)
|
|
$
|
(202
|
)
|
|
Location of (Loss) Gain Reclassified from AOCL into Net Income
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|||||||
(Loss) Gain on cash flow hedges:
|
|
|
|
|
|
|
|
||||||
Interest rate contracts
|
Interest expense
|
|
$
|
(9
|
)
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
Foreign exchange forward contracts
|
Cost of sales
|
|
(9
|
)
|
|
(1
|
)
|
|
2
|
|
|||
Total
|
|
|
(18
|
)
|
|
(9
|
)
|
|
(6
|
)
|
|||
Income tax expense
|
|
|
(5
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|||
Total
|
|
|
$
|
(13
|
)
|
|
$
|
(6
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
||||||
Defined benefit pension and PRMB plan items:
|
|
|
|
|
|
|
|
||||||
Amortization of actuarial losses, net
|
SG&A expenses
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Settlement loss
|
SG&A expenses
|
|
(1
|
)
|
|
(2
|
)
|
|
(3
|
)
|
|||
Total
|
|
|
(5
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|||
Income tax expense
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(3
|
)
|
|||
Total
|
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Total reclassifications
|
|
|
$
|
(17
|
)
|
|
$
|
(10
|
)
|
|
$
|
(8
|
)
|
|
Fair Value Hierarchy
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
(in millions)
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|||||||||
Cash and cash equivalents
|
Level 1
|
|
$
|
61
|
|
|
$
|
61
|
|
|
$
|
1,787
|
|
|
$
|
1,787
|
|
Restricted cash and restricted cash equivalents
(1)
|
Level 1
|
|
18
|
|
|
18
|
|
|
—
|
|
|
—
|
|
||||
Non-current restricted cash and restricted cash equivalents included in Other non-current assets
(1)
|
Level 1
|
|
79
|
|
|
79
|
|
|
—
|
|
|
—
|
|
||||
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the Consolidated Statement of Cash Flows
|
|
|
$
|
158
|
|
|
$
|
158
|
|
|
$
|
1,787
|
|
|
$
|
1,787
|
|
(1)
|
Amounts included in restricted cash and restricted cash equivalents represent the holdback held in escrow in connection with the Bai Brands Merger.
Refer to Note 3 for additional information
on the Bai Brands Merger.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Supplemental cash flow disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
||||||
Dividends declared but not yet paid
|
$
|
103
|
|
|
$
|
97
|
|
|
$
|
90
|
|
Capital expenditures included in accounts payable and other current liabilities
|
18
|
|
|
11
|
|
|
14
|
|
|||
Holdback liability for acquisition of business
|
86
|
|
|
—
|
|
|
—
|
|
|||
Capital lease additions
|
42
|
|
|
26
|
|
|
55
|
|
|||
Supplemental cash flow disclosures:
|
|
|
|
|
|
||||||
Interest paid
|
$
|
143
|
|
|
$
|
117
|
|
|
$
|
94
|
|
Income taxes paid
|
291
|
|
|
431
|
|
|
346
|
|
•
|
The Beverage Concentrates segment reflects sales of the
Company
's branded concentrates and syrup to third party bottlers primarily in the
U.S.
and Canada. Most of the brands in this segment are carbonated soft drink brands.
|
•
|
The Packaged Beverages Excluding Bai 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
DSD
and
WD
.
|
•
|
The Bai segment reflects sales of Bai Brands finished goods to third party distributors, primarily in the U.S., as net sales to the Packaged Beverages Excluding Bai segment are eliminated in consolidation.
Refer to Note 3 for additional information
regarding the impact of Bai Brands on the Company's net sales presented in the Consolidated Statements of Income.
|
•
|
The Latin America Beverages segment reflects sales in the Mexico, Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Segment Results – Net sales
|
|
|
|
|
|
||||||
Beverage Concentrates
|
$
|
1,332
|
|
|
$
|
1,284
|
|
|
$
|
1,241
|
|
Packaged Beverages
|
4,871
|
|
|
4,696
|
|
|
4,544
|
|
|||
Latin America Beverages
|
487
|
|
|
460
|
|
|
497
|
|
|||
Net sales
|
$
|
6,690
|
|
|
$
|
6,440
|
|
|
$
|
6,282
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Segment Results – SOP
|
|
|
|
|
|
||||||
Beverage Concentrates
|
$
|
865
|
|
|
$
|
834
|
|
|
$
|
807
|
|
Packaged Beverages
|
691
|
|
|
771
|
|
|
709
|
|
|||
Latin America Beverages
|
62
|
|
|
78
|
|
|
88
|
|
|||
Total SOP
|
1,618
|
|
|
1,683
|
|
|
1,604
|
|
|||
Unallocated corporate costs
|
281
|
|
|
253
|
|
|
299
|
|
|||
Other operating income, net
|
(51
|
)
|
|
(3
|
)
|
|
7
|
|
|||
Income from operations
|
1,388
|
|
|
1,433
|
|
|
1,298
|
|
|||
Interest expense, net
|
161
|
|
|
144
|
|
|
115
|
|
|||
Loss on early extinguishment of debt
|
62
|
|
|
31
|
|
|
—
|
|
|||
Other income, net
|
(8
|
)
|
|
(25
|
)
|
|
(1
|
)
|
|||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
$
|
1,173
|
|
|
$
|
1,283
|
|
|
$
|
1,184
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Amortization expense
|
|
|
|
|
|
||||||
Beverage Concentrates
|
$
|
12
|
|
|
$
|
13
|
|
|
$
|
12
|
|
Packaged Beverages
|
8
|
|
|
4
|
|
|
7
|
|
|||
Latin America Beverages
|
—
|
|
|
—
|
|
|
—
|
|
|||
Segment total
|
20
|
|
|
17
|
|
|
19
|
|
|||
Corporate and other
|
11
|
|
|
16
|
|
|
16
|
|
|||
Total amortization expense
|
$
|
31
|
|
|
$
|
33
|
|
|
$
|
35
|
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Depreciation expense
|
|
|
|
|
|
||||||
Beverage Concentrates
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
7
|
|
Packaged Beverages
|
160
|
|
|
158
|
|
|
161
|
|
|||
Latin America Beverages
|
19
|
|
|
14
|
|
|
14
|
|
|||
Segment total
|
187
|
|
|
180
|
|
|
182
|
|
|||
Corporate and other
|
11
|
|
|
11
|
|
|
10
|
|
|||
Total depreciation expense
|
$
|
198
|
|
|
$
|
191
|
|
|
$
|
192
|
|
|
|
||||||
|
As of December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Identifiable operating assets
|
|
|
|
|
|
||
Beverage Concentrates
|
$
|
4,152
|
|
|
$
|
4,108
|
|
Packaged Beverages
(1)
|
5,295
|
|
|
3,474
|
|
||
Latin America Beverages
|
339
|
|
|
312
|
|
||
Segment total
|
9,786
|
|
|
7,894
|
|
||
Corporate and other
(1)
|
212
|
|
|
1,874
|
|
||
Total identifiable operating assets
|
9,998
|
|
|
9,768
|
|
||
Investments in unconsolidated subsidiaries
|
24
|
|
|
23
|
|
||
Total assets
|
$
|
10,022
|
|
|
$
|
9,791
|
|
(1)
|
The increase in Package Beverages segment primarily resulted from the inclusion of operating assets recognized from the Bai acquisition, and the decrease in Corporate and other segment was primarily a result of the cash paid in respect to the Bai acquisition.
