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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
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incorporation or organization)
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identification number)
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53 South Avenue, Burlington, Massachusetts
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01803
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(Address of principal executive offices)
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(Zip code)
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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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(Do not check if a smaller reporting company)
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Page
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ITEM 1.
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Financial Statements (Unaudited)
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For the Three Months Ended
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For the Six Months Ended
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||||||||||||
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June 30,
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June 30,
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||||||||||||
(in millions, except per share data)
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2018
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2017
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2018
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2017
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||||||||
Net sales
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$
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1,886
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$
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1,797
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$
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3,480
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$
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3,307
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Cost of sales
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790
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718
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1,471
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1,325
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||||
Gross profit
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1,096
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1,079
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2,009
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1,982
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Selling, general and administrative expenses
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721
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681
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1,347
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1,301
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Depreciation and amortization
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28
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25
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55
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50
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||||
Other operating income, net
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(15
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)
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(2
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)
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(14
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)
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(30
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)
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||||
Income from operations
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362
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375
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621
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661
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||||
Interest expense
|
43
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44
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84
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84
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||||
Interest income
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—
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(1
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)
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(1
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)
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(2
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)
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Loss on early extinguishment of debt
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—
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49
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—
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49
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Other income, net
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(2
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)
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—
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(2
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)
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(1
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)
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||||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
321
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283
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540
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531
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Provision for income taxes
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83
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94
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137
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165
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Income before equity in loss of unconsolidated subsidiaries
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238
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189
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403
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366
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Equity in loss of unconsolidated subsidiaries, net of tax
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(3
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)
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(1
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)
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(9
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)
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(1
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)
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Net income
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$
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235
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$
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188
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$
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394
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$
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365
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Earnings per common share:
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Basic
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$
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1.30
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$
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1.02
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$
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2.19
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$
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1.99
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Diluted
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1.30
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1.02
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2.17
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1.98
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Weighted average common shares outstanding:
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Basic
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180.2
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183.2
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180.1
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183.3
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Diluted
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181.1
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183.7
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181.0
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184.1
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Cash dividends declared per common share
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$
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—
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$
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0.58
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$
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0.58
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$
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1.16
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For the Three Months Ended June 30,
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For the Six Months Ended June 30,
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||||||||||||
(in millions)
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2018
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2017
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2018
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2017
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||||||||
Comprehensive income
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$
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218
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$
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201
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$
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396
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$
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401
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June 30,
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December 31,
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||||
(in millions, except share and per share data)
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2018
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2017
|
||||
Assets
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|||||||
Current assets:
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Cash and cash equivalents
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$
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64
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$
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61
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Restricted cash and restricted cash equivalents
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25
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18
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Accounts receivable:
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Trade, net
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814
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668
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Other
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52
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42
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Inventories
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265
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229
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Prepaid expenses and other current assets
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196
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99
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Total current assets
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1,416
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1,117
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Property, plant and equipment, net
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1,183
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1,198
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Investments in unconsolidated subsidiaries
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34
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24
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Goodwill
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3,562
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3,561
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Other intangible assets, net
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3,777
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3,781
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Other non-current assets
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214
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279
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Deferred tax assets
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60
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62
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Total assets
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$
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10,246
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$
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10,022
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Liabilities and Stockholders' Equity
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|||||||
Current liabilities:
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Accounts payable
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$
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484
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$
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365
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Deferred revenue
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64
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64
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Short-term borrowings and current portion of long-term obligations
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264
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79
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|
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Income taxes payable
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39
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11
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|
||
Other current liabilities
|
675
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719
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|
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Total current liabilities
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1,526
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1,238
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Long-term obligations
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4,126
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4,400
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|
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Deferred tax liabilities
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645
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614
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Non-current deferred revenue
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1,021
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1,055
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Other non-current liabilities
|
206
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264
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|
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Total liabilities
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7,524
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7,571
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Commitments and contingencies
|
|
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|
||||
Stockholders' equity:
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||||
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued
|
—
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—
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Common stock, $0.01 par value, 800,000,000 shares authorized, 180,288,812 and 179,743,028 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
|
2
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|
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2
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Additional paid-in capital
|
—
|
|
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—
|
|
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Retained earnings
|
2,920
|
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2,651
|
|
||
Accumulated other comprehensive loss
|
(200
|
)
|
|
(202
|
)
|
||
Total stockholders' equity
|
2,722
|
|
|
2,451
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|
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Total liabilities and stockholders' equity
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$
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10,246
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$
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10,022
|
|
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For the Six Months Ended
|
||||||
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June 30,
|
||||||
(in millions)
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2018
|
|
2017
|
||||
Operating activities:
|
|
|
|
||||
Net income
|
$
|
394
|
|
|
$
|
365
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation expense
|
99
|
|
|
98
|
|
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Amortization expense
|
20
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|
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17
|
|
||
Amortization of deferred revenue
|
(32
|
)
|
|
(32
|
)
|
||
Employee stock-based compensation expense
|
21
|
|
|
16
|
|
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Deferred income taxes
|
44
|
|
|
48
|
|
||
Loss on early extinguishment of debt
|
—
|
|
|
49
|
|
||
Gain on step acquisition of unconsolidated subsidiaries
|
—
|
|
|
(28
|
)
|
||
Unrealized losses on economic hedges
|
3
|
|
|
7
|
|
||
Other, net
|
1
|
|
|
6
|
|
||
Changes in assets and liabilities, net of effects of acquisition:
|
|
|
|
||||
Trade accounts receivable
|
(148
|
)
|
|
(72
|
)
|
||
Other accounts receivable
|
(10
|
)
|
|
10
|
|
||
Inventories
|
(37
|
)
|
|
(35
|
)
|
||
Other current and non-current assets
|
(103
|
)
|
|
(95
|
)
|
||
Other current and non-current liabilities
|
18
|
|
|
(5
|
)
|
||
Trade accounts payable
|
121
|
|
|
24
|
|
||
Income taxes payable
|
27
|
|
|
37
|
|
||
Net cash provided by operating activities
|
418
|
|
|
410
|
|
||
Investing activities:
|
|
|
|
||||
Acquisition of business
|
(73
|
)
|
|
(1,550
|
)
|
||
Cash acquired in step acquisition of unconsolidated subsidiaries
|
—
|
|
|
3
|
|
||
Purchase of property, plant and equipment
|
(79
|
)
|
|
(41
|
)
|
||
Purchase of intangible assets
|
(5
|
)
|
|
(5
|
)
|
||
Investment in unconsolidated subsidiaries
|
(19
|
)
|
|
(1
|
)
|
||
Proceeds from disposals of property, plant and equipment
|
1
|
|
|
1
|
|
||
Other, net
|
(4
|
)
|
|
(2
|
)
|
||
Net cash used in investing activities
|
(179
|
)
|
|
(1,595
|
)
|
||
Financing activities:
|
|
|
|
||||
Proceeds from issuance of senior unsecured notes
|
—
|
|
|
400
|
|
||
Repayment of senior unsecured notes
|
—
|
|
|
(248
|
)
|
||
Net repayment of commercial paper
|
(66
|
)
|
|
—
|
|
||
Repurchase of shares of common stock
|
—
|
|
|
(177
|
)
|
||
Dividends paid
|
(209
|
)
|
|
(204
|
)
|
||
Tax withholdings related to net share settlements of certain stock awards
|
(21
|
)
|
|
(30
|
)
|
||
Proceeds from stock options exercised
|
7
|
|
|
19
|
|
||
Premium on issuance of senior unsecured notes
|
—
|
|
|
16
|
|
||
Proceeds from termination of interest rate swap
|
—
|
|
|
13
|
|
||
Deferred financing charges paid
|
—
|
|
|
(5
|
)
|
||
Capital lease payments
|
(7
|
)
|
|
(5
|
)
|
||
Other, net
|
—
|
|
|
1
|
|
||
Net cash used in financing activities
|
(296
|
)
|
|
(220
|
)
|
||
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
|
|
|
|
||||
Operating, investing and financing activities
|
(57
|
)
|
|
(1,405
|
)
|
||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
|
—
|
|
|
5
|
|
||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
|
158
|
|
|
1,787
|
|
||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
|
$
|
101
|
|
|
$
|
387
|
|
|
|
|
|
|
|
|
|
|
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, 2018
|
179.7
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2,651
|
|
|
$
|
(202
|
)
|
|
$
|
2,451
|
|
Adoption of new accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
(31
|
)
|
|||||
Shares issued under employee stock-based compensation plans and other
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
394
|
|
|
—
|
|
|
394
|
|
|||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|||||
Dividends declared, $0.58 per share
|
—
|
|
|
—
|
|
|
1
|
|
|
(106
|
)
|
|
—
|
|
|
(105
|
)
|
|||||
Deemed capital contribution from former shareholders of Bai Brands LLC
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|||||
Stock options exercised and stock-based compensation
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
12
|
|
|
—
|
|
|
7
|
|
|||||
Balance as of June 30, 2018
|
180.3
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2,920
|
|
|
$
|
(200
|
)
|
|
$
|
2,722
|
|
1
.
