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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                     TO             

Commission file number 001-33829
KDPA05.JPG
 
Keurig Dr Pepper Inc.
 
 
(Exact name of registrant as specified in its charter)
 
Delaware
98-0517725
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
 
 
 
 
 
53 South Avenue
 
 
Burlington,
Massachusetts
 
 
01803
 
(Address of principal executive offices)
 
(802)
244-5621
 
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ☒ No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes    ☐   No    ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock
 
KDP
 
New York Stock Exchange
As of August 6, 2019, there were 1,406,735,468 shares of the registrant's common stock, par value $0.01 per share, outstanding.
 


KEURIG DR PEPPER INC.
FORM 10-Q TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
1
 
 
2
 
 
3
 
 
4
 
 
5
 
 
6
 
 
1
6
 
 
2
8
 
 
3
12
 
 
4
14
 
 
5
15
 
 
6
16
 
 
7
16
 
 
8
19
 
 
9
21
 
 
10
22
 
 
11
22
 
 
12
23
 
 
13
25
 
 
14
25
 
 
15
26
 
 
16
27
 
 
17
28
 
 
18
29
 
34
 
63
 
64
 
 
 
 
 
 
 
65
 
65
 
66


Table of Contents


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


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Second Quarter and First Six Months of 2019 and 2018
(Unaudited)
 
Second Quarter
 
First Six Months
(in millions, except per share data)
2019
 
2018
 
2019
 
2018
Net sales
$
2,812

 
$
949

 
$
5,316

 
$
1,897

Cost of sales
1,186

 
458

 
2,292

 
925

Gross profit
1,626

 
491

 
3,024

 
972

Selling, general and administrative expenses
1,028

 
321

 
1,939

 
621

Other operating expense, net
11

 
3

 
—

 
6

Income from operations
587

 
167

 
1,085

 
345

Interest expense
170

 
51

 
339

 
49

Interest expense - related party
—

 
26

 
—

 
51

Loss on early extinguishment of debt
—

 
—

 
9

 
2

Other expense (income), net
1

 
(8
)
 
6

 
5

Income before provision for income taxes
416

 
98

 
731

 
238

Provision for income taxes
102

 
13

 
187

 
64

Net income
314

 
85

 
544

 
174

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

 
2

 
—

 
3

Net income attributable to KDP
$
314

 
$
83

 
$
544

 
$
171

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.10

 
$
0.39

 
$
0.21

Diluted
0.22

 
0.10

 
0.38

 
0.21

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
1,406.7

 
790.5

 
1,406.5

 
790.5

Diluted
1,419.2

 
790.5

 
1,418.5

 
790.5

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


1
Table of Contents


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Second Quarter and First Six Months of 2019 and 2018
(Unaudited)
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2018
 
2019
 
2018
Comprehensive income
$
402

 
$
66

 
$
725

 
$
130

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


2
Table of Contents


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2019 and December 31, 2018
(Unaudited)
 
June 30,
 
December 31,
(in millions, except share and per share data)
2019
 
2018
Assets
Current assets:
 
 
 
Cash and cash equivalents
$
106

 
$
83

Restricted cash and restricted cash equivalents
44

 
46

Trade accounts receivable, net
1,068

 
1,150

Inventories
686

 
626

Prepaid expenses and other current assets
317

 
254

Total current assets
2,221

 
2,159

Property, plant and equipment, net
2,290

 
2,310

Investments in unconsolidated affiliates
170

 
186

Goodwill
20,039

 
20,011

Other intangible assets, net
24,228

 
23,967

Other non-current assets
572

 
259

Deferred tax assets
27

 
26

Total assets
$
49,547

 
$
48,918

Liabilities and Stockholders' Equity
Current liabilities:
 
 
 
Accounts payable
$
2,909

 
$
2,300

Accrued expenses
869

 
1,012

Structured payables
595

 
526

Short-term borrowings and current portion of long-term obligations
1,806

 
1,458

Other current liabilities
516

 
406

Total current liabilities
6,695

 
5,702

Long-term obligations
13,164

 
14,201

Deferred tax liabilities
6,034

 
5,923

Other non-current liabilities
771

 
559

Total liabilities
26,664

 
26,385

Commitments and contingencies

 

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

 
—

Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,406,706,062 and 1,405,944,922 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
14

 
14

Additional paid-in capital
21,524

 
21,471

Retained earnings
1,294

 
1,178

Accumulated other comprehensive income (loss)
51

 
(130
)
Total stockholders' equity
22,883

 
22,533

Total liabilities and stockholders' equity
$
49,547

 
$
48,918

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

3
Table of Contents


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First Six Months of 2019 and 2018
(Unaudited)
 