Refer to Note 3 for additional information
regarding the Bai Brands Merger.
|
|
For the Year Ended December 31,
|
||||||||||
(in millions)
|
2017
|
|
2016
|
|
2015
|
||||||
Net sales
|
|
|
|
|
|
|
|
|
|||
U.S.
|
$
|
5,978
|
|
|
$
|
5,768
|
|
|
$
|
5,575
|
|
International
|
712
|
|
|
672
|
|
|
707
|
|
|||
Total net sales
|
$
|
6,690
|
|
|
$
|
6,440
|
|
|
$
|
6,282
|
|
|
As of December 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Property, plant and equipment, net
|
|
|
|
|
|
||
U.S.
|
$
|
1,062
|
|
|
$
|
1,007
|
|
International
|
136
|
|
|
131
|
|
||
Total property, plant and equipment, net
|
$
|
1,198
|
|
|
$
|
1,138
|
|
|
Condensed Consolidating Statements of Income
|
||||||||||||||||||
|
For the Year Ended December 31, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
—
|
|
|
$
|
6,156
|
|
|
$
|
680
|
|
|
$
|
(146
|
)
|
|
$
|
6,690
|
|
Cost of sales
|
—
|
|
|
2,466
|
|
|
375
|
|
|
(146
|
)
|
|
2,695
|
|
|||||
Gross profit
|
—
|
|
|
3,690
|
|
|
305
|
|
|
—
|
|
|
3,995
|
|
|||||
Selling, general and administrative expenses
|
7
|
|
|
2,342
|
|
|
207
|
|
|
—
|
|
|
2,556
|
|
|||||
Depreciation and amortization
|
—
|
|
|
94
|
|
|
8
|
|
|
—
|
|
|
102
|
|
|||||
Other operating (income) expense, net
|
—
|
|
|
(52
|
)
|
|
1
|
|
|
—
|
|
|
(51
|
)
|
|||||
Income from operations
|
(7
|
)
|
|
1,306
|
|
|
89
|
|
|
—
|
|
|
1,388
|
|
|||||
Interest expense
|
279
|
|
|
84
|
|
|
—
|
|
|
(199
|
)
|
|
164
|
|
|||||
Interest income
|
(73
|
)
|
|
(128
|
)
|
|
(1
|
)
|
|
199
|
|
|
(3
|
)
|
|||||
Loss on early extinguishment of debt
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|||||
Other income, net
|
(9
|
)
|
|
(2
|
)
|
|
3
|
|
|
—
|
|
|
(8
|
)
|
|||||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
(266
|
)
|
|
1,352
|
|
|
87
|
|
|
—
|
|
|
1,173
|
|
|||||
Provision for income taxes
|
(94
|
)
|
|
169
|
|
|
20
|
|
|
—
|
|
|
95
|
|
|||||
Income before equity in loss of unconsolidated subsidiaries
|
(172
|
)
|
|
1,183
|
|
|
67
|
|
|
—
|
|
|
1,078
|
|
|||||
Equity in earnings of consolidated subsidiaries
|
1,248
|
|
|
67
|
|
|
—
|
|
|
(1,315
|
)
|
|
—
|
|
|||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|||||
Net income
|
$
|
1,076
|
|
|
$
|
1,248
|
|
|
$
|
67
|
|
|
$
|
(1,315
|
)
|
|
$
|
1,076
|
|
|
Condensed Consolidating Statements of Income
|
|||||||||||||||||||
|
For the Year Ended December 31, 2016
|
|||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
|||||||||||
Net sales
|
$
|
—
|
|
|
$
|
5,936
|
|
|
$
|
633
|
|
|
$
|
(129
|
)
|
|
$
|
6,440
|
|
|
Cost of sales
|
—
|
|
|
2,392
|
|
|
319
|
|
|
(129
|
)
|
|
2,582
|
|
||||||
Gross profit
|
—
|
|
|
3,544
|
|
|
314
|
|
|
—
|
|
|
3,858
|
|
||||||
Selling, general and administrative expenses
|
3
|
|
|
2,127
|
|
|
199
|
|
|
—
|
|
|
2,329
|
|
||||||
Depreciation and amortization
|
—
|
|
|
92
|
|
|
7
|
|
|
—
|
|
|
99
|
|
||||||
Other operating (income) expense, net
|
—
|
|
|
2
|
|
|
(5
|
)
|
|
—
|
|
|
(3
|
)
|
||||||
Income from operations
|
(3
|
)
|
|
1,323
|
|
|
113
|
|
|
—
|
|
|
1,433
|
|
||||||
Interest expense
|
242
|
|
|
69
|
|
|
—
|
|
|
(164
|
)
|
|
147
|
|
||||||
Interest income
|
(55
|
)
|
|
(105
|
)
|
|
(7
|
)
|
|
164
|
|
|
(3
|
)
|
||||||
Loss on early extinguishment of debt
|
31
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
31
|
|
|||||
Other income, net
|
(5
|
)
|
|
(27
|
)
|
|
7
|
|
|
—
|
|
|
(25
|
)
|
||||||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
(216
|
)
|
|
1,386
|
|
|
113
|
|
|
—
|
|
|
1,283
|
|
||||||
Provision for income taxes
|
(69
|
)
|
|
470
|
|
|
33
|
|
|
—
|
|
|
434
|
|
||||||
Income before equity in loss of unconsolidated subsidiaries
|
(147
|
)
|
|
916
|
|
|
80
|
|
|
—
|
|
|
849
|
|
||||||
Equity in earnings of consolidated subsidiaries
|
994
|
|
|
81
|
|
|
—
|
|
|
(1,075
|
)
|
|
—
|
|
||||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
(3
|
)
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
||||||
Net income
|
$
|
847
|
|
|
$
|
994
|
|
|
$
|
81
|
|
|
$
|
(1,075
|
)
|
|
$
|
847
|
|
|
Condensed Consolidating Statements of Income
|
||||||||||||||||||
|
For the Year Ended December 31, 2015
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
—
|
|
|
$
|
5,668
|
|
|
$
|
633
|
|
|
$
|
(19
|
)
|
|
$
|
6,282
|
|
Cost of sales
|
—
|
|
|
2,280
|
|
|
298
|
|
|
(19
|
)
|
|
2,559
|
|
|||||
Gross profit
|
—
|
|
|
3,388
|
|
|
335
|
|
|
—
|
|
|
3,723
|
|
|||||
Selling, general and administrative expenses
|
—
|
|
|
2,105
|
|
|
208
|
|
|
—
|
|
|
2,313
|
|
|||||
Depreciation and amortization
|
—
|
|
|
99
|
|
|
6
|
|
|
—
|
|
|
105
|
|
|||||
Other operating (income) expense, net
|
—
|
|
|
(1
|
)
|
|
8
|
|
|
—
|
|
|
7
|
|
|||||
Income from operations
|
—
|
|
|
1,185
|
|
|
113
|
|
|
—
|
|
|
1,298
|
|
|||||
Interest expense
|
228
|
|
|
56
|
|
|
—
|
|
|
(167
|
)
|
|
117
|
|
|||||
Interest income
|
(42
|
)
|
|
(120
|
)
|
|
(7
|
)
|
|
167
|
|
|
(2
|
)
|
|||||
Other income, net
|
(1
|
)
|
|
(6
|
)
|
|
6
|
|
|
—
|
|
|
(1
|
)
|
|||||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
(185
|
)
|
|
1,255
|
|
|
114
|
|
|
—
|
|
|
1,184
|
|
|||||
Provision for income taxes
|
(85
|
)
|
|
472
|
|
|
33
|
|
|
—
|
|
|
420
|
|
|||||
Income before equity in loss of unconsolidated subsidiaries
|
(100
|
)
|
|
783
|
|
|
81
|
|
|
—
|
|
|
764
|
|
|||||
Equity in earnings of consolidated subsidiaries
|
864
|
|
|
81
|
|
|
—
|
|
|
(945
|
)
|
|
—
|
|
|||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net income
|
$
|
764
|
|
|
$
|
864
|
|
|
$
|
81
|
|
|
$
|
(945
|
)
|
|
$
|
764