|
General
|
(in millions)
|
|
Indemnification Escrow
|
|
Unrecognized Compensation Costs
|
|
Total Holdback Liability
|
||||||
Balance as of December 31, 2017
|
|
$
|
79
|
|
|
$
|
7
|
|
|
$
|
86
|
|
Release from escrow to former Bai Brands shareholders
|
|
(69
|
)
|
|
—
|
|
|
(69
|
)
|
|||
Recognized compensation costs
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|||
Balance as of June 30, 2018
|
|
$
|
10
|
|
|
$
|
3
|
|
|
$
|
13
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Maple Merger
|
|
11
|
|
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
||
Bai Brands Merger
|
|
—
|
|
|
1
|
|
|
1
|
|
|
20
|
|
||||
Total transaction and integration expenses incurred
|
|
$
|
11
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
20
|
|
(in millions)
|
Beverage Concentrates
|
|
Packaged Beverages
|
|
Latin America Beverages
|
|
Total
|
||||||||
For the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
||||||||
CSDs
(1)
|
$
|
348
|
|
|
$
|
528
|
|
|
$
|
96
|
|
|
$
|
972
|
|
NCBs
(2)
|
3
|
|
|
567
|
|
|
40
|
|
|
610
|
|
||||
Contract manufacturing
(3)
|
1
|
|
|
78
|
|
|
—
|
|
|
79
|
|
||||
Allied brand sales
(4)
|
—
|
|
|
196
|
|
|
—
|
|
|
196
|
|
||||
Other
(5)
|
20
|
|
|
9
|
|
|
—
|
|
|
29
|
|
||||
Net sales
|
$
|
372
|
|
|
$
|
1,378
|
|
|
$
|
136
|
|
|
$
|
1,886
|
|
|
|
|
|
|
|
|
|
||||||||
For the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
||||||||
CSDs
(1)
|
$
|
628
|
|
|
$
|
1,005
|
|
|
$
|
172
|
|
|
$
|
1,805
|
|
NCBs
(2)
|
6
|
|
|
1,044
|
|
|
76
|
|
|
1,126
|
|
||||
Contract manufacturing
(3)
|
1
|
|
|
147
|
|
|
1
|
|
|
149
|
|
||||
Allied brand sales
(4)
|
—
|
|
|
343
|
|
|
—
|
|
|
343
|
|
||||
Other
(5)
|
40
|
|
|
17
|
|
|
—
|
|
|
57
|
|
||||
Net sales
|
$
|
675
|
|
|
$
|
2,556
|
|
|
$
|
249
|
|
|
$
|
3,480
|
|
|
|
|
|
|
|
|
|
||||||||
For the three months ended June 30, 2017:
(6)
|
|
|
|
|
|
|
|
||||||||
CSDs
(1)
|
$
|
332
|
|
|
$
|
521
|
|
|
$
|
98
|
|
|
$
|
951
|
|
NCBs
(2)
|
3
|
|
|
546
|
|
|
40
|
|
|
589
|
|
||||
Contract manufacturing
(3)
|
1
|
|
|
67
|
|
|
1
|
|
|
69
|
|
||||
Allied brand sales
(4)
|
—
|
|
|
159
|
|
|
—
|
|
|
159
|
|
||||
Other
(5)
|
20
|
|
|
9
|
|
|
—
|
|
|
29
|
|
||||
Net sales
|
$
|
356
|
|
|
$
|
1,302
|
|
|
$
|
139
|
|
|
$
|
1,797
|
|
|
|
|
|
|
|
|
|
||||||||
For the six months ended June 30, 2017:
(6)
|
|
|
|
|
|
|
|
||||||||
CSDs
(1)
|
$
|
603
|
|
|
$
|
983
|
|
|
$
|
164
|
|
|
$
|
1,750
|
|
NCBs
(2)
|
6
|
|
|
995
|
|
|
72
|
|
|
1,073
|
|
||||
Contract manufacturing
(3)
|
1
|
|
|
127
|
|
|
1
|
|
|
129
|
|
||||
Allied brand sales
(4)
|
—
|
|
|
298
|
|
|
—
|
|
|
298
|
|
||||
Other
(5)
|
40
|
|
|
17
|
|
|
—
|
|
|
57
|
|
||||
Net sales
|
$
|
650
|
|
|
$
|
2,420
|
|
|
$
|
237
|
|
|
$
|
3,307
|
|
(1)
|
Represents product sales of owned CSD brands within our portfolio and the net sales recognized ratably under the PepsiCo and Coca-Cola arrangements. Product sales include the sale of beverage concentrates, syrup and packaged beverages.
|
(2)
|
Represents product sales of owned NCB brands within our portfolio. Product sales primarily include packaged beverages.
|
(3)
|
Net sales from contract manufacturing, b
ottling beverages and other products for private label owners or others.
|
(4)
|
Allied brand sales represent product distribution of third party brands.
|
(5)
|
Other sales include miscellaneous revenues, such as royalties.
|
(6)
|
Prior period amounts were not adjusted for the adoption of the new revenue recognition guidance under ASC 606.
|
(in millions)
|
|
Beverage Concentrates
|
|
Packaged Beverages
|
|
Latin America Beverages
|
|
Total
|
||||||||
For the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
||||||||
United States ("U.S.")
|
|
$
|
350
|
|
|
$
|
1,331
|
|
|
$
|
—
|
|
|
$
|
1,681
|
|
Canada
|
|
22
|
|
|
47
|
|
|
—
|
|
|
69
|
|
||||
Latin America and other
(1)
|
|
—
|
|
|
—
|
|
|
136
|
|
|
136
|
|
||||
Net sales
|
|
$
|
372
|
|
|
$
|
1,378
|
|
|
$
|
136
|
|
|
$
|
1,886
|
|
|
|
|
|
|
|
|
|
|
||||||||
For the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
||||||||
U.S.
|
|
$
|
634
|
|
|
$
|
2,477
|
|
|
$
|
—
|
|
|
$
|
3,111
|
|
Canada
|
|
41
|
|
|
79
|
|
|
—
|
|
|
120
|
|
||||
Latin America and other
(1)
|
|
—
|
|
|
—
|
|
|
249
|
|
|
249
|
|
||||
Net sales
|
|
$
|
675
|
|
|
$
|
2,556
|
|
|
$
|
249
|
|
|
$
|
3,480
|
|
|
|
|
|
|
|
|
|
|
||||||||
For the three months ended June 30, 2017:
(2)
|
|
|
|
|
|
|
|
|
||||||||
U.S.
|
|
$
|
336
|
|
|
$
|
1,260
|
|
|
$
|
—
|
|
|
$
|
1,596
|
|
Canada
|
|
20
|
|
|
42
|
|
|
—
|
|
|
62
|
|
||||
Latin America and other
(1)
|
|
—
|
|
|
—
|
|
|
139
|
|
|
139
|
|
||||
Net sales
|
|
$
|
356
|
|
|
$
|
1,302
|
|
|
$
|
139
|
|
|
$
|
1,797
|
|
|
|
|
|
|
|
|
|
|
||||||||
For the six months ended June 30, 2017:
(2)
|
|
|
|
|
|
|
|
|
||||||||
U.S.
|
|
$
|
613
|
|
|
$
|
2,349
|
|
|
$
|
—
|
|
|
$
|
2,962
|
|
Canada
|
|
37
|
|
|
71
|
|
|
—
|
|
|
108
|
|
||||
Latin America and other
(1)
|
|
—
|
|
|
—
|
|
|
237
|
|
|
237
|
|
||||
Net sales
|
|
$
|
650
|
|
|
$
|
2,420
|
|
|
$
|
237
|
|
|
$
|
3,307
|
|
(1)
|
Other includes immaterial net sales in geographical locations outside of U.S., Latin America and Canada.
|
(2)
|
Prior period amounts were not adjusted for the adoption of the new revenue recognition guidance under ASC 606.
|
4
.
|
Goodwill and Other Intangible Assets
|
(in millions)
|
Beverage Concentrates
|
|
WD Reporting Unit
(1)
|
|
DSD Reporting Unit
(1)
|
|
Bai
(1)
|
|
Latin America Beverages
|
|
Total
|
||||||||||||
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
|
|
||||||
Foreign currency impact
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||||
Reclassifications
(2)
|
—
|
|
|
568
|
|
|
—
|
|
|
(568
|
)
|
|
—
|
|
|
—
|
|
||||||
Balance as of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Goodwill
|
1,733
|
|
|
1,790
|
|
|
189
|
|
|
—
|
|
|
30
|
|
|
3,742
|
|
||||||
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
(180
|
)
|
||||||
|
$
|
1,733
|
|
|
$
|
1,790
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
3,562
|
|
(1)
|
As of January 1, 2018, the Packaged Beverages operating segment is comprised of three reporting units, the Direct Store Delivery ("
DSD
") system, WD and Bai.
|
(2)
|
As of January 1, 2018, due to changes in the Company's operating segments and reporting units, the goodwill associated with the Bai operating segment was reclassified to the WD reporting unit. Refer to
Change in the Company's Operating Segments and Reporting Units
above.
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
Gross
|
|
Accumulated
|
|
Net
|
|
Gross
|
|
Accumulated
|
|
Net
|
||||||||||||
(in millions)
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
||||||||||||
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Brands
|
$
|
3,694
|
|
|
|
|
$
|
3,694
|
|
|
$
|
3,694
|
|
|
|
|
$
|
3,694
|
|
||||
Distribution rights
|
33
|
|
|
|
|
33
|
|
|
32
|
|
|
|
|
32
|
|
||||||||
Intangible assets with definite lives:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Customer relationships
|
106
|
|
|
$
|
(82
|
)
|
|
24
|
|
|
106
|
|
|
$
|
(79
|
)
|
|
27
|
|
||||
Non-compete agreements
|
22
|
|
|
(6
|
)
|
|
16
|
|
|
22
|
|
|
(2
|
)
|
|
20
|
|
||||||
Distribution rights
|
21
|
|
|
(11
|
)
|
|
10
|
|
|
18
|
|
|
(10
|
)
|
|
8
|
|
||||||
Brands
|
29
|
|
|
(29
|
)
|
|
—
|
|
|
29
|
|
|
(29
|
)
|
|
—
|
|
||||||
Bottler agreements
|
19
|
|
|
(19
|
)
|
|
—
|
|
|
19
|
|
|
(19
|
)
|
|
—
|
|
||||||
Total
|
$
|
3,924
|
|
|
$
|
(147
|
)
|
|
$
|
3,777
|
|
|
$
|
3,920
|
|
|
$
|
(139
|
)
|
|
$
|
3,781
|
|
|
Remainder of 2018
|
|
For the Years Ending December 31,
|
||||||||||||||||
(in millions)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|||||||||||
Projected amortization expense for intangible assets with definite lives
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
10
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||||||||||||||
(in millions)
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
||||||||||||
Statutory federal income tax
(1)
|
$
|
67
|
|
|
21.0
|
%
|
|
$
|
99
|
|
|
35.0
|
%
|
|
$
|
113
|
|
|
21.0
|
%
|
|
$
|
186
|
|
|
35.0
|
%
|
State income taxes, net
(2)
|
16
|
|
|
4.9
|
%
|
|
4
|
|
|
1.4
|
%
|
|
26
|
|
|
4.7
|
%
|
|
12
|
|
|
2.3
|
%
|
||||
US federal domestic manufacturing benefit
(3)
|
—
|
|
|
—
|
%
|
|
(7
|
)
|
|
(2.5
|
)%
|
|
—
|
|
|
—
|
%
|
|
(13
|
)
|
|
(2.4
|
)%
|
||||
Impact of non-US operations
(4)
|
1
|
|
|
0.3
|
%
|
|
(3
|
)
|
|
(1.1
|
)%
|
|
2
|
|
|
0.4
|
%
|
|
(4
|
)
|
|
(0.8
|
)%
|
||||
Stock-based compensation benefit
(5)
|
(1
|
)
|
|
(0.3
|
)%
|
|
(1
|
)
|
|
(0.4
|
)%
|
|
(6
|
)
|
|
(1.1
|
)%
|
|
(19
|
)
|
|
(3.6
|
)%
|
||||
Other
|
—
|
|
|
—
|
%
|
|
2
|
|
|
0.8
|
%
|
|
2
|
|
|
0.4
|
%
|
|
3
|
|
|
0.6
|
%
|
||||
Total income tax provision
|
$
|
83
|
|
|
25.9
|
%
|
|
$
|
94
|
|
|
33.2
|
%
|
|
$
|
137
|
|
|
25.4
|
%
|
|
$
|
165
|
|
|
31.1
|
%
|
(1)
|
reduced the U.S. federal statutory tax rate from
35%
to
21%
.
|
(2)
|
decreased the federal income tax benefit from the deduction of state income taxes from
35%
to
21%
; additionally, for the prior year period, state income taxes included a benefit of
$6 million
due primarily to an agreement for an improved filing group with a state taxing authority, which was not related to the TCJA.
|
(3)
|
repealed the U.S. federal domestic manufacturing deduction.
|
(4)
|
caused the impact of non-U.S. operations to switch from an income tax benefit to an income tax detriment due to the lower U.S. federal statutory tax rate.