First Six Months
(in millions)
2019
 
2018
Operating activities:
 
 
 
Net income
$
544

 
$
174

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
172

 
66

Amortization expense
172

 
65

Provision for sales returns
16

 
22

Deferred income taxes
(5
)
 
(38
)
Employee stock-based compensation expense
34

 
20

Loss on early extinguishment of debt
9

 
2

Unrealized (gain) loss on foreign currency
(25
)
 
13

Unrealized (gain) loss on derivatives
43

 
(39
)
Equity in earnings of unconsolidated affiliates
27

 
7

Other, net
(19
)
 
20

Changes in assets and liabilities:
 
 
 
Trade accounts receivable
68

 
119

Inventories
(56
)
 
(30
)
Income taxes receivable and payables, net
64

 
21

Other current and non-current assets
(149
)
 
(59
)
Accounts payable and accrued expenses
339

 
215

Other current and non-current liabilities
(31
)
 
—

Net change in operating assets and liabilities
235

 
266

Net cash provided by operating activities
1,203

 
578

Investing activities:
 
 
 
Acquisitions of businesses
(8
)
 
—

Issuance of related party note receivable
(14
)
 
(2
)
Investments in unconsolidated affiliates
(11
)
 
(22
)
Purchases of property, plant and equipment
(118
)
 
(44
)
Proceeds from sales of property, plant and equipment
19

 
—

Purchases of intangibles
(4
)
 
(12
)
Other, net
22

 
—

Net cash used in investing activities
(114
)
 
(80
)
Financing activities:
 
 
 
Proceeds from senior unsecured notes
—

 
8,000

Proceeds from term loan
2,000

 
—

Net issuance of commercial paper
381

 
—

Proceeds from structured payables
78

 
—

Payments on structured payables
(9
)
 
—

Payments on senior unsecured notes
(250
)
 
—

Repayment of term loan
(2,848
)
 
(254
)
Payments on finance leases
(19
)
 
(9
)
Deferred financing charges paid
—

 
(35
)
Cash contributions from redeemable non-controlling interest shareholders
—

 
12

Cash dividends paid
(423
)
 
(23
)
Other, net
10

 
(1
)
Net cash (used in) provided by financing activities
(1,080
)
 
7,690

Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:
 
 
 
Operating, investing and financing activities
9

 
8,188

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
12

 
1

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

 
95

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
160

 
$
8,284


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

4
Table of Contents


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Second Quarter and First Six Months of 2019 and 2018
(Unaudited)
 
Common Stock Issued
 
Additional
Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Stockholders' Equity
(in millions, except per share data)
Shares
 
Amount
 
 
 
 
Balance as of January 1, 2019
1,405.9

 
$
14

 
$
21,471

 
$
1,178

 
$
(130
)
 
$
22,533

Adoption of new accounting standards
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Net income attributable to KDP
—

 
—

 
—

 
230

 
—

 
230

Other comprehensive income
—

 
—

 
—

 
—

 
93

 
93

Dividends declared, $0.15 per share
—

 
—

 
—

 
(211
)
 
—

 
(211
)
Measurement period adjustment
—

 
—

 
11

 
—

 
—

 
11

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

 
—

 
—

 
—

 
—

 
—

Stock-based compensation and stock options exercised
—

 
—

 
23

 
—

 
—

 
23

Balance as of March 31, 2019
1,406.7

 
14

 
21,505

 
1,192

 
(37
)
 
22,674

Net income attributable to KDP
—

 
—

 
—

 
314

 
—

 
314

Other comprehensive income
—

 
—

 
—

 
—

 
88

 
88

Dividends declared, $0.15 per share
—

 
—

 
—

 
(212
)
 
—

 
(212
)
Stock-based compensation and stock options exercised
—

 
—

 
19

 
—

 
—

 
19

Balance as of June 30, 2019
1,406.7

 
$
14

 
$
21,524

 
$
1,294

 
$
51

 
$
22,883

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2018
790.5

 
$
8

 
$
6,377

 
$
914

 
$
99

 
$
7,398

Adoption of new accounting standards
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Net income attributable to KDP
—

 
—

 
—

 
88

 
—

 
88

Other comprehensive loss
—

 
—

 
—

 
—

 
(24
)
 
(24
)
Dividends declared
—

 
—

 
—

 
(11
)
 
—

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

 
—

 
—

 
(13
)
 