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Year Ended December 31, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net income
|
$
|
1,076
|
|
|
$
|
1,248
|
|
|
$
|
67
|
|
|
$
|
(1,315
|
)
|
|
$
|
1,076
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive income impact from consolidated subsidiaries
|
22
|
|
|
17
|
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
|||||
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|||||
Net change in pension liability, net of tax
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|||||
Net change in cash flow hedges, net of tax
|
5
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
6
|
|
|||||
Total other comprehensive (loss) income, net of tax
|
27
|
|
|
22
|
|
|
17
|
|
|
(39
|
)
|
|
27
|
|
|||||
Comprehensive income (loss)
|
$
|
1,103
|
|
|
$
|
1,270
|
|
|
$
|
84
|
|
|
$
|
(1,354
|
)
|
|
$
|
1,103
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Year Ended December 31, 2016
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net income
|
$
|
847
|
|
|
$
|
994
|
|
|
$
|
81
|
|
|
$
|
(1,075
|
)
|
|
$
|
847
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive income impact from consolidated subsidiaries
|
(40
|
)
|
|
(29
|
)
|
|
—
|
|
|
69
|
|
|
—
|
|
|||||
Foreign currency translation adjustments
|
(1
|
)
|
|
(11
|
)
|
|
(27
|
)
|
|
—
|
|
|
(39
|
)
|
|||||
Net change in pension liability, net of tax
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|||||
Net change in cash flow hedges, net of tax
|
7
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
6
|
|
|||||
Total other comprehensive (loss) income, net of tax
|
(34
|
)
|
|
(40
|
)
|
|
(29
|
)
|
|
69
|
|
|
(34
|
)
|
|||||
Comprehensive income (loss)
|
$
|
813
|
|
|
$
|
954
|
|
|
$
|
52
|
|
|
$
|
(1,006
|
)
|
|
$
|
813
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Year Ended December 31, 2015
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net income
|
$
|
764
|
|
|
$
|
864
|
|
|
$
|
81
|
|
|
$
|
(945
|
)
|
|
$
|
764
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive income impact from consolidated subsidiaries
|
(67
|
)
|
|
(100
|
)
|
|
—
|
|
|
167
|
|
|
—
|
|
|||||
Foreign currency translation adjustments
|
7
|
|
|
31
|
|
|
(102
|
)
|
|
—
|
|
|
(64
|
)
|
|||||
Net change in pension liability, net of tax
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
4
|
|
|||||
Net change in cash flow hedges, net of tax
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|||||
Total other comprehensive (loss) income, net of tax
|
(58
|
)
|
|
(67
|
)
|
|
(100
|
)
|
|
167
|
|
|
(58
|
)
|
|||||
Comprehensive income (loss)
|
$
|
706
|
|
|
$
|
797
|
|
|
$
|
(19
|
)
|
|
$
|
(778
|
)
|
|
$
|
706
|
|
|
Condensed Consolidating Balance Sheets
|
||||||||||||||||||
|
As of December 31, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Current assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
61
|
|
Restricted cash and cash equivalents
|
—
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|||||
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
||||||||||
Trade, net
|
—
|
|
|
595
|
|
|
73
|
|
|
—
|
|
|
668
|
|
|||||
Other
|
1
|
|
|
35
|
|
|
6
|
|
|
—
|
|
|
42
|
|
|||||
Related party receivable
|
20
|
|
|
42
|
|
|
—
|
|
|
(62
|
)
|
|
—
|
|
|||||
Inventories
|
—
|
|
|
199
|
|
|
30
|
|
|
—
|
|
|
229
|
|
|||||
Prepaid expenses and other current assets
|
473
|
|
|
83
|
|
|
18
|
|
|
(475
|
)
|
|
99
|
|
|||||
Total current assets
|
494
|
|
|
987
|
|
|
173
|
|
|
(537
|
)
|
|
1,117
|
|
|||||
Property, plant and equipment, net
|
—
|
|
|
1,062
|
|
|
136
|
|
|
—
|
|
|
1,198
|
|
|||||
Investments in consolidated subsidiaries
|
9,373
|
|
|
332
|
|
|
—
|
|
|
(9,705
|
)
|
|
—
|
|
|||||
Investments in unconsolidated subsidiaries
|
—
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|||||
Goodwill
|
—
|
|
|
3,539
|
|
|
22
|
|
|
—
|
|
|
3,561
|
|
|||||
Other intangible assets, net
|
—
|
|
|
3,733
|
|
|
48
|
|
|
—
|
|
|
3,781
|
|
|||||
Long-term receivable, related parties
|
3,278
|
|
|
6,233
|
|
|
—
|
|
|
(9,511
|
)
|
|
—
|
|
|||||
Other non-current assets
|
65
|
|
|
195
|
|
|
22
|
|
|
(3
|
)
|
|
279
|
|
|||||
Non-current deferred tax assets
|
11
|
|
|
—
|
|
|
62
|
|
|
(11
|
)
|
|
62
|
|
|||||
Total assets
|
$
|
13,221
|
|
|
$
|
16,105
|
|
|
$
|
463
|
|
|
$
|
(19,767
|
)
|
|
$
|
10,022
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Current liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Accounts payable
|
$
|
—
|
|
|
$
|
333
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
365
|
|
Related party payable
|
37
|
|
|
20
|
|
|
5
|
|
|
(62
|
)
|
|
—
|
|
|||||
Deferred revenue
|
—
|
|
|
68
|
|
|
2
|
|
|
(6
|
)
|
|
64
|
|
|||||
Short-term borrowings and current portion of long-term obligations
|
66
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|||||
Income taxes payable
|
—
|
|
|
479
|
|
|
1
|
|
|
(469
|
)
|
|
11
|
|
|||||
Other current liabilities
|
133
|
|
|
532
|
|
|
54
|
|
|
—
|
|
|
719
|
|
|||||
Total current liabilities
|
236
|
|
|
1,445
|
|
|
94
|
|
|
(537
|
)
|
|
1,238
|
|
|||||
Long-term obligations to third parties
|
4,230
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
4,400
|
|
|||||
Long-term obligations to related parties
|
6,233
|
|
|
3,278
|
|
|
—
|
|
|
(9,511
|
)
|
|
—
|
|
|||||
Non-current deferred tax liabilities
|
—
|
|
|
625
|
|
|
—
|
|
|
(11
|
)
|
|
614
|
|
|||||
Non-current deferred revenue
|
—
|
|
|
1,032
|
|
|
26
|
|
|
(3
|
)
|
|
1,055
|
|
|||||
Other non-current liabilities