|
(5)
|
reduced the tax benefit from stock-based compensation for the
six months ended June 30, 2018
due to the lower U.S. federal statutory tax rate; additionally, the pre-tax windfall in the current period was less than the prior period.
|
6
.
|
Long-term Obligations and Borrowing Arrangements
|
|
June 30,
|
|
December 31,
|
||||
(in millions)
|
2018
|
|
2017
|
||||
Senior unsecured notes
|
$
|
4,205
|
|
|
$
|
4,230
|
|
Capital lease obligations
|
185
|
|
|
183
|
|
||
Subtotal
|
4,390
|
|
|
4,413
|
|
||
Less - current portion
|
(264
|
)
|
|
(13
|
)
|
||
Long-term obligations
|
$
|
4,126
|
|
|
$
|
4,400
|
|
|
Fair Value Hierarchy Level
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
(in millions)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|||||||||
Commercial paper
|
1
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
66
|
|
Current portion of long-term obligations:
|
|
|
|
|
|
|
|
|
|
||||||||
Senior unsecured notes
|
2
|
|
249
|
|
|
249
|
|
|
—
|
|
|
—
|
|
||||
Capital lease obligations
(1)
|
N/A
|
|
15
|
|
|
|
|
13
|
|
|
|
||||||
Short-term borrowings and current portion of long-term obligations
|
|
|
$
|
264
|
|
|
$
|
249
|
|
|
$
|
79
|
|
|
$
|
66
|
|
(1)
|
Capital lease obligations are specifically excluded from the calculation of fair value under U.S. GAAP.
|
(in millions)
|
|
|
|
|
|
Fair Value Hierarchy Level
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
Issuance
|
|
Maturity Date
|
|
Rate
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|||||||||
2019 Notes
|
|
January 15, 2019
|
|
2.60%
|
|
2
|
|
$
|
250
|
|
|
$
|
249
|
|
|
$
|
250
|
|
|
$
|
251
|
|
2020 Notes
|
|
January 15, 2020
|
|
2.00%
|
|
2
|
|
250
|
|
|
246
|
|
|
250
|
|
|
248
|
|
||||
2021-A Notes
|
|
November 15, 2021
|
|
3.20%
|
|
2
|
|
250
|
|
|
246
|
|
|
250
|
|
|
255
|
|
||||
2021-B Notes
|
|
November 15, 2021
|
|
2.53%
|
|
2
|
|
250
|
|
|
242
|
|
|
250
|
|
|
249
|
|
||||
2022 Notes
|
|
November 15, 2022
|
|
2.70%
|
|
2
|
|
250
|
|
|
242
|
|
|
250
|
|
|
248
|
|
||||
2023 Notes
|
|
December 15, 2023
|
|
3.13%
|
|
2
|
|
500
|
|
|
489
|
|
|
500
|
|
|
504
|
|
||||
2025 Notes
|
|
November 15, 2025
|
|
3.40%
|
|
2
|
|
500
|
|
|
473
|
|
|
500
|
|
|
508
|
|
||||
2026 Notes
|
|
September 15, 2026
|
|
2.55%
|
|
2
|
|
400
|
|
|
353
|
|
|
400
|
|
|
378
|
|
||||
2027 Notes
|
|
June 15, 2027
|
|
3.43%
|
|
2
|
|
500
|
|
|
468
|
|
|
500
|
|
|
501
|
|
||||
2038 Notes
|
|
May 1, 2038
|
|
7.45%
|
|
2
|
|
125
|
|
|
163
|
|
|
125
|
|
|
179
|
|
||||
2045 Notes
|
|
November 15, 2045
|
|
4.50%
|
|
2
|
|
550
|
|
|
503
|
|
|
550
|
|
|
588
|
|
||||
2046 Notes
|
|
December 15, 2046
|
|
4.42%
|
|
2
|
|
400
|
|
|
375
|
|
|
400
|
|
|
424
|
|
||||
Principal amount
|
|
|
|
|
|
|
|
$
|
4,225
|
|
|
$
|
4,049
|
|
|
$
|
4,225
|
|
|
$
|
4,333
|
|
Unamortized premiums, discounts, and debt issuance costs
|
|
|
|
(12
|
)
|
|
|
|
(13
|
)
|
|
|
||||||||||
Adjustments to carrying value for interest rate swaps
(1)
|
|
|
|
(8
|
)
|
|
|
|
18
|
|
|
|
||||||||||
Carrying amount
|
|
|
|
|
|
|
|
$
|
4,205
|
|
|
|
|
$
|
4,230
|
|
|
|
(1)
|
Refer to Note 7 for additional information
on the
Company
's interest rate swaps.
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
||||||||||||
|
|
June 30,
|
|
June 30,
|
||||||||||||
(in millions, except percentages)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Weighted average commercial paper borrowings
(1)
|
|
$
|
73
|
|
|
$
|
28
|
|
|
$
|
94
|
|
|
$
|
17
|
|
Weighted average borrowing rates
|
|
2.29
|
%
|
|
1.20
|
%
|
|
2.09
|
%
|
|
1.14
|
%
|
(1)
|
Borrowings during the period had maturities of 90 days or less.
|
(in millions)
|
Amount Utilized
|
|
Balances Available
|
||||
Revolver
|
$
|
—
|
|
|
$
|
500
|
|
Letters of credit
|
—
|
|
|
75
|
|
|
|
|
|
|
|
|
|
Impact to the carrying value
|
||||||||||
($ in millions)
|
|
|
|
|
|
Method of
|
|
|
|
of long-term debt
|
||||||||
|
|
Hedging
|
|
Number of
|
|
measuring
|
|
Notional
|
|
June 30,
|
|
December 31,
|
||||||
Period entered
|
|
relationship
|
|
instruments
|
|
effectiveness
|
|
value
|
|
2018
|
|
2017
|
||||||
November 2011
|
|
2019 Notes
|
|
2
|
|
Short cut method
|
|
$
|
100
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
November 2011
|
|
2021-A Notes
|
|
2
|
|
Short cut method
|
|
150
|
|
|
(4
|
)
|
|
(1
|
)
|
|||
November 2012
|
|
2020 Notes
|
|
5
|
|
Short cut method
|
|
120
|
|
|
(3
|
)
|
|
(2
|
)
|
|||
December 2016
|
|
2021-B Notes
|
|
2
|
|
Short cut method
|
|
250
|
|
|
(8
|
)
|
|
(4
|
)
|
|||
December 2016
|
|
2023 Notes
|
|
2
|
|
Short cut method
|
|
150
|
|
|
(7
|
)
|
|
(3
|
)
|
|||
January 2017
|
|
2022 Notes
|
|
4
|
|
Regression
|
|
250
|
|
|
6
|
|
|
17
|
|
|||
June 2017
|
|
2038 Notes
|
|
1
|
|
Regression
|
|
50
|
|
|
9
|
|
|
11
|
|
|||
|
|
|
|
|
|
|
|
$
|
1,070
|
|
|
$
|
(8
|
)
|
|
$
|
18
|
|
(in millions)
|
Fair Value Hierarchy Level
|
|
Balance Sheet Location
|
|
June 30,
2018 |
|
December 31,
2017 |
||||
Assets:
|
|
|
|
|
|
|
|
||||
Interest rate contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
$
|
1
|
|
|
$
|
3
|
|
FX forward contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
1
|
|
|
2
|
|
||
Interest rate contracts
|
2
|
|
Other non-current assets
|
|
7
|
|
|
16
|
|
||
Liabilities:
|
|
|
|
|
|
|
|
||||
Interest rate contracts
|
2
|
|
Other current liabilities
|
|
7
|
|
|
3
|
|
||
FX forward contracts
|
2
|
|
Other current liabilities
|
|
—
|
|
|
—
|
|
||
Interest rate contracts
|
2
|
|
Other non-current liabilities
|
|
16
|
|
|
8
|
|
(in millions)
|
Fair Value Hierarchy Level
|
|
Balance Sheet Location
|
|
June 30,
2018 |
|
December 31,
2017 |
||||
Assets:
|
|
|
|
|
|
|
|
||||
Commodity contracts
|
2
|
|
Prepaid expenses and other current assets
|
|
$
|
25
|
|
|
$
|
27
|
|
Commodity contracts
|
2
|
|
Other non-current assets
|
|
17
|
|
|
17
|
|
||
Liabilities:
|
|
|
|
|
|
|
|
||||
Commodity contracts
|
2
|
|
Other non-current liabilities
|
|
1
|
|
|
—
|
|
(in millions)
|
Amount of Income (Loss) Recognized in Other Comprehensive Income ("OCI")
|
|
Amount of Loss Reclassified from AOCL into Income
|
|
Location of Amounts Reclassified from AOCL into Income
|
||||
For the three months ended June 30, 2018:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
Interest expense
|
Foreign exchange forward contracts
|
2
|
|
|
—
|
|
|
Cost of sales
|
||
Total
|
$
|
2
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
||||
For the six months ended June 30, 2018:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
Interest expense
|
FX forward contracts
|
(1
|
)
|
|
—
|
|
|
Cost of sales
|
||
Total
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
||||
For the three months ended June 30, 2017:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
Interest expense
|
Foreign exchange forward contracts
|
(3
|
)
|
|
(4
|
)
|
|
Cost of sales
|
||
Total
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
||||
For the six months ended June 30, 2017:
|
|
|
|
|
|
||||
Interest rate contracts
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
Interest expense
|
FX forward contracts
|
(10
|
)
|
|
(4
|
)
|
|
Cost of sales
|
||
Total
|
$
|
(10
|
)
|
|
$
|
(8
|
)
|
|
|
(in millions)
|
|
Amount of Gain Recognized in Income
|
|
Location of Gain
Recognized in Income
|
||
For the three months ended June 30, 2018:
|
|
|
|
|
||
Interest rate contracts
|
|
$
|
1
|
|
|
Interest expense
|
|
|
|
|
|
||
For the six months ended June 30, 2018:
|
|
|
|
|
||
Interest rate contracts
|
|
$
|
2
|
|
|
Interest expense
|
|
|
|
|
|
||
For the three months ended June 30, 2017:
|
|
|
|
|
||
Interest rate contracts
|
|
$
|
3
|
|
|
Interest expense
|
Interest rate contracts
|
|
13
|
|
|
Loss on early extinguishment of debt
|
|
Total
|
|
$
|
16
|
|
|
|
|
|
|
|
|
||
For the six months ended June 30, 2017:
|
|
|
|
|
||
Interest rate contracts
|
|
$
|
7
|
|
|
Interest expense
|
Interest rate contracts
|
|
13
|
|
|
Loss on early extinguishment of debt
|
|
Total
|
|
$
|
20
|
|
|
|
(in millions)
|
|
Amount of Gain (Loss)
Recognized in Income
|
|
Location of Gain (Loss)
Recognized in Income
|
||
For the three months ended June 30, 2018:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
7
|
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
12
|
|
|
SG&A expenses
|
|
Total
|
|
$
|
19
|
|
|
|
|
|
|
|
|
||
For the six months ended June 30, 2018:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
(1
|
)
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
15
|
|
|
SG&A expenses
|
|
Total
|
|
$
|
14
|
|
|
|
|
|
|
|
|
||
For the three months ended June 30, 2017:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
(4
|
)
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
(6
|
)
|
|
SG&A expenses
|
|
Total
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
||
For the six months ended June 30, 2017:
|
|
|
|
|
||
Commodity contracts
(1)
|
|
$
|
17
|
|
|
Cost of sales
|
Commodity contracts
(1)
|
|
(19
|
)
|
|
SG&A expenses
|
|
Interest rate contracts
(2)
|
|
1
|
|
|
Interest expense
|
|
Total
|
|
$
|
(1
|
)
|
|
|
(1)
|
Commodity contracts include both realized and unrealized gains and losses.
|
(2)
|
Represents gains on the interest rate contracts related to the 2022 Notes prior to re-designation of hedging relationship in January 2017.