—

 
(13
)
Balance as of March 31, 2018
790.5

 
8

 
6,377

 
974

 
75

 
7,434

Net income attributable to KDP
—

 
—

 
—

 
83

 
—

 
83

Other comprehensive loss
—

 
—

 
—

 
—

 
(16
)
 
(16
)
Dividends declared
—

 
—

 
—

 
(12
)
 
—

 
(12
)
Adjustment of non-controlling interests to fair value
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Balance as of June 30, 2018
790.5

 
$
8

 
$
6,377

 
$
1,040

 
$
59

 
$
7,484

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

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


1. General
ORGANIZATION
On January 29, 2018, Dr Pepper Snapple Group, Inc. ("DPS") entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among DPS, Maple Parent Holdings Corp. (“Maple”) and Salt Merger Sub, Inc. (“Merger Sub”), whereby Merger Sub would be merged with and into Maple, with Maple surviving the merger as a wholly-owned subsidiary of DPS (the “DPS Merger”). The DPS Merger was consummated on July 9, 2018 (the "Merger Date"), at which time DPS changed its name to "Keurig Dr Pepper Inc.".
References in this Quarterly Report on Form 10-Q to "KDP" or "the Company" refer to Keurig Dr Pepper Inc. and all entities included in the unaudited condensed consolidated financial statements.
This Quarterly Report on Form 10-Q refers to some of KDP's owned or licensed trademarks, trade names and service marks, which are referred to as the Company's brands. All of the product names included herein are either KDP registered trademarks or those of the Company's licensors.
BASIS OF PRESENTATION
For financial reporting and accounting purposes, Maple was the acquirer of DPS upon completion of the DPS Merger. The unaudited condensed consolidated financial statements as of June 30, 2019 and December 31, 2018 and for the second quarter and first six months of 2019 and 2018 reflect the results of operations and financial position of Maple for the periods presented. Amounts reported as of June 30, 2019 and December 31, 2018, and for the second quarter and first six months of 2019, include the results of operations and financial position of DPS, as the DPS Merger was completed on July 9, 2018.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with KDP's consolidated financial statements and accompanying notes, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Except as otherwise specified, references to the "second quarter" indicate the Company's quarterly periods ended June 30, 2019 and 2018.
PRINCIPLES OF CONSOLIDATION
KDP consolidates all wholly owned subsidiaries. The Company uses the equity method to account for investments in companies if the investment provides the Company with the ability to exercise significant influence over operating and financial policies of the investee. Consolidated net income includes KDP's proportionate share of the net income or loss of these companies. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors or similar governing body, participation in policy-making decisions and material intercompany transactions.
The Company is also required to consolidate entities that are variable interest entities (“VIEs”) of which KDP is the primary beneficiary. Judgments are made in assessing whether KDP is the primary beneficiary, including determination of the activities that most significantly impact the VIE’s economic performance.
KDP eliminates from its financial results all intercompany transactions between entities included in the unaudited condensed consolidated financial statements.
USE OF ESTIMATES
The process of preparing KDP's unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.

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

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

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



Refer to Recently Adopted Provisions of U.S. GAAP below for further information about the adoption of ASC 842. Refer to Note 3 for information about the Company's leases and Note 12 for disclosure of the components of other current liabilities and other non-current liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The standard provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2016-13 on the Company's unaudited condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements ("ASU 2018-13"). The objective of the ASU is to improve the disclosures related to fair value measurement by removing, modifying, or adding disclosure requirements related to recurring and non-recurring fair value measurements. ASU 2018-13 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, and early adoption is permitted. The Company is currently assessing the changes in disclosure requirements and does not believe there will be a material impact to KDP's unaudited condensed consolidated financial statements.
RECENTLY ADOPTED PROVISIONS OF U.S. GAAP
Leases
As of January 1, 2019, the Company adopted ASC 842. ASC 842 replaced the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures.
The Company elected to apply the optional transition method provided by ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which allows companies to adopt the standard on a modified retrospective basis and to apply the new leases standard as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. Accordingly, amounts reported in the unaudited condensed consolidated financial statements for all periods prior to January 1, 2019 have not been recast under ASC 842 and continue to be reported in accordance with ASC 840. The Company elected the package of practical expedients which allows the Company to carry forward its historical assessments of whether contracts contain leases, lease classification, and initial direct costs, for leases in existence prior to January 1, 2019.
The adoption of ASC 842 resulted in an increase to KDP's total assets of approximately $314 million, an increase to KDP's total liabilities of approximately $319 million, and an impact to KDP's retained earnings of approximately $5 million, as of January 1, 2019.
Refer to Note 3 for additional information.
Other Accounting Standards
As of January 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12") on a prospective basis. The objective of the ASU is to improve the financial reporting of hedging relationships in order to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of hedge accounting guidance. The adoption of ASU 2017-12 did not have a material impact on the Company's unaudited condensed consolidated financial statements.