|
71
|
|
|
182
|
|
|
11
|
|
|
—
|
|
|
264
|
|
|||||
Total liabilities
|
10,770
|
|
|
6,732
|
|
|
131
|
|
|
(10,062
|
)
|
|
7,571
|
|
|||||
Total stockholders' equity
|
2,451
|
|
|
9,373
|
|
|
332
|
|
|
(9,705
|
)
|
|
2,451
|
|
|||||
Total liabilities and stockholders' equity
|
$
|
13,221
|
|
|
$
|
16,105
|
|
|
$
|
463
|
|
|
$
|
(19,767
|
)
|
|
$
|
10,022
|
|
|
Condensed Consolidating Balance Sheets
|
||||||||||||||||||
|
As of December 31, 2016
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Current assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,736
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
1,787
|
|
Restricted cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
||||||||||
Trade, net
|
—
|
|
|
540
|
|
|
55
|
|
|
—
|
|
|
595
|
|
|||||
Other
|
3
|
|
|
39
|
|
|
9
|
|
|
—
|
|
|
51
|
|
|||||
Related party receivable
|
15
|
|
|
37
|
|
|
—
|
|
|
(52
|
)
|
|
—
|
|
|||||
Inventories
|
—
|
|
|
178
|
|
|
24
|
|
|
—
|
|
|
202
|
|
|||||
Prepaid and other current assets
|
379
|
|
|
84
|
|
|
7
|
|
|
(369
|
)
|
|
101
|
|
|||||
Total current assets
|
397
|
|
|
2,614
|
|
|
146
|
|
|
(421
|
)
|
|
2,736
|
|
|||||
Property, plant and equipment, net
|
—
|
|
|
1,007
|
|
|
131
|
|
|
—
|
|
|
1,138
|
|
|||||
Investments in consolidated subsidiaries
|
8,067
|
|
|
302
|
|
|
—
|
|
|
(8,369
|
)
|
|
—
|
|
|||||
Investments in unconsolidated subsidiaries
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|||||
Goodwill
|
—
|
|
|
2,972
|
|
|
21
|
|
|
—
|
|
|
2,993
|
|
|||||
Other intangible assets, net
|
—
|
|
|
2,609
|
|
|
47
|
|
|
—
|
|
|
2,656
|
|
|||||
Long-term receivable, related parties
|
3,209
|
|
|
5,077
|
|
|
—
|
|
|
(8,286
|
)
|
|
—
|
|
|||||
Other non-current assets
|
64
|
|
|
107
|
|
|
12
|
|
|
—
|
|
|
183
|
|
|||||
Non-current deferred tax assets
|
20
|
|
|
—
|
|
|
62
|
|
|
(20
|
)
|
|
62
|
|
|||||
Total assets
|
$
|
11,757
|
|
|
$
|
14,711
|
|
|
$
|
419
|
|
|
$
|
(17,096
|
)
|
|
$
|
9,791
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Current liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Accounts payable
|
$
|
—
|
|
|
$
|
276
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
303
|
|
Related party payable
|
31
|
|
|
14
|
|
|
7
|
|
|
(52
|
)
|
|
—
|
|
|||||
Deferred revenue
|
—
|
|
|
63
|
|
|
1
|
|
|
—
|
|
|
64
|
|
|||||
Short-term borrowings and current portion of long-term obligations
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|||||
Income taxes payable
|
—
|
|
|
372
|
|
|
1
|
|
|
(369
|
)
|
|
4
|
|
|||||
Other current liabilities
|
128
|
|
|
502
|
|
|
40
|
|
|
—
|
|
|
670
|
|
|||||
Total current liabilities
|
159
|
|
|
1,237
|
|
|
76
|
|
|
(421
|
)
|
|
1,051
|
|
|||||
Long-term obligations to third parties
|
4,325
|
|
|
143
|
|
|
—
|
|
|
—
|
|
|
4,468
|
|
|||||
Long-term obligations to related parties
|
5,077
|
|
|
3,209
|
|
|
—
|
|
|
(8,286
|
)
|
|
—
|
|
|||||
Non-current deferred tax liabilities
|
(1
|
)
|
|
833
|
|
|
—
|
|
|
(20
|
)
|
|
812
|
|
|||||
Non-current deferred revenue
|
—
|
|
|
1,091
|
|
|
26
|
|
|
—
|
|
|
1,117
|
|
|||||
Other non-current liabilities
|
63
|
|
|
131
|
|
|
15
|
|
|
—
|
|
|
209
|
|
|||||
Total liabilities
|
9,623
|
|
|
6,644
|
|
|
117
|
|
|
(8,727
|
)
|
|
7,657
|
|
|||||
Total stockholders' equity
|
2,134
|
|
|
8,067
|
|
|
302
|
|
|
(8,369
|
)
|
|
2,134
|
|
|||||
Total liabilities and stockholders' equity
|
$
|
11,757
|
|
|
$
|
14,711
|
|
|
$
|
419
|
|
|
$
|
(17,096
|
)
|
|
$
|
9,791
|
|
|
Condensed Consolidating Statements of Cash Flows
|
||||||||||||||||||
|
For the Year Ended December 31, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Operating activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash (used in) provided by operating activities
|
$
|
(255
|
)
|
|
$
|
1,281
|
|
|
$
|
68
|
|
|
$
|
(56
|
)
|
|
$
|
1,038
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Acquisition of business
|
—
|
|
|
(1,556
|
)
|
|
—
|
|
|
—
|
|
|
(1,556
|
)
|
|||||
Cash acquired in step acquisition of unconsolidated subsidiaries
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|||||
Purchase of property, plant and equipment
|
—
|
|
|
(182
|
)
|
|
(20
|
)
|
|
—
|
|
|
(202
|
)
|
|||||
Purchase of intangible assets
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|||||
Investment in unconsolidated subsidiaries
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|||||
Proceeds from disposals of property, plant and equipment
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||
Issuance of related party notes receivable
|
—
|
|
|
(1,156
|
)
|
|
—
|
|
|
1,156
|
|
|
—
|
|
|||||
Other, net
|
(6
|
)
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|||||
Net cash (used in) provided by investing activities
|
(6
|
)
|
|
(2,893
|
)
|
|
(20
|
)
|
|
1,156
|
|
|
(1,763
|
)
|
|||||
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Proceeds from issuance of related party debt
|
1,156
|
|
|
—
|
|
|
—
|
|
|
(1,156
|
)
|
|
—
|
|
|||||
Proceeds from issuance of senior unsecured notes
|
400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|||||
Repayment of senior unsecured notes
|
(562
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(562
|
)
|
|||||
Net issuance of commercial paper
|
66
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|||||
Repurchase of shares of common stock
|
(399
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(399
|
)
|
|||||
Dividends paid
|
(414
|
)
|
|
—
|
|
|
(56
|
)
|
|
56
|
|
|
(414
|
)
|
|||||
Tax withholdings related to net share settlements of certain stock awards