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
(in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Total stock-based compensation expense
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
21
|
|
|
$
|
16
|
|
Income tax benefit recognized in the Statements of Income
|
(3
|
)
|
|
(3
|
)
|
|
(5
|
)
|
|
(5
|
)
|
||||
Stock-based compensation expense, net of tax
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
16
|
|
|
$
|
11
|
|
|
Stock Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding as of January 1, 2018
|
1,372,606
|
|
|
$
|
82.83
|
|
|
7.86
|
|
$
|
20
|
|
Exercised
|
(91,553
|
)
|
|
80.04
|
|
|
|
|
4
|
|
||
Forfeited or expired
|
(7,765
|
)
|
|
93.74
|
|
|
|
|
|
|||
Outstanding as of June 30, 2018
|
1,273,288
|
|
|
82.96
|
|
|
7.38
|
|
50
|
|
||
Exercisable as of June 30, 2018
|
871,624
|
|
|
77.98
|
|
|
6.94
|
|
38
|
|
|
RSUs
|
|
Weighted Average Grant Date Fair Value
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding as of January 1, 2018
|
942,124
|
|
|
$
|
88.44
|
|
|
0.82
|
|
$
|
91
|
|
Granted
|
433,637
|
|
|
116.14
|
|
|
|
|
|
|||
Vested and released
|
(509,756
|
)
|
|
84.31
|
|
|
|
|
59
|
|
||
Forfeited
|
(17,756
|
)
|
|
100.70
|
|
|
|
|
|
|||
Outstanding as of June 30, 2018
|
848,249
|
|
|
104.83
|
|
|
1.56
|
|
103
|
|
|
PSUs
|
|
Weighted Average Grant Date Fair Value
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
Outstanding as of January 1, 2018
|
329,490
|
|
|
$
|
51.69
|
|
|
0.98
|
|
$
|
32
|
|
Vested and released
|
(93,199
|
)
|
|
67.42
|
|
|
|
|
11
|
|
||
Forfeited
|
(22,756
|
)
|
|
67.05
|
|
|
|
|
|
|||
Outstanding as of June 30, 2018
|
213,535
|
|
|
45.49
|
|
|
1.00
|
|
26
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
(in millions, except per share data)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Basic EPS:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
235
|
|
|
$
|
188
|
|
|
$
|
394
|
|
|
$
|
365
|
|
Weighted average common shares outstanding
|
180.2
|
|
|
183.2
|
|
|
180.1
|
|
|
183.3
|
|
||||
Earnings per common share — basic
|
$
|
1.30
|
|
|
$
|
1.02
|
|
|
$
|
2.19
|
|
|
$
|
1.99
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
235
|
|
|
$
|
188
|
|
|
$
|
394
|
|
|
$
|
365
|
|
Weighted average common shares outstanding
|
180.2
|
|
|
183.2
|
|
|
180.1
|
|
|
183.3
|
|
||||
Effect of dilutive securities:
|
|
|
|
|
|
|
|
||||||||
Stock options
|
0.5
|
|
|
0.1
|
|
|
0.3
|
|
|
0.2
|
|
||||
RSUs
|
0.2
|
|
|
0.4
|
|
|
0.4
|
|
|
0.5
|
|
||||
PSUs
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.1
|
|
||||
Weighted average common shares outstanding and common stock equivalents
|
181.1
|
|
|
183.7
|
|
|
181.0
|
|
|
184.1
|
|
||||
Earnings per common share — diluted
|
$
|
1.30
|
|
|
$
|
1.02
|
|
|
$
|
2.17
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
||||||||
Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation
|
—
|
|
|
0.9
|
|
|
0.1
|
|
|
0.7
|
|
(in millions)
|
Foreign Currency Translation
|
|
Change in Pension Liability
|
|
Cash Flow Hedges
|
|
Accumulated Other Comprehensive Loss
|
||||||||
Balance as of April 1, 2018
|
$
|
(130
|
)
|
|
$
|
(31
|
)
|
|
$
|
(22
|
)
|
|
$
|
(183
|
)
|
OCI before reclassifications
|
(20
|
)
|
|
—
|
|
|
2
|
|
|
(18
|
)
|
||||
Amounts reclassified from AOCL
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||
Net current year OCI
|
(20
|
)
|
|
—
|
|
|
3
|
|
|
(17
|
)
|
||||
Balance as of June 30, 2018
|
$
|
(150
|
)
|
|
$
|
(31
|
)
|
|
$
|
(19
|
)
|
|
$
|
(200
|
)
|
|
|
|
|
|
|
|
|
||||||||
Balance as of January 1, 2018
|
(148
|
)
|
|
(32
|
)
|
|
(22
|
)
|
|
(202
|
)
|
||||
OCI before reclassifications
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
||||
Amounts reclassified from AOCL
|
—
|
|
|
1
|
|
|
3
|
|
|
4
|
|
||||
Net current period OCI
|
(2
|
)
|
|
1
|
|
|
3
|
|
|
2
|
|
||||
Balance as of June 30, 2018
|
$
|
(150
|
)
|
|
$
|
(31
|
)
|
|
$
|
(19
|
)
|
|
$
|
(200
|
)
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
(in millions)
|
Location of Loss Reclassified
from AOCL into Income
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Loss on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate contracts
|
Interest expense
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Foreign exchange forward contracts
|
Cost of sales
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
||||
Total
|
|
|
(2
|
)
|
|
(6
|
)
|
|
(4
|
)
|
|
(8
|
)
|
||||
Income tax benefit
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(3
|
)
|
||||
Total
|
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||
Defined benefit pension and post-retirement plan items:
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of actuarial losses, net
|
Other income, net
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
Total
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
||||
Income tax benefit
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
||||
Total
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total reclassifications
|
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
11
.
|
Inventories
|
|
June 30,
|
|
December 31,
|
||||
(in millions)
|
2018
|
|
2017
|
||||
Raw materials
|
$
|
81
|
|
|
$
|
81
|
|
Spare parts
|
25
|
|
|
24
|
|
||
Work in process
|
6
|
|
|
7
|
|
||
Finished goods
|
190
|
|
|
149
|
|
||
Inventories at first in first out cost
|
302
|
|
|
261
|
|
||
Reduction to LIFO cost
|
(37
|
)
|
|
(32
|
)
|
||
Inventories
|
$
|
265
|
|
|
$
|
229
|
|
|
June 30,
|
|
December 31,
|
||||
(in millions)
|
2018
|
|
2017
|
||||
Prepaid expenses and other current assets:
|
|
|
|
||||
Customer incentive programs
|
$
|
84
|
|
|
$
|
16
|
|
Derivative instruments
|
27
|
|
|
32
|
|
||
Prepaid income taxes
|
2
|
|
|
7
|
|
||
Other
|
83
|
|
|
44
|
|
||
Total prepaid expenses and other current assets
|
$
|
196
|
|
|
$
|
99
|
|
Other non-current assets:
|
|
|
|
||||
Customer incentive programs
|
$
|
88
|
|
|
$
|
76
|
|
Marketable securities - trading
(1)
|
53
|
|
|
48
|
|
||
Derivative instruments
|
24
|
|
|
33
|
|
||
Equity securities without readily determinable fair values
(2)
|
17
|
|
|
1
|
|
||
Non-current restricted cash and restricted cash equivalents
|
12
|
|
|
79
|
|
||
Other
|
20
|
|
|
42
|
|
||
Total other non-current assets
|
$
|
214
|
|
|
$
|
279
|
|
|
|
|
|
||||
Other current liabilities:
|
|
|
|
||||
Customer rebates and incentives
|
$
|
335
|
|
|
$
|
299
|
|
Accrued compensation
|
104
|
|
|
130
|
|
||
Insurance liability
|
38
|
|
|
34
|
|
||
Interest accrual
|
21
|
|
|
20
|
|
||
Dividends payable
|
—
|
|
|
103
|
|
||
Derivative instruments
|
7
|
|
|
3
|
|
||
Holdback liability to former Bai Brands shareholders
|
3
|
|
|
7
|
|
||
Acquired contingent liabilities
|
11
|
|
|
14
|
|
||
Other
|
156
|
|
|
109
|
|
||
Total other current liabilities
|
$
|
675
|
|
|
$
|
719
|
|
Other non-current liabilities:
|
|
|
|
||||
Long-term payables due to Mondelēz International, Inc.
|
$
|
16
|
|
|
$
|
16
|
|
Long-term pension and post-retirement liability
|
19
|
|
|
19
|
|
||
Insurance liability
|
60
|
|
|
60
|
|
||
Derivative instruments
|
17
|
|
|
8
|
|
||
Deferred compensation liability
|
53
|
|
|
48
|
|
||
Holdback liability to former Bai Brands shareholders
|
10
|
|
|
79
|
|
||
Acquired contingent liabilities
|
4
|
|
|
5
|
|
||
Other
|
27
|
|
|
29
|
|
||
Total other non-current liabilities
|
$
|
206
|
|
|
$
|
264
|
|
(1)
|
Fair values of marketable securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. The fair value of marketable securities was
$53 million
and
$48 million
as of
June 30, 2018
and
December 31, 2017
, respectively.
|
(2)
|
As of
June 30, 2018
, the Company was aware of an impending transaction between KDP and Big Red Group Holdings, LLC ("Big Red") to purchase Big Red for
$300 million
, which had been agreed-upon but not executed as of
June 30, 2018
. Refer to Note
17
for further information. As the agreed-upon purchase of Big Red represents a price change observable to the Company in an orderly transaction, the Company remeasured its equity investment in Big Red, which resulted in a
$16 million
increase to the Company's investments in equity securities without readily determinable fair values. The corresponding benefit was recorded to other operating income, net.
|
|
Fair Value Hierarchy Level
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
(in millions)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|||||||||
Cash and cash equivalents
|
1
|
|
$
|
64
|
|
|
$
|
64
|
|
|
$
|
61
|
|
|
$
|
61
|
|
Restricted cash and restricted cash equivalents
(1)
|
1
|
|
25
|
|
|
25
|
|
|
18
|
|
|
18
|
|
||||
Non-current restricted cash and restricted cash equivalents included in Other non-current assets
(2)
|
1
|
|
12
|
|
|
12
|
|
|
79
|
|
|
79
|
|
||||
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows
|
|
|
$
|
101
|
|
|
$
|
101
|
|
|
$
|
158
|
|
|
$
|
158
|
|
(1)
|
Current restricted cash and restricted cash equivalents primarily includes the liability related to the contingent change in control ("CIC") severance payments to certain executives in connection with the Maple Merger.