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

As of January 1, 2019, the Company early adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. The ASU was adopted on a prospective basis and did not have a material impact on the Company's unaudited condensed consolidated financial statements.
2. Acquisitions and Investments in Unconsolidated Affiliates
ACQUISITION OF DR PEPPER SNAPPLE GROUP, INC.
Overview and Total Consideration Exchanged
As discussed in Note 1, General, Maple merged with DPS on July 9, 2018. The DPS Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations. Maple was considered to be the financial and accounting acquirer, and DPS was considered the legal acquirer. Under the acquisition method of accounting, total consideration exchanged was $22,482 million.
Allocation of Consideration
The Company's preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the DPS Merger is based on estimated fair values as of July 9, 2018. The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the DPS Merger as of June 30, 2019:
(in millions)
Initial Allocation of Consideration
 
Measurement Period Adjustments
 
Allocation of Consideration as of June 30, 2019
Cash and cash equivalents
$
147

 
$
—

 
$
147

Investments in unconsolidated affiliates
90

 
—

 
90

Property, plant and equipment(1)
1,549

 
(74
)
 
1,475

Other intangible assets
20,404

 
(326
)
 
20,078

Long-term obligations
(4,049
)
 
—

 
(4,049
)
Finance leases
(214
)
 
9

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

 
(26
)
 
81

Deferred tax liabilities, net of deferred tax assets(3)
(4,959
)
 
(82
)
 
(5,041
)
Goodwill
9,407

 
499

 
9,906

Total consideration exchanged
$
22,482

 
$
—

 
$
22,482

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

 
—

 
3,643

Acquisition of business
$
18,839

 
$
—

 
$
18,839

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

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

The DPS Merger resulted in $9,906 million of goodwill as of June 30, 2019. The goodwill recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, direct procurement savings on overlapping materials, purchasing scale on indirect spend categories and optimization of duplicate positions and processes. The Company may also recognize revenue synergies, driven by a strong portfolio of brands with exposure to higher growth segments and the ability to leverage our collective distribution strength. The goodwill created in the DPS Merger is not deductible for tax purposes.
The preliminary allocation of consideration exchanged to other intangible assets acquired is as follows:
(in millions)
 
Fair Value
 
Estimated Life (in years)
Brands(1)
 
$
19,556

 
n/a
Contractual arrangements(2)
 
127

 
n/a
Customer relationships(3)
 
390

 
10-40
Favorable leases(4)
 
5

 
5-12
Total other intangible assets
 
$
20,078

 
 
(1)
The Company valued the brand portfolio utilizing the multi-period excess earnings method, a form of the income approach.
(2)
The Company valued contractual arrangements with bottlers and distributors utilizing the distributor method, a form of the income approach.
(3)
The Company identified two types of customer relationships, retail and food service. We preliminarily valued retail and food service customer relationships utilizing the distributor method, a form of the income approach.
(4)
The Company valued favorable leases utilizing the income approach.
Pro Forma Information
Assuming DPS had been acquired as of December 31, 2016, and the results of DPS had been included in operations beginning on January 1, 2017, the following tables provide estimated unaudited pro forma results of operations for the second quarter and first six months of 2018 under U.S. GAAP.
The estimated pro forma net income includes the alignment of accounting policies, the effect of fair value adjustments related to the DPS Merger, the associated tax effects and the impact of the additional debt to finance the DPS Merger.
 
Second Quarter
 
First Six Months
(Unaudited, in millions)
2018
 
2018
Net sales
$
2,822

 
$
5,351

Net income
323

 
534

Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the DPS Merger been completed on the date indicated or the future operating results.
ACQUISITION OF BIG RED
Overview and Purchase Price
On July 9, 2018, KDP entered into an Agreement and Plan of Merger (the "Big Red Merger Agreement") with Big Red Group Holdings, LLC ("Big Red"), pursuant to which we agreed to acquire Big Red for an enterprise value of $300 million, subject to certain adjustments outlined in the Big Red Merger Agreement (the "Big Red Acquisition"). On August 31, 2018 (the "Big Red Merger Date"), the Company completed the Big Red Acquisition.
Allocation of Purchase Price
The Company's preliminary allocation of purchase price to the net tangible and intangible assets acquired and liabilities assumed in the Big Red Acquisition is based on estimated fair values as of the Big Red Acquisition Date.