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
|||||
Proceeds from stock options exercised
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|||||
Premium (discount) on issuance of senior unsecured notes
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|||||
Proceeds from termination of interest rate swap
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|||||
Deferred financing charges
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||
Capital lease payments
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|||||
Net cash (used in) provided by financing activities
|
261
|
|
|
(12
|
)
|
|
(56
|
)
|
|
(1,100
|
)
|
|
(907
|
)
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating, investing and financing activities
|
—
|
|
|
(1,624
|
)
|
|
(8
|
)
|
|
—
|
|
|
(1,632
|
)
|
|||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|||||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of year
|
—
|
|
|
1,736
|
|
|
51
|
|
|
—
|
|
|
1,787
|
|
|||||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year
|
$
|
—
|
|
|
$
|
112
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
158
|
|
|
Condensed Consolidating Statements of Cash Flows
|
||||||||||||||||||
|
For the Year Ended December 31, 2016
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Operating activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash (used in) provided by operating activities
|
$
|
(197
|
)
|
|
$
|
1,107
|
|
|
$
|
74
|
|
|
$
|
(23
|
)
|
|
$
|
961
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Acquisition of business
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
|||||
Cash acquired in step acquisition of unconsolidated subsidiaries
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
|||||
Purchase of property, plant and equipment
|
—
|
|
|
(131
|
)
|
|
(49
|
)
|
|
—
|
|
|
(180
|
)
|
|||||
Purchase of intangible assets
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|||||
Investments in unconsolidated subsidiaries
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|||||
Purchase of cost method investments
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|||||
Proceeds from disposals of property, plant and equipment
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|||||
Issuance of related party notes receivable
|
—
|
|
|
(88
|
)
|
|
—
|
|
|
88
|
|
|
—
|
|
|||||
Other, net
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|||||
Net cash (used in) provided by investing activities
|
(8
|
)
|
|
(221
|
)
|
|
(48
|
)
|
|
88
|
|
|
(189
|
)
|
|||||
Financing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of related party debt
|
88
|
|
|
—
|
|
|
—
|
|
|
(88
|
)
|
|
—
|
|
|||||
Proceeds from issuance of senior unsecured notes
|
1,950
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,950
|
|
|||||
Repayment of senior unsecured notes
|
(891
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(891
|
)
|
|||||
Repurchase of shares of common stock
|
(519
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(519
|
)
|
|||||
Dividends paid
|
(386
|
)
|
|
—
|
|
|
(23
|
)
|
|
23
|
|
|
(386
|
)
|
|||||
Tax withholdings related to net share settlements of certain stock awards
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|||||
Proceeds from stock options exercised
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|||||
Premium (discount) on issuance of senior unsecured notes
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|||||
Deferred financing charges paid
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|||||
Capital lease payments
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|||||
Net cash (used in) provided by financing activities
|
205
|
|
|
(9
|
)
|
|
(23
|
)
|
|
(65
|
)
|
|
108
|
|
|||||
Cash and cash equivalents — net change from:
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating, investing and financing activities
|
—
|
|
|
877
|
|
|
3
|
|
|
—
|
|
|
880
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|||||
Cash and cash equivalents at beginning of period
|
—
|
|
|
859
|
|
|
52
|
|
|
—
|
|
|
911
|
|
|||||
Cash and cash equivalents at end of period
|
$
|
—
|
|
|
$
|
1,736
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
1,787
|
|
|
Condensed Consolidating Statements of Cash Flows
|
|||||||||||||||||||
|
For the Year Ended December 31, 2015
|
|||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
|||||||||||
Operating activities:
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash (used in) provided by operating activities
|
$
|
(209
|
)
|
|
$
|
1,128
|
|
|
$
|
95
|
|
|
$
|
—
|
|
|
$
|
1,014
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|||||||||||
Purchase of property, plant and equipment
|
—
|
|
|
(133
|
)
|
|
(46
|
)
|
|
—
|
|
|
(179
|
)
|
||||||
Purchase of intangible assets
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
||||||
Purchase of cost method investments
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
||||||
Investments in unconsolidated subsidiaries
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
||||||
Proceeds from disposals of property, plant and equipment
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
||||||
Issuance of related party notes receivable
|
—
|
|
|
(340
|
)
|
|
(39
|
)
|
|
379
|
|
|
—
|
|
||||||
Other, net
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||||
Net cash (used in) provided by investing activities
|
1
|
|
|
(489
|
)
|
|
(85
|
)
|
|
379
|
|
|
(194
|
)
|
||||||