Refer to Note 17 for additional information
on the Maple Merger.
|
(2)
|
Non-current restricted cash and restricted cash equivalents primarily includes the holdback liability associated with the Bai Brands Merger.
Refer to Note 2 for additional information
on the Bai Brands Merger.
|
|
For the Six Months Ended June 30,
|
||||||
(in millions)
|
2018
|
|
2017
|
||||
Supplemental cash flow disclosures of non-cash investing and financing activities:
|
|
|
|
||||
Dividends declared but not yet paid
(1)
|
$
|
—
|
|
|
$
|
105
|
|
Capital expenditures included in accounts payable and other current liabilities
|
17
|
|
|
17
|
|
||
Holdback liability for acquisition of business
|
13
|
|
|
101
|
|
||
Capital lease additions
|
9
|
|
|
15
|
|
||
Supplemental cash flow disclosures:
|
|
|
|
||||
Interest paid
|
$
|
72
|
|
|
$
|
74
|
|
Income taxes paid
|
60
|
|
|
93
|
|
(1)
|
On June 26, 2018, the Company issued a press release which announced that its Board had conditionally set July 6, 2018 as the record date for the special dividend of
$103.75
per share on the Company’s common stock contemplated by the Merger Agreement, contingent upon the consummation of the Maple Merger. This contingent dividend is not reflected within dividends declared but not yet paid for the
six months ended
June 30, 2018
.
Refer to Note 17 for additional information
on the Maple Merger.
|
•
|
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 segment reflects sales in the
U.S.
and Canada from the manufacture and distribution of finished beverages and other products, including sales of the
Company
's own brands and third-party brands, through both the DSD system and the WD system.
|
•
|
The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
(in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Segment Results – Net sales
|
|
|
|
|
|
|
|
||||||||
Beverage Concentrates
|
$
|
372
|
|
|
$
|
356
|
|
|
$
|
675
|
|
|
$
|
650
|
|
Packaged Beverages
|
1,378
|
|
|
1,302
|
|
|
2,556
|
|
|
2,420
|
|
||||
Latin America Beverages
|
136
|
|
|
139
|
|
|
249
|
|
|
237
|
|
||||
Net sales
|
$
|
1,886
|
|
|
$
|
1,797
|
|
|
$
|
3,480
|
|
|
$
|
3,307
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
(in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Segment Results – SOP
|
|
|
|
|
|
|
|
||||||||
Beverage Concentrates
|
$
|
249
|
|
|
$
|
237
|
|
|
$
|
443
|
|
|
$
|
423
|
|
Packaged Beverages
|
148
|
|
|
196
|
|
|
298
|
|
|
337
|
|
||||
Latin America Beverages
|
27
|
|
|
24
|
|
|
39
|
|
|
35
|
|
||||
Total SOP
|
424
|
|
|
457
|
|
|
780
|
|
|
795
|
|
||||
Unallocated corporate costs
|
77
|
|
|
84
|
|
|
173
|
|
|
164
|
|
||||
Other operating income, net
|
(15
|
)
|
|
(2
|
)
|
|
(14
|
)
|
|
(30
|
)
|
||||
Income from operations
|
362
|
|
|
375
|
|
|
621
|
|
|
661
|
|
||||
Interest expense, net
|
43
|
|
|
43
|
|
|
83
|
|
|
82
|
|
||||
Loss on early extinguishment of debt
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
||||
Other income, net
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
||||
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
|
$
|
321
|
|
|
$
|
283
|
|
|
$
|
540
|
|
|
$
|
531
|
|
|
Condensed Consolidating Statements of Income
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2018
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
—
|
|
|
$
|
1,732
|
|
|
$
|
189
|
|
|
$
|
(35
|
)
|
|
$
|
1,886
|
|
Cost of sales
|
—
|
|
|
732
|
|
|
93
|
|
|
(35
|
)
|
|
790
|
|
|||||
Gross profit
|
—
|
|
|
1,000
|
|
|
96
|
|
|
—
|
|
|
1,096
|
|
|||||
Selling, general and administrative expenses
|
1
|
|
|
663
|
|
|
57
|
|
|
—
|
|
|
721
|
|
|||||
Depreciation and amortization
|
—
|
|
|
27
|
|
|
1
|
|
|
—
|
|
|
28
|
|
|||||
Other operating (income) expense, net
|
(16
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|||||
Income from operations
|
15
|
|
|
309
|
|
|
38
|
|
|
—
|
|
|
362
|
|
|||||
Interest expense
|
94
|
|
|
31
|
|
|
—
|
|
|
(82
|
)
|
|
43
|
|
|||||
Interest income
|
(27
|
)
|
|
(55
|
)
|
|
—
|
|
|
82
|
|
|
—
|
|
|||||
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other (income) expense, net
|
(2
|
)
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
|||||
Income (loss) before provision (benefit) for income taxes and equity in earnings (loss) of subsidiaries
|
(50
|
)
|
|
334
|
|
|
37
|
|
|
—
|
|
|
321
|
|
|||||
Provision (benefit) for income taxes
|
(12
|
)
|
|
79
|
|
|
16
|
|
|
—
|
|
|
83
|
|
|||||
Income (loss) before equity in earnings of subsidiaries
|
(38
|
)
|
|
255
|
|
|
21
|
|
|
—
|
|
|
238
|
|
|||||
Equity in earnings of consolidated subsidiaries
|
273
|
|
|
21
|
|
|
—
|
|
|
(294
|
)
|
|
—
|
|
|||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|||||
Net income
|
$
|
235
|
|
|
$
|
273
|
|
|
$
|
21
|
|
|
$
|
(294
|
)
|
|
$
|
235
|
|
|
Condensed Consolidating Statements of Income
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
—
|
|
|
$
|
1,647
|
|
|
$
|
193
|
|
|
$
|
(43
|
)
|
|
$
|
1,797
|
|
Cost of sales
|
—
|
|
|
658
|
|
|
103
|
|
|
(43
|
)
|
|
718
|
|
|||||
Gross profit
|
—
|
|
|
989
|
|
|
90
|
|
|
—
|
|
|
$
|
1,079
|
|
||||
Selling, general and administrative expenses
|
1
|
|
|
621
|
|
|
59
|
|
|
—
|
|
|
681
|
|
|||||
Depreciation and amortization
|
—
|
|
|
23
|
|
|
2
|
|
|
—
|
|
|
25
|
|
|||||
Other operating (income) expense, net
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|||||
Income from operations
|
(1
|
)
|
|
347
|
|
|
29
|
|
|
—
|
|
|
375
|
|
|||||
Interest expense
|
72
|
|
|
20
|
|
|
—
|
|
|
(48
|
)
|
|
44
|
|
|||||
Interest income
|
(18
|
)
|
|
(30
|
)
|
|
(1
|
)
|
|
48
|
|
|
(1
|
)
|
|||||
Loss on extinguishment of debt
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|||||
Other (income) expense, net
|
(2
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Income (loss) before provision (benefit) for income taxes and equity in earnings (loss) of subsidiaries
|
(102
|
)
|
|
355
|
|
|
30
|
|
|
—
|
|
|
283
|
|
|||||
Provision (benefit) for income taxes
|
(38
|
)
|
|
125
|
|
|
7
|
|
|
—
|
|
|
94
|
|
|||||
Income (loss) before equity in earnings of subsidiaries
|
(64
|
)
|
|
230
|
|
|
23
|
|
|
—
|
|
|
189
|
|
|||||
Equity in earnings of consolidated subsidiaries
|
252
|
|
|
23
|
|
|
—
|
|
|
(275
|
)
|
|
—
|
|
|||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|||||
Net income
|
$
|
188
|
|
|
$
|
252
|
|
|
$
|
23
|
|
|
$
|
(275
|
)
|
|
$
|
188
|
|
|
Condensed Consolidating Statements of Income
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2018
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
—
|
|
|
$
|
3,205
|
|
|
$
|
342
|
|
|
$
|
(67
|
)
|
|
$
|
3,480
|
|
Cost of sales
|
—
|
|
|
1,361
|
|
|
177
|
|
|
(67
|
)
|
|
1,471
|
|
|||||
Gross profit
|
—
|
|
|
1,844
|
|
|
165
|
|
|
—
|
|
|
2,009
|
|
|||||
Selling, general and administrative expenses
|
1
|
|
|
1,239
|
|
|
107
|
|
|
—
|
|
|
1,347
|
|
|||||
Depreciation and amortization
|
—
|
|
|
52
|
|
|
3
|
|
|
—
|
|
|
55
|
|
|||||
Other operating income, net
|
(16
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|||||
Income from operations
|
15
|
|
|
551
|
|
|
55
|
|
|
—
|
|
|
621
|
|
|||||
Interest expense
|
176
|
|
|
56
|
|
|
—
|
|
|
(148
|
)
|
|
84
|
|
|||||
Interest income
|
(50
|
)
|
|
(98
|
)
|
|
(1
|
)
|
|
148
|
|
|
(1
|
)
|
|||||
Other (income) expense, net
|
(4
|
)
|
|
(2
|
)
|
|
4
|
|
|
—
|
|
|
(2
|
)
|
|||||
Income (loss) before provision (benefit) for income taxes and equity in earnings (loss) of subsidiaries
|
(107
|
)
|
|
595
|
|
|
52
|
|
|
—
|
|
|
540
|
|
|||||
Provision (benefit) for income taxes
|
(25
|
)
|
|
142
|
|
|
20
|
|
|
—
|
|
|
137
|
|
|||||
Income (loss) before equity in earnings (loss) of subsidiaries
|
(82
|
)
|
|
453
|
|
|
32
|
|
|
—
|
|
|
403
|
|
|||||
Equity in earnings of consolidated subsidiaries
|
476
|
|
|
32
|
|
|
—
|
|
|
(508
|
)
|
|
—
|
|
|||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|||||
Net income
|
$
|
394
|
|
|
$
|
476
|
|
|
$
|
32
|
|
|
$
|
(508
|
)
|
|
$
|
394
|
|
|
Condensed Consolidating Statements of Income
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
—
|
|
|
$
|
3,054
|
|
|
$
|
329
|
|
|
$
|
(76
|
)
|
|
$
|
3,307
|
|
Cost of sales
|
—
|
|
|
1,222
|
|
|
179
|
|
|
(76
|
)
|
|
1,325
|
|
|||||
Gross profit
|
—
|
|
|
1,832
|
|
|
150
|
|
|
—
|
|
|
1,982
|
|
|||||
Selling, general and administrative expenses
|
3
|
|
|
1,197
|
|
|
101
|
|
|
—
|
|
|
1,301
|
|
|||||
Depreciation and amortization
|
—
|
|
|
46
|
|
|
4
|
|
|
—
|
|
|
50
|
|
|||||
Other operating income, net
|
—
|
|
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
|||||
Income from operations
|
(3
|
)
|
|
619
|
|
|
45
|
|
|
—
|
|
|
661
|
|
|||||
Interest expense
|
135
|
|
|
39
|
|
|
—
|
|
|
(90
|
)
|
|
84
|
|
|||||
Interest income
|
(34
|
)
|
|
(57
|
)
|
|
(1
|
)
|
|
90
|
|
|
(2
|
)
|
|||||
Loss on extinguishment of debt
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|||||
Other (income) expense, net
|
(6
|
)
|
|
2
|
|
|
3
|
|
|
—
|
|
|
(1
|
)
|
|||||
Income (loss) before provision (benefit) for income taxes and equity in earnings (loss) of subsidiaries
|
(147
|
)
|
|
635
|
|
|
43
|
|
|
—
|
|
|
531
|
|
|||||
Provision (benefit) for income taxes
|
(54
|
)
|
|
208
|
|
|
11
|
|
|
—
|
|
|
165
|
|
|||||
Income (loss) before equity in earnings (loss) of subsidiaries
|
(93
|
)
|
|
427
|
|
|
32
|
|
|
—
|
|
|
366
|
|
|||||
Equity in earnings of consolidated subsidiaries
|
458
|
|
|
32
|
|
|
—
|
|
|
(490
|
)
|
|
—
|
|
|||||
Equity in loss of unconsolidated subsidiaries, net of tax
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|||||
Net income
|
$
|
365
|
|
|
$
|
458
|
|
|
$
|
32
|
|
|
$
|
(490
|
)
|
|
$
|
365
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2018
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Comprehensive income (loss)
|
$
|
217
|
|
|
$
|
254
|
|
|
$
|
3
|
|
|
$
|
(256
|
)
|
|
$
|
218
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Comprehensive income (loss)
|
$
|
201
|
|
|
$
|
264
|
|
|
$
|
34
|
|
|
$
|
(298
|
)
|
|
$
|
201
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2018
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Comprehensive income (loss)
|
$
|
395
|
|
|
$
|
474
|
|
|
$
|
30
|
|
|
$
|
(503
|
)
|
|
$
|
396
|
|
|
Condensed Consolidating Statements of Comprehensive Income
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Comprehensive income (loss)
|
$
|
401
|
|
|
$
|
491
|
|
|
$
|
64
|
|
|
$
|
(555
|
)
|
|
$
|
401
|
|
|
Condensed Consolidating Balance Sheets
|
||||||||||||||||||
|
As of June 30, 2018
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Current assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
64
|
|
Restricted cash and cash equivalents
|
—
|
|
|
24
|
|
|
1
|
|
|
—
|
|
|
25
|
|
|||||
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
||||||||||
Trade, net
|
—
|
|
|
725
|
|
|
89
|
|
|
—
|
|
|
814
|
|
|||||
Other
|
1
|
|
|
44
|
|
|
7
|
|
|
—
|
|
|
52
|
|
|||||
Related party receivable
|
30
|
|
|
62
|
|
|
—
|
|
|
(92
|
)
|
|
—
|
|
|||||
Inventories
|
—
|
|
|
233
|
|
|
32
|
|
|
—
|
|
|
265
|
|
|||||
Prepaid expenses and other current assets
|
499
|
|
|
178
|
|
|
21
|
|
|
(502
|
)
|
|
196
|
|
|||||
Total current assets
|
530
|
|
|
1,306
|
|
|
174
|
|
|
(594
|
)
|
|
1,416
|
|
|||||
Property, plant and equipment, net
|
—
|
|
|
1,043
|
|
|
140
|
|
|
—
|
|
|
1,183
|
|
|||||
Investments in consolidated subsidiaries
|
9,827
|
|
|
299
|
|
|
—
|
|
|
(10,126
|
)
|
|
—
|
|
|||||
Investments in unconsolidated subsidiaries
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|||||
Goodwill
|
—
|
|
|
3,540
|
|
|
22
|
|
|
—
|
|
|
3,562
|
|
|||||
Other intangible assets, net
|
—
|
|
|
3,729
|
|
|
48
|
|
|
—
|
|
|
3,777
|
|
|||||
Long-term receivable, related parties
|
3,320
|
|
|
6,660
|
|
|
—
|
|
|
(9,980
|
)
|
|
—
|
|
|||||
Other non-current assets
|
77
|
|
|
137
|
|
|
2
|
|
|
(2
|
)
|
|
214
|
|
|||||
Deferred tax assets
|
10
|
|
|
—
|
|
|
59
|
|
|
(9
|
)
|
|
60
|
|
|||||
Total assets
|
$
|
13,764
|
|
|
$
|
16,748
|
|
|
$
|
445
|
|
|
$
|
(20,711
|
)
|
|
$
|
10,246
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Current liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Accounts payable
|
$
|
—
|
|
|
$
|
441
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
484
|
|
Related party payable
|
55
|
|
|
28
|
|
|
9
|
|
|
(92
|
)
|
|
—
|
|
|||||
Deferred revenue
|
—
|
|
|
67
|
|
|
1
|
|
|
(4
|
)
|
|
64
|
|
|||||
Short-term borrowings and current portion of long-term obligations
|
249
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
264
|
|
|||||
Income taxes payable
|
—
|
|
|
535
|
|
|
2
|
|
|
(498
|
)
|
|
39
|
|
|||||
Other current liabilities
|
33
|
|
|
582
|
|
|
60
|
|
|
—
|
|
|
675
|
|
|||||
Total current liabilities
|
337
|
|
|
1,668
|
|
|
115
|
|
|
(594
|
)
|
|
1,526
|
|
|||||
Long-term obligations to third parties
|
3,956
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
4,126
|
|
|||||
Long-term obligations to related parties
|
6,660
|
|
|
3,320
|
|
|
—
|
|
|
(9,980
|
)
|
|
—
|
|
|||||
Deferred tax liabilities
|
4
|
|
|
650
|
|
|
—
|
|
|
(9
|
)
|
|
645
|
|
|||||
Non-current deferred revenue
|
—
|
|
|
999
|
|
|
24
|
|
|
(2
|
)
|
|
1,021
|
|
|||||
Other non-current liabilities
|
85
|
|
|
114
|
|
|
7
|
|
|
—
|
|
|
206
|
|
|||||
Total liabilities
|
11,042
|
|
|
6,921
|
|
|
146
|
|
|
(10,585
|
)
|
|
7,524
|
|
|||||
Total stockholders' equity
|
2,722
|
|
|
9,827
|
|
|
299
|
|
|
(10,126
|
)
|
|
2,722
|
|
|||||
Total liabilities and stockholders' equity
|
$
|
13,764
|
|
|
$
|
16,748
|
|
|
$
|
445
|
|
|
$
|
(20,711
|
)
|
|
$
|
10,246
|
|
|
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 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
|
|
|||||
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
|
)
|
|
—
|
|
|||||
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 Statements of Cash Flows
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2018
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Operating activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash (used in) provided by operating activities
|
$
|
(134
|
)
|
|
$
|
560
|
|
|
$
|
55
|
|
|
$
|
(63
|
)
|
|
$
|
418
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Acquisition of business
|
—
|
|
|
(73
|
)
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
|||||
Purchase of property, plant and equipment
|
—
|
|
|
(65
|
)
|
|
(14
|
)
|
|
—
|
|
|
(79
|
)
|
|||||
Purchase of intangible assets
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||
Investment in unconsolidated subsidiaries
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|||||
Proceeds from disposals of property, plant and equipment
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|||||
Issuance of related party notes receivable
|
—
|
|
|
(427
|
)
|
|
—
|
|
|
427
|
|
|
—
|
|
|||||
Other, net
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|||||
Net cash (used in) provided by investing activities
|
(4
|
)
|
|
(588
|
)
|
|
(14
|
)
|
|
427
|
|
|
(179
|
)
|
|||||
Financing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of related party debt
|
427
|
|
|
—
|
|
|
—
|
|
|
(427
|
)
|
|
—
|
|
|||||
Net repayment of commercial paper
|
(66
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66
|
)
|
|||||
Dividends paid
|
(209
|
)
|
|
—
|
|
|
(63
|
)
|
|
63
|
|
|
(209
|
)
|
|||||
Tax withholdings related to net share settlements of certain stock awards
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|||||
Proceeds from stock options exercised
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|||||
Capital lease payments
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|||||
Net cash (used in) provided by financing activities
|
138
|
|
|
(7
|
)
|
|
(63
|
)
|
|
(364
|
)
|
|
(296
|
)
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating, investing and financing activities
|
—
|
|
|
(35
|
)
|
|
(22
|
)
|
|
—
|
|
|
(57
|
)
|
|||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
|
—
|
|
|
111
|
|
|
47
|
|
|
—
|
|
|
158
|
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
101
|
|
|
Condensed Consolidating Statements of Cash Flows
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2017
|
||||||||||||||||||
(in millions)
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
||||||||||
Operating activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash (used in) provided by operating activities
|
$
|
(112
|
)
|
|
$
|
529
|
|
|
$
|
3
|
|
|
$
|
(10
|
)
|
|
$
|
410
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Acquisition of business
|
—
|
|
|
(1,550
|
)
|
|
—
|
|
|
—
|
|
|
(1,550
|
)
|
|||||
Cash acquired in step acquisition of unconsolidated subsidiaries
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||
Purchase of property, plant and equipment
|
—
|
|
|
(36
|
)
|
|
(5
|
)
|
|
—
|
|
|
(41
|
)
|
|||||
Purchase of intangible assets
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||
Investments in unconsolidated subsidiaries
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|||||
Proceeds from disposals of property, plant and equipment
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|||||
Issuance of related party notes receivable
|
—
|
|
|
(333
|
)
|
|
—
|
|
|
333
|
|
|
—
|
|
|||||
Other, net
|
(6
|
)
|
|
4
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|||||
Net cash (used in) provided by investing activities
|
(6
|
)
|
|
(1,917
|
)
|
|
(5
|
)
|
|
333
|
|
|
(1,595
|
)
|
|||||
Financing activities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of related party debt
|
333
|
|
|
—
|
|
|
—
|
|
|
(333
|
)
|
|
—
|
|
|||||
Proceeds from issuance of senior unsecured notes
|
400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|||||
Repayment of senior unsecured notes
|
(248
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(248
|
)
|
|||||
Repurchase of shares of common stock
|
(177
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(177
|
)
|
|||||
Dividends paid
|
(204
|
)
|
|
—
|
|
|
(10
|
)
|
|
10
|
|
|
(204
|
)
|
|||||
Tax withholdings related to net share settlements of certain stock awards
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
|||||
Proceeds from stock options exercised
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|||||
Premium on issuance of senior unsecured notes
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|||||
Proceeds from termination of interest rate swap
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|||||
Deferred financing charges paid
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||
Capital lease payments
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||
Other, net
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|||||
Net cash (used in) provided by financing activities
|
118
|
|
|
(5
|
)
|
|
(10
|
)
|
|
(323
|
)
|
|
(220
|
)
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating, investing and financing activities
|
—
|
|
|
(1,393
|
)
|
|
(12
|
)
|
|
—
|
|
|
(1,405
|
)
|
|||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
|
—
|
|
|
1,736
|
|
|
51
|
|
|
—
|
|
|
1,787
|
|
|||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
|
$
|
—
|
|
|
$
|
343
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
387
|
|
•
|
all DPS unvested stock option awards,
RSU
s and
PSU
s vested immediately as a result of the Change in Control (as defined in the terms of each individual award agreement); and
|
•
|
the
$500 million
Revolver
was terminated as a result of the Change in Control (as defined in the Company's
Credit Agreement
).
|
•
|
Net sales grew approximately
5%
, due primarily to favorable product and package mix, segment mix, an increase in contract manufacturing and an increase in sales volume.
|
•
|
Income from operations declined
3%
as the increases in cost of sales and SG&A expenses were partially offset by the increase in net sales. Increases in cost of sales and SG&A expenses were primarily driven by higher commodity costs, an increase in logistics costs, higher planned marketing investments and an increase in people costs, driven by inflationary increases, frontline investment and the growth in sales volumes.
|
•
|
On July 9, 2018, the Maple Merger was completed and the Company changed its name to Keurig Dr Pepper Inc. ("KDP").
|
•
|
On July 9, 2018, KDP entered into an agreement to purchase Big Red for an estimated purchase price of
$300 million
.