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Proceeds from issuance of related party debt
|
340
|
|
|
39
|
|
|
—
|
|
|
(379
|
)
|
|
—
|
|
||||||
Proceeds from issuance of senior unsecured notes
|
750
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
750
|
|
||||||
Repurchase of shares of common stock
|
(521
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(521
|
)
|
||||||
Dividends paid
|
(355
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(355
|
)
|
||||||
Tax withholdings related to net share settlements of certain stock awards
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
||||||
Proceeds from stock options exercised
|
30
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
||||||
Premium (discount) on issuance of senior unsecured notes
|
(4
|
)
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|||||
Deferred financing charges paid
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
||||||
Capital lease payments
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
||||||
Other, net
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||||
Net cash (used in) provided by financing activities
|
208
|
|
|
34
|
|
|
—
|
|
|
(379
|
)
|
|
(137
|
)
|
||||||
Cash and cash equivalents — net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating, investing and financing activities
|
—
|
|
|
673
|
|
|
10
|
|
|
—
|
|
|
683
|
|
||||||
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
||||||
Cash and cash equivalents at beginning of year
|
—
|
|
|
186
|
|
|
51
|
|
|
—
|
|
|
237
|
|
||||||
Cash and cash equivalents at end of year
|
$
|
—
|
|
|
$
|
859
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
911
|
|
•
|
Consolidated Statements of Income for the
years ended December 31, 2017, 2016 and 2015
|
•
|
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2017, 2016 and 2015
|
•
|
Consolidated Balance Sheets as of
December 31, 2017 and 2016
|
•
|
Consolidated Statements of Cash Flows for the
years ended December 31, 2017, 2016 and 2015
|
•
|
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2017, 2016 and 2015
|
•
|
Notes to Consolidated Financial Statements for the
years ended December 31, 2017, 2016 and 2015
|
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 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).
|
|
Registration Rights Agreement, dated June 15, 2017, between Dr Pepper Snapple Group, Inc., the guarantors party thereto, Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on June 15, 2017) and incorporated herein by reference).
|
|
Tax Sharing and Indemnification Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for the certain provision set forth therein, Cadbury plc, dated as of May 1, 2008 (initially filed as Exhibit 10.2 to the Company's Current Report on Form 8-K (initially filed on May 5, 2008), refiled as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (filed on May 6, 2010) solely for the purpose of including previously omitted exhibits and incorporated herein by reference).
|
|
Employee Matters 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 (initially filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (filed on May 5, 2008), refiled as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (filed on May 6, 2010) solely for the purpose of including previously omitted exhibits and incorporated herein by reference).
|
Form of Dr Pepper License Agreement for Bottles, Cans and Pre-mix (filed as Exhibit 10.9 to Amendment No. 2 to the Company's Registration Statement on Form 10 (filed on February 12, 2008) and incorporated herein by reference).
|
|
Form of Dr Pepper Fountain Concentrate Agreement (filed as Exhibit 10.10 to Amendment No. 3 to the Company's Registration Statement on Form 10 (filed on March 20, 2008) and incorporated herein by reference).
|
|
Executive Employment Agreement, dated as of October 15, 2007, between CBI Holdings Inc. (now known as DPS Holdings Inc.) and Larry D. Young (filed as Exhibit 10.11 to Amendment No. 2 to the Company's Registration Statement on Form 10 (filed on February 12, 2008) and incorporated herein by reference).
|
|
First Amendment to Executive Employment Agreement, effective as of February 11, 2009, between DPS Holdings, Inc. and Larry D. Young (filed as Exhibit 99.2 to the Company's Current Report on Form 8-K (filed on February 18, 2009) and incorporated herein by reference).
|
|
Second Amendment to Executive Employment Agreement, effective as of August 11, 2009, between DPS Holdings, Inc. and Larry D. Young (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (filed on August 13, 2009) and incorporated herein by reference).
|
|
Letter Agreement, effective as of November 23, 2008, between Dr Pepper Snapple Group, Inc. and James J. Johnston (filed as Exhibit 10.20 to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).
|
|
Letter Agreement, effective as of November 23, 2008, between Dr Pepper Snapple Group, Inc. and Rodger L. Collins (filed as Exhibit 10.24 to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).
|
|
Letter Agreement, effective as of April 1, 2010, between Dr Pepper Snapple Group, Inc. and Martin M. Ellen (filed as Exhibit 10.25 to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).
|
|
Executive Employment Agreement, effective as of October 15, 2017, between CBI Holdings Inc. and James L. Baldwin (filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (filed on April 26, 2017) and incorporated herein by reference).