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2018
|
|
2017
|
|
Dollar
|
|
Percentage
|
|||||||||||||
($ in millions)
|
Dollars
|
|
Percent
|
|
Dollars
|
|
Percent
|
|
Change
|
|
Change
|
|||||||||
Net sales
|
$
|
1,886
|
|
|
100.0
|
%
|
|
$
|
1,797
|
|
|
100.0
|
%
|
|
$
|
89
|
|
|
5
|
%
|
Cost of sales
|
790
|
|
|
41.9
|
|
|
718
|
|
|
40.0
|
|
|
72
|
|
|
10
|
|
|||
Gross profit
|
1,096
|
|
|
58.1
|
|
|
1,079
|
|
|
60.0
|
|
|
17
|
|
|
2
|
|
|||
Selling, general and administrative expenses
|
721
|
|
|
38.2
|
|
|
681
|
|
|
37.9
|
|
|
40
|
|
|
6
|
|
|||
Other operating income, net
|
(15
|
)
|
|
(0.8
|
)
|
|
(2
|
)
|
|
(0.1
|
)
|
|
(13)
|
|
|
NM
|
|
|||
Income from operations
|
362
|
|
|
19.2
|
|
|
375
|
|
|
20.9
|
|
|
(13)
|
|
|
(3
|
)
|
|||
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
49
|
|
|
2.7
|
|
|
(49)
|
|
|
NM
|
|
|||
Effective tax rate
|
25.9
|
%
|
|
NM
|
|
|
33.2
|
%
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
•
|
Favorable product and package mix, which increased net sales by
2%
;
|
•
|
Favorable segment mix, which grew net sales by
1%
;
|
•
|
Increase in contract manufacturing, which raised net sales by
1%
; and
|
•
|
Increase in shipments, which grew net sales by
1%
and overcame the shift of the Easter holiday activity into the first quarter of 2018.
|
•
|
Higher commodity costs, led by packaging, combined with the change in our
LIFO
inventory provision decreased our gross margin by
1.60%
;
|
•
|
Unfavorable product and package mix, which reduced our gross margin by
0.60%
;
|
•
|
The impact of contract manufacturing, which lowered our gross margin by
0.20%
;
|
•
|
Unfavorable segment mix, which decreased our gross margin by
0.20%
;
|
•
|
Favorable comparison of
$6 million
in our mark-to-market activity on commodity derivative contracts, which grew our gross margin by
0.40%
;
|
•
|
Ongoing productivity improvements, which increased our gross margin by
0.20%
; and
|
•
|
Favorable foreign currency effects, which raised our gross margin by
0.10%
.
|
|
For the Three Months Ended
|
||||||
|
June 30,
|
||||||
(in millions)
|
2018
|
|
2017
|
||||
Segment Results — Net sales
|
|
|
|
||||
Beverage Concentrates
|
$
|
372
|
|
|
$
|
356
|
|
Packaged Beverages
|
1,378
|
|
|
1,302
|
|
||
Latin America Beverages
|
136
|
|
|
139
|
|
||
Net sales
|
$
|
1,886
|
|
|
$
|
1,797
|
|
|
|
|
|
||||
|
For the Three Months Ended
|
||||||
|
June 30,
|
||||||
(in millions)
|
2018
|
|
2017
|
||||
Segment Results — SOP
|
|
|
|
||||
Beverage Concentrates
|
$
|
249
|
|
|
$
|
237
|
|
Packaged Beverages
|
148
|
|
|
196
|
|
||
Latin America Beverages
|
27
|
|
|
24
|
|
||
Total SOP
|
424
|
|
|
457
|
|
||
Unallocated corporate costs
|
77
|
|
|
84
|
|
||
Other operating income, net
|
(15
|
)
|
|
(2
|
)
|
||
Income from operations
|
362
|
|
|
375
|
|
||
Interest expense, net
|
43
|
|
|
43
|
|
||
Loss on early extinguishment of debt
|
—
|
|
|
49
|
|
||
Other income, net
|
(2
|
)
|
|
—
|
|
||
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
|
$
|
321
|
|
|
$
|
283
|
|
|
For the Three Months Ended
|
|
|
|
|
|||||||||
|
June 30,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2018
|
|
2017
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
372
|
|
|
$
|
356
|
|
|
$
|
16
|
|
|
4
|
%
|
SOP
|
249
|
|
|
237
|
|
|
12
|
|
|
5
|
|
|
For the Three Months Ended
|
|
|
|
|
|||||||||
|
June 30,
|
|
Dollar
|
|
Percentage
|
|||||||||
(in millions)
|
2018
|
|
2017
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
1,378
|
|
|
$
|
1,302
|
|
|
$
|
76
|
|
|
6
|
%
|
SOP
|
148
|
|
|
196
|
|
|
(48
|
)
|
|
(24
|
)
|
|
For the Three Months Ended
|
|
|
|
|
|||||||||
|
June 30,
|
|
Dollar
|
|
Percent
|
|||||||||
(in millions)
|
2018
|
|
2017
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
136
|
|
|
$
|
139
|
|
|
$
|
(3
|
)
|
|
(2
|
)%
|
SOP
|
27
|
|
|
24
|
|
|
3
|
|
|
13
|
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2018
|
|
2017
|
|
Dollar
|
|
Percentage
|
|||||||||||||
($ in millions)
|
Dollars
|
|
Percent
|
|
Dollars
|
|
Percent
|
|
Change
|
|
Change
|
|||||||||
Net sales
|
$
|
3,480
|
|
|
100.0
|
%
|
|
$
|
3,307
|
|
|
100.0
|
%
|
|
$
|
173
|
|
|
5
|
%
|
Cost of sales
|
1,471
|
|
|
42.3
|
|
|
1,325
|
|
|
40.1
|
|
|
146
|
|
|
11
|
|
|||
Gross profit
|
2,009
|
|
|
57.7
|
|
|
1,982
|
|
|
59.9
|
|
|
27
|
|
|
1
|
|
|||
SG&A expenses
|
1,347
|
|
|
38.7
|
|
|
1,301
|
|
|
39.3
|
|
|
46
|
|
|
4
|
|
|||
Other operating income, net
|
(14
|
)
|
|
(0.4
|
)
|
|
(30
|
)
|
|
(0.9
|
)
|
|
16
|
|
|
NM
|
|
|||
Income from operations
|
621
|
|
|
17.8
|
|
|
661
|
|
|
20.0
|
|
|
(40
|
)
|
|
(6
|
)
|
|||
Provision for income taxes
|
137
|
|
|
3.9
|
|
|
165
|
|
|
5.0
|
|
|
(28
|
)
|
|
(17
|
)
|
|||
Equity in loss of unconsolidated subsidiaries, net of tax
|
(9
|
)
|
|
(0.3
|
)
|
|
(1
|
)
|
|
—
|
|
|
(8
|
)
|
|
NM
|
|
|||
Effective tax rate
|
25.4
|
%
|
|
NM
|
|
|
31.1
|
%
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
•
|
Favorable product and package mix, which raised net sales by
2%
;
|
•
|
The increase in branded shipments, which grew net sales by
1%
;
|
•
|
Favorable segment mix, which increased our net sales by
1%
; and
|
•
|
The increase in contract manufacturing activity, which raised our net sales by
1%
.
|
•
|
Higher commodity costs, led by packaging, combined with the unfavorable change in our LIFO inventory provision, reduced our gross margin by
1.5%
;
|
•
|
Unfavorable comparison of
$24 million
in our mark-to-market activity on commodity derivative contracts, which lowered our gross margin by
0.7%
;
|
•
|
The impact of contract manufacturing, which decreased our gross margin by
0.3%
;
|
•
|
Increase in our other manufacturing costs, which lowered our gross margin by
0.2%
.
|
•
|
Unfavorable product and package mix, which reduced our gross margin by
0.1%
;
|
•
|
Increase in our gross margin of
0.3%
related to the favorable comparison to the
$9 million
initial profit in stock adjustment as a result of the Bai Brands Merger recorded during the first quarter of 2017;
|
•
|
Ongoing productivity improvements, which increased our gross margin by
0.2%
; and
|
•
|
Favorable foreign currency effects, which raised our gross margin by
0.1%
.
|
|
For the Six Months Ended
|
||||||
|
June 30,
|
||||||
(in millions)
|
2018
|
|
2017
|
||||
Segment Results — Net sales
|
|
|
|
||||
Beverage Concentrates
|
$
|
675
|
|
|
$
|
650
|
|
Packaged Beverages
|
2,556
|
|
|
2,420
|
|
||
Latin America Beverages
|
249
|
|
|
237
|
|
||
Net sales
|
$
|
3,480
|
|
|
$
|
3,307
|
|
|
|
|
|
||||
|
For the Six Months Ended
|
||||||
|
June 30,
|
||||||
(in millions)
|
2018
|
|
2017
|
||||
Segment Results — SOP
|
|
|
|
||||
Beverage Concentrates
|
$
|
443
|
|
|
$
|
423
|
|
Packaged Beverages
|
298
|
|
|
337
|
|
||
Latin America Beverages
|
39
|
|
|
35
|
|
||
Total SOP
|
780
|
|
|
795
|
|
||
Unallocated corporate costs
|
173
|
|
|
164
|
|
||
Other operating income, net
|
(14
|
)
|
|
(30
|
)
|
||
Income from operations
|
621
|
|
|
661
|
|
||
Interest expense, net
|
83
|
|
|
82
|
|
||
Loss on early extinguishment of debt
|
—
|
|
|
49
|
|
||
Other income, net
|
(2
|
)
|
|
(1
|
)
|
||
Income before provision for income taxes and equity in loss of unconsolidated subsidiaries
|
$
|
540
|
|
|
$
|
531
|
|
|
For the Six Months Ended June 30,
|
|
Dollar
|
|
Percent
|
|||||||||
(in millions)
|
2018
|
|
2017
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
675
|
|
|
$
|
650
|
|
|
$
|
25
|
|
|
4
|
%
|
SOP
|
443
|
|
|
423
|
|
|
20
|
|
|
5
|
|
|
For the Six Months Ended June 30,
|
|
Dollar
|
|
Percent
|
|||||||||
(in millions)
|
2018
|
|
2017
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
2,556
|
|
|
$
|
2,420
|
|
|
$
|
136
|
|
|
6
|
%
|
SOP
|
298
|
|
|
337
|
|
|
(39
|
)
|
|
(12
|
)
|
|
For the Six Months Ended June 30,
|
|
Dollar
|
|
Percent
|
|||||||||
(in millions)
|
2018
|
|
2017
|
|
Change
|
|
Change
|
|||||||
Net sales
|
$
|
249
|
|
|
$
|
237
|
|
|
$
|
12
|
|
|
5
|
%
|
SOP
|
39
|
|
|
35
|
|
|
4
|
|
|
11
|
|
|
For the Three Months Ended June 30, 2018
|
||||||||||||||||||||||
|
Reported
|
|
Mark to Market
|
|
Transition and Integration Expenses
|
|
Restructuring
|
|
Total Adjustments
|
|
Core
|
||||||||||||
Income from operations
|
$
|
362
|
|
|
$
|
(9
|
)
|
|
$
|
11
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
363
|
|
|
For the Six Months Ended June 30, 2018
|
||||||||||||||||||||||
|
Reported
|
|
Mark to Market
|
|
Transition and Integration Expenses
|
|
Restructuring
|
|
Total Adjustments
|
|
Core
|
||||||||||||
Income from operations
|
$
|
621
|
|
|
$
|
2
|
|
|
$
|
24
|
|
|
$
|
(1
|
)
|
|
$
|
25
|
|
|
$
|
646
|
|
|
For the Three Months Ended June 30, 2017
|
||||||||||||||||||
|
Reported
|
|
Mark to Market
|
|
Transition and Integration Expenses
|
|
Total Adjustments
|
|
Core
|
||||||||||
Income from operations
|
$
|
375
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
13
|
|
|
$
|
388
|
|
|
For the Six Months Ended June 30, 2017
|
||||||||||||||||||
|
Reported
|
|
Mark to Market
|
|
Transition and Integration Expenses
|
|
Total Adjustments
|
|
Core
|
||||||||||
Income from operations
|
$
|
661
|
|
|
$
|
8
|
|
|
$
|
20
|
|
|
$
|
28
|
|
|
$
|
689
|
|
•
|
upon consummation of the Maple 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, prior to the completion of the Maple Transaction has been limited to
$200 million
pursuant to the Merger Agreement unless we had obtained Maple's approval;
|
•
|
continued payment of dividends;
|
•
|
future mergers or acquisitions of regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage;
|
•
|
continued capital expenditures;
|
•
|
fluctuations in our tax obligations;
|
•
|
seasonality of our operating cash flows could impact short-term liquidity; and
|
•
|
future equity investments in allied brands.
|
|
For the Six Months Ended June 30,
|
||||||
(in millions)
|
2018
|
|
2017
|
||||
Net cash provided by operating activities
|
$
|
418
|
|
|
$
|
410
|
|
Net cash used in investing activities
|
(179
|
)
|
|
(1,595
|
)
|
||
Net cash used in financing activities
|
(296
|
)
|
|
(220
|
)
|
•
|
the repayment of a portion of the Company's 2018 and 2038 Notes of
$248 million
, which includes both the aggregate principal amounts of approximately
$63 million
of the 2018 Notes and
$125 million
of the 2038 Notes and the tender offer premium of
$60 million
;
|
•
|
dividend payments of
$204 million
; and
|
•
|
stock repurchases of
$177 million
; which was partially offset by
|
•
|
the proceeds from the issuance of 2027 Notes and 2045 Notes, with an aggregate principal amount of
$400 million
and a premium of
$16 million
.
|
Rating Agency
|
Long-Term Debt Rating
|
Commercial Paper Rating
|
Outlook
|
Date of Last Change
(1)
|
Moody's
|
Baa2
|
P-2
|
Negative
|
May 11, 2018
|
S&P
|
BBB
|
A-2
|
Stable
|
May 14, 2018
|
(1)
|
In May 2018, our long-term credit ratings were downgraded by Moody's and S&P but remain investment grade.
|
Total Shareholder Distributions
|
|
Our Board declared dividends aggregating $0.58 per share and $1.16 per share on outstanding common stock during the six months ended June 30, 2018 and 2017, respectively. Our share repurchase program was suspended during the six months ended June 30, 2018. Refer to Part II, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding these repurchases.
|
|
The following chart details these payments during the six months ended June 30, 2018 and 2017.
|
|
Payments Due in Year
|
||||||||||||||||||||||||||
(in millions)
|
Total
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
After 2022
|
||||||||||||||
Commercial paper
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Purchase obligations
(1)(2)
|
1,224
|
|
|
513
|
|
|
222
|
|
|
139
|
|
|
97
|
|
|
84
|
|
|
169
|
|
(1)
|
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.
|
(2)
|
Amounts do not include the $45 million transaction fee to our financial advisor and CIC severance payments that are contingent upon the consummation of the Maple Transaction.
|
Sensitivity Analysis
|
||||
Hypothetical Change in Interest Rates
(1)
|
|
Annual Impact to Interest Expense
|
|
Change in Fair Value
(2)
|
1-percent decrease
|
|
$11 million decrease
|
|
$43 million increase
|
1-percent increase
|
|
$11 million increase
|
|
$41 million decrease
|
(1)
|
We pay an average floating rate, which fluctuates periodically, based on
LIBOR
and a credit spread, as a result of designated fair value hedges on certain debt instruments. See
Note 7 of the Notes to our Unaudited Condensed Consolidated Financial Statements
for further information.
|
(2)
|
See
Note 7 of the Notes to our Unaudited Condensed Consolidated Financial Statements
for quantification of those derivative positions.
|
Third Supplemental Indenture, dated as of November 15, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
|
|
2.60% Senior Note due 2019 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
|
|
3.20% Senior Note due 2021 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
|
|
Fourth Supplemental Indenture, dated as of November 20, 2012, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
|
|
2.00% Senior Note due 2020 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
|
|
2.70% Senior Note due 2022 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
|
|
Fifth Supplemental Indenture, dated as of November 9, 2015, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
|
|
3.40% Senior Note due 2025 (in global form), dated November 9, 2015, in the principal amount of $500,000,000 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
|
|
4.50% Senior Note due 2045 (in global form), dated November 9, 2015, in the principal amount of $250,000,000 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
|
|
Sixth Supplemental Indenture, dated as of September 16, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on September 16, 2016) and incorporated herein by reference).
|
|
2.55% Senior Note due 2026 (in global form), dated September 16, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on September 16, 2016) and incorporated herein by reference).
|
|
Seventh Supplemental Indenture, dated as of December 14, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
|
|
2.53% Senior Note due 2021 (in global form), dated December 14, 2016, in the principal amount of $250,000,000 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
|
|
3.13% Senior Note due 2023 (in global form), dated December 14, 2016, in the principal amount of $500,000,000 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
|
|
3.43% Senior Note due 2027 (in global form), dated December 14, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
|
|
4.42% Senior Note due 2046 (in global form), dated December 14, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
|
|
Eighth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184 Innovations Inc., a Delaware corporation (each as a new subsidiary guarantor under the Indenture dated April 30, 2008 (as referenced in Item 4.1 in this Exhibit Index), Dr Pepper Snapple Group, Inc., each other then-existing Guarantor under the Indenture) and Wells Fargo, National Bank, N.A., as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on February 2, 2017) and incorporated herein by reference).
|
|
Ninth Supplemental Indenture, dated as of June 15, 2017, among Dr Pepper Snapple Group, Inc., the guarantors party thereto, and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on June 15, 2017) and incorporated herein by reference).
|
|
12.1
*
|
Computation of Ratio of Earnings to Fixed Charges.
|
31.1
*
|
Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
|
31.2
*
|
Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
|
32.1
**
|
Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
32.2
**
|
Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
101*
|
The following financial information from Dr Pepper Snapple Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017, (iii) Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017, (v) Condensed Consolidated Statement of Changes in Stockholders' Equity for the six months ended June 30, 2018, and (vi) the Notes to Condensed Consolidated Financial Statements.
|
|
Keurig Dr Pepper Inc.
|
|
||
|
|
|
|
|
|
By:
|
/s/ Ozan Dokmecioglu
|
|
|
|
|
|
|
|
|
Name:
|
|
Ozan Dokmecioglu
|
|
|
Title:
|
|
Chief Financial Officer of Keurig Dr Pepper Inc.
|
|
|
|
|
(Principal Financial Officer)
|
|
Date: August 8, 2018
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Years Ended December 31,
|
||||||||||||||||
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
||||||||||
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
|
$
|
540
|
|
|
$
|
1,173
|
|
|
$
|
1,283
|
|
|
$
|
1,184
|
|
|
$
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Add/(deduct):
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges
|
92
|
|
|
181
|
|
|
164
|
|
|
132
|
|
|
125
|
|
|||||
Amortization of capitalized interest
|
2
|
|
|
3
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|||||
Capitalized interest
|
(1
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|||||
Total earnings available for fixed charges
|
$
|
633
|
|
|
$
|
1,356
|
|
|
$
|
1,447
|
|
|
$
|
1,318
|
|
|
$
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges
:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense
|
$
|
84
|
|
|
$
|
164
|
|
|
$
|
147
|
|
|
$
|
117
|
|
|
$
|
109
|
|
Capitalized interest
|
1
|
|
|
1
|
|
|
3
|
|
|
1
|
|
|
2
|
|
|||||
Interest component of rental expense
(1)
|
7
|
|
|
16
|
|
|
14
|
|
|
14
|
|
|
14
|
|
|||||
Total fixed charges
|
$
|
92
|
|
|
$
|
181
|
|
|
$
|
164
|
|
|
$
|
132
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges
|
6.9x
|
|
|
7.5x
|
|
|
8.8x
|
|
|
10.0x
|
|
|
9.6x
|
|
(1)
|
Represents a reasonable estimate of the interest component of rental expense incurred by us.
|
|
/s/ Robert J. Gamgort
|
|
Date: August 8, 2018
|
Robert J. Gamgort
|
|
|
Chief Executive Officer and President of
Keurig Dr Pepper Inc.
|
|
1.
|
I have reviewed this
Quarterly
Report on Form
10-Q
of Keurig Dr Pepper 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/ Ozan Dokmecioglu
|
|
Date: August 8, 2018
|
Ozan Dokmecioglu
|
|
|
Chief Financial Officer of Keurig Dr Pepper Inc.
|
|
(1)
|
the
Quarterly
Report on Form
10-Q
of the Company for the period ended
June 30, 2018
, 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/ Robert J. Gamgort
|
|
Date: August 8, 2018
|
Robert J. Gamgort
|
|
|
Chief Executive Officer and President of
Keurig Dr Pepper Inc.
|
|
(1)
|
the
Quarterly
Report on Form
10-Q
of the Company for the period ended
June 30, 2018
, 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/ Ozan Dokmecioglu
|
|
Date: August 8, 2018
|
Ozan Dokmecioglu
|
|
|
Chief Financial Officer of Keurig Dr Pepper Inc.
|