|
|
Dr Pepper Snapple Group, Inc. Employee Stock Purchase Plan (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
|
|
Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2009 approved by the Stockholders on May 19, 2009, and re-approved by the Stockholders on May 15, 2014 (filed as Annex "A" to the Company's Preliminary Proxy Statement on Form DEFA14A (filed April 1, 2014) and incorporated herein by reference).
|
|
Dr Pepper Snapple Group, Inc. Management Incentive Plan of 2009 approved by the Stockholders on May 19, 2009, and re-approved by the Stockholders on May 16, 2013 (filed as Appendix A to the Company's Preliminary Proxy Statement on Form DEF14A (filed March 25, 2013) and incorporated herein by reference).
|
|
Dr Pepper Snapple Group, Inc. Change in Control Severance Plan adopted on February 11, 2009 (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K (filed February 18, 2009) and incorporated herein by reference).
|
|
First Amendment to the Dr Pepper Snapple Group, Inc. Change in Control Severance Plan, effective as of February 24, 2010 (filed as Exhibit 10.40 to the Company's Form 10-K (filed on March 1, 2010) and incorporated herein by reference).
|
|
Letter Agreement, dated December 7, 2009, between Dr Pepper Snapple Group, Inc. and PepsiCo, Inc. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on December 8, 2009) and incorporated herein by reference).
|
|
Letter Agreement, dated June 7, 2010, between Dr Pepper/Seven Up, Inc. and The Coca-Cola Company (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on June 7, 2010) and incorporated herein by reference).
|
|
Commercial Paper Dealer Agreement between Dr Pepper Snapple Group, Inc. and J.P. Morgan Securities LLC, dated as of December 10, 2010 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on December 13, 2010) and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the Company has filed only one Dealer Agreement, as the other Dealer Agreements are substantially identical in all material respects except as to the parties thereto and the notice provisions.
|
|
Credit Agreement, dated as of September 25, 2012, among the Company, the Lenders and Issuing Banks party thereto; JPMorgan Chase Bank, N.A., as Administrative Agent; Bank of America, N.A. and Deutsche Bank Securities Inc., as Syndication Agents, and Branch Banking and Trust Company, Credit Suisse AG, Cayman Islands Branch, HSBC Bank USA, N.A., Morgan Senior Funding, Inc., UBS Securities LLC and U.S. Bank National Association, as Co-Documentation Agents (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on September 26, 2012 and incorporated herein by reference).
|
|
Credit Agreement, dated as of March 16, 2017, among the Company, the lenders and issuing banks party thereto; JPMorgan Chase Bank, N.A., as administrative agent; and the syndication agents, documentation agents, joint lead arrangers and joint borrowers, as identified in the Credit Agreement (filed as Exhibit 10.1 to the Company's Current Report on Form 8–K (filed on March 17, 2017) and incorporated herein by reference).
|
|
Assumption Agreement dated as of January 31, 2017 by Bai Brands LLC and 184 Innovations, Inc., (each as an additional guarantor under the Credit Agreement dated September 25, 2012 (as referenced in Item 10.22 in this Exhibit Index)
)
, in favor of the Administrative Agent and each Lender (as each such term is defined in the Credit Agreement) (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed February 2, 2017) and incorporated herein by reference).
|
|
Agreement dated July 22, 2013, among The American Bottling Company, Mott's LLP and CROWN Cork & Seal USA, Inc., filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K (filed February 20, 2014) and incorporated herein by this reference.
|
|
First Amendment to Omnibus Stock Incentive Plan of 2009 approved by the Board of Directors and the Compensation Committee of the Board of Directors of Dr Pepper Snapple Group, Inc. on September 18, 2013 filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (filed on October 24, 2013) and incorporated herein by reference.
|
|
Dr Pepper Snapple Group, Inc.
|
||
|
|
|
|
|
By:
|
|
/s/ Martin M. Ellen
|
Date: February 14, 2018
|
|
Name:
|
Martin M. Ellen
|
|
|
Title:
|
Executive Vice President and Chief
Financial Officer
|
By:
|
|
/s/ Larry D. Young
|
|
By:
|
|
/s/ Martin M. Ellen
|
|
Name:
|
Larry D. Young
|
|
|
Name:
|
Martin M. Ellen
|
|
Title:
|
President, Chief Executive Officer and
Director
|
|
|
Title:
|
Executive Vice President and Chief
Financial Officer |
|
Date:
|
February 14, 2018
|
|
|
Date:
|
February 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Angela A. Stephens
|
|
By:
|
|
/s/ Wayne R. Sanders
|
|
Name:
|
Angela A. Stephens
|
|
|
Name:
|
Wayne R. Sanders
|
|
Title:
|
Senior Vice President and Controller
(Principal Accounting Officer)
|
|
|
Title:
|
Chairman
|
|
Date:
|
February 14, 2018
|
|
|
Date:
|
February 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ David E. Alexander
|
|
By:
|
|
/s/ Antonio Carrillo
|
|
Name:
|
David E. Alexander
|
|
|
Name:
|
Antonio Carrillo
|
|
Title:
|
Director
|
|
|
Title:
|
Director
|
|
Date:
|
February 14, 2018
|
|
|
Date:
|
February 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ José Gutiérrez
|
|
By:
|
|
/s/ Pamela H. Patsley
|
|
Name:
|
José Gutiérrez
|
|
|
Name:
|
Pamela H. Patsley
|
|
Title:
|
Director
|
|
|
Title:
|
Director
|
|
Date:
|
February 14, 2018
|
|
|
Date:
|
February 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Ronald G. Rogers
|
|
By:
|
|
/s/ Dunia A. Shive
|
|
Name:
|
Ronald G. Rogers
|
|
|
Name:
|
Dunia A. Shive
|
|
Title:
|
Director
|
|
|
Title:
|
Director
|
|
Date:
|
February 14, 2018
|
|
|
Date:
|
February 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ M. Anne Szostak
|
|
|
|
|
|
Name:
|
M. Anne Szostak
|
|
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Calculation of fixed charges ratio:
|
|
|
|
|
|
|
|
|
|
||||||||||
Income before provision for income taxes, equity in (loss) earnings of unconsolidated subsidiaries and cumulative effect of change in accounting policy
(2)
|
$
|
1,173
|
|
|
$
|
1,283
|
|
|
$
|
1,184
|
|
|
$
|
1,073
|
|
|
$
|
542
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Add/(deduct):
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges
|
181
|
|
|
164
|
|
|
132
|
|
|
125
|
|
|
138
|
|
|||||
Amortization of capitalized interest
|
3
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|||||
Capitalized interest
|
(1
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|||||
Total earnings available for fixed charges
|
$
|
1,356
|
|
|
$
|
1,447
|
|
|
$
|
1,318
|
|
|
$
|
1,200
|
|
|
$
|
683
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges
:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense
|
$
|
164
|
|
|
$
|
147
|
|
|
$
|
117
|
|
|
$
|
109
|
|
|
$
|
123
|
|
Capitalized interest
|
1
|
|
|
3
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|||||
Interest component of rental expense
(1)
|
16
|
|
|
14
|
|
|
14
|
|
|
14
|
|
|
14
|
|
|||||
Total fixed charges
|
$
|
181
|
|
|
$
|
164
|
|
|
$
|
132
|
|
|
$
|
125
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges
|
7.5x
|
|
|
8.8x
|
|
|
10.0x
|
|
|
9.6x
|
|
|
4.9x
|
|
(1)
|
Represents a reasonable estimate of the interest component of rental expense incurred by us.
|
(2)
|
Due to the completion of the IRS audit for our 2006-2008 federal income tax returns in August 2013, we recognized $430 million of other expense, net, as we no longer anticipate collecting amounts from Mondelēz. Additionally, in June 2013, a bill was enacted by the Canadian government, which reduced amounts amortized for income tax purposes. As a result, we recognized $38 million of indemnity income due to the reduction of our long-term liability to Mondelēz.
|
|
|
|
|
|
Name of Subsidiary
|
|
Jurisdiction of Formation
|
||
1
|
|
184 Innovations, Inc.
|
|
Delaware
|
2
|
|
234DP Aviation, LLC
|
|
Delaware
|
3
|
|
A&W Concentrate Company
|
|
Delaware
|
4
|
|
Americas Beverages Management GP
|
|
Nevada
|
5
|
|
AmTrans, Inc.
|
|
Illinois
|
6
|
|
Bai Brands LLC
|
|
New Jersey
|
7
|
|
Berkeley Square US, Inc.
|
|
Delaware
|
8
|
|
Beverages Delaware Inc.
|
|
Delaware
|
9
|
|
DP Beverages Inc.
|
|
Delaware
|
10
|
|
DPS Americas Beverages, LLC
|
|
Delaware
|
11
|
|
DPS Beverages, Inc.
|
|
Delaware
|
12
|
|
DPS Holdings Inc.
|
|
Delaware
|
13
|
|
Dr Pepper Snapple Group Employee Relief Fund
|
|
Texas
|
14
|
|
Dr Pepper/Seven Up Beverage Sales Company
|
|
Texas
|
15
|
|
Dr Pepper/Seven Up Manufacturing Company
|
|
Delaware
|
16
|
|
Dr Pepper/Seven Up, Inc.
|
|
Delaware
|
17
|
|
High Ridge Investments US, Inc.
|
|
Delaware
|
18
|
|
International Investments Management LLC
|
|
Delaware
|
19
|
|
Mott's Delaware LLC
|
|
Delaware
|
20
|
|
Mott's LLP
|
|
Delaware
|
21
|
|
MSSI LLC
|
|
Delaware
|
22
|
|
Nantucket Allserve, LLC
|
|
Delaware
|
23
|
|
Nuthatch Trading US, Inc.
|
|
Delaware
|
24
|
|
Pacific Snapple Distributors, Inc.
|
|
California
|
25
|
|
Royal Crown Company, Inc.
|
|
Delaware
|
26
|
|
Snapple Beverage Corp.
|
|
Delaware
|
27
|
|
Splash Transport, Inc.
|
|
Delaware
|
28
|
|
The American Bottling Company
|
|
Delaware
|
29
|
|
Canada Dry Mott's Inc.
|
|
Canada
|
30
|
|
Bebidas Americas Investments B.V.
|
|
Netherlands
|
31
|
|
Comercializadora de Bebidas, SA de CV
|
|
Mexico
|
32
|
|
Peñafiel Aguas Minerales SA de CV
|
|
Mexico
|
33
|
|
Peñafiel Bebidas SA de CV
|
|
Mexico
|
34
|
|
Peñafiel Servicios Comerciales, S.A. de C.V.
|
|
Mexico
|
35
|
|
Peñafiel Servicios S.A. de C.V.
|
|
Mexico
|
36
|
|
Embotelladora Mexicana de Agua, SA de CV
|
|
Mexico
|
37
|
|
Industria Embotelladora de Bebidas Mexicanas, SA de CV
|
|
Mexico
|
38
|
|
Manantiales Penafiel, S.A. de C.V.
|
|
Mexico
|
39
|
|
Snapple Beverage de Mexico, S.A. de C.V.
|
|
Mexico
|
40
|
|
Snapple Beverage Corporation Singapore PTE. LTD.
|
|
Singapore
|
/s/ DELOITTE & TOUCHE LLP
|
|
|
|
|
|
Dallas, Texas
|
|
|
February 14, 2018
|
|
|
|
/s/ Larry D. Young
|
|
Date: February 14, 2018
|
Larry D. Young
|
|
|
President and Chief Executive Officer of
Dr Pepper Snapple Group, Inc.
|
|
1.
|
I have reviewed this
Annual
Report on Form
10-K
of Dr Pepper Snapple Group, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
/s/ Martin M. Ellen
|
|
Date: February 14, 2018
|
Martin M. Ellen
|
|
|
Executive Vice President and Chief Financial Officer of
Dr Pepper Snapple Group, Inc.
|
|
(1)
|
the
Annual
Report on Form
10-K
of the Company for the
fiscal year
ended
December 31, 2017
, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ Larry D. Young
|
|
Date: February 14, 2018
|
Larry D. Young
|
|
|
President and Chief Executive Officer of
Dr Pepper Snapple Group, Inc.
|
|
(1)
|
the
Annual
Report on Form
10-K
of the Company for the
fiscal year
ended
December 31, 2017
, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ Martin M. Ellen
|
|
Date: February 14, 2018
|
Martin M. Ellen
|
|
|
Executive Vice President and Chief Financial Officer of Dr Pepper Snapple Group, Inc.
|
|