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

The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the Big Red Acquisition as of June 30, 2019:
(in millions)
Initial Allocation of Consideration
 
Measurement Period Adjustments
 
Allocation of Consideration as of June 30, 2019
Cash and cash equivalents
$
3

 
—

 
$
3

Other intangible assets
240

 
(2
)
 
238

Assumed liabilities, net of acquired assets(1)
(28
)
 
(20
)
 
(48
)
Goodwill
89

 
24

 
113

Total consideration exchanged(2)
$
304

 
$
2

 
$
306

Less: Company's previous ownership interest
22

 
—

 
22

Less: Holdback placed in escrow
15

 
—

 
15

Acquisition of business
$
267

 
$
2

 
$
269

(1)
The Company valued WIP and finished goods inventory using a net realizable value approach, which resulted in a step-up of $2 million which was recognized in the cost of goods sold for the year ended December 31, 2018 as the related inventory was sold during that period. Raw materials were carried at net book value.
(2)
The Company paid $2 million in additional consideration during the fourth quarter of 2018 as a result of working capital adjustments determined pursuant to the terms of the Big Red Acquisition Agreement.
The Big Red Acquisition resulted in $113 million of goodwill. The goodwill recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes. The goodwill created in the Big Red Acquisition is not deductible for tax purposes.
The preliminary allocation of consideration exchanged to other intangible assets acquired is as follows:
(in millions)
Fair Value
 
Estimated Life (in years)
Brands(1)
$
220

 
n/a
Brands(1)
11

 
5
Contractual arrangements(2)
6

 
12
Customer relationships(3)
1

 
8-40
Total other intangible assets
$
238

 
 
(1)
The Company valued the brand portfolio utilizing the multi-period excess earnings method, a form of the income approach.
(2)
The Company valued contractual arrangements with bottlers and distributors utilizing the distributor method, a form of the income approach.
(3)
The Company identified two types of customer relationships, retail and industrial. We valued retail and industrial customer relationships utilizing the distributor method, a form of the income approach.
ACQUISITION OF CORE NUTRITION, LLC
Overview and Purchase Price
On September 27, 2018, KDP entered into a definitive agreement with Core Nutrition, LLC ("Core"), pursuant to which we agreed to acquire Core for merger consideration, which represented an enterprise value of $525 million (subject to customary post-closing working capital and other adjustments), comprised substantially of shares of common stock of KDP, subject to certain adjustments paid in cash (the "Core Acquisition"). On November 30, 2018 (the "Core Acquisition Date"), the Company completed the Core Acquisition.
Allocation of Purchase Price
The Company's preliminary allocation of purchase price to the net tangible and intangible assets acquired and liabilities assumed in the Core Acquisition is based on estimated fair values as of the Core Acquisition Date.

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

The following is a summary of the preliminary allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed in the Core Acquisition as of June 30, 2019:
(in millions)
Initial Allocation of Consideration
 
Measurement Period Adjustments
 
Allocation of Consideration as of June 30, 2019
Cash and cash equivalents
$
10

 
$
—

 
$
10

Other intangible assets
273

 
—

 
273

Assumed liabilities, net of acquired assets(1)
(12
)
 
(3
)
 
(15
)
Goodwill
236

 
12

 
248

Total purchase price
$
507

 
$
9

 
$
516

Company's previous ownership interest
31

 
—

 
31

Less: Holdback placed in Escrow
27

 
(2
)
 
25

Acquisition of business
$
449

 
$
11

 
$
460

(1)
The Company preliminarily valued WIP and finished goods inventory using a net realizable value approach resulting in a step-up of $4 million, of which $1 million and $3 million was recognized in cost of goods sold in 2018 and 2019, respectively, due to the timing of the sale of the related inventory. Raw materials were carried at net book value.
The Core Acquisition preliminarily resulted in $248 million of goodwill. The preliminary goodwill to be recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes. The goodwill created in the Core Acquisition is expected to be deductible for tax purposes.
The preliminary allocation of purchase price to other intangible assets acquired is as follows:
(in millions)
 
Fair Value
 
Estimated Life (in years)
Brands(1)
 
$
254

 
n/a
Contractual arrangements(2)
 
19

 
10
Total other intangible assets
 
$
273

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

OTHER ACQUISITIONS
The Company also spent an aggregate of $8 million in connection with other immaterial acquisitions during the first six months of 2019, which resulted in the recognition of fixed assets, intangible assets and goodwill. Pro forma financial information has not been presented for these acquisitions as the impact to our unaudited condensed consolidated financial statements was not material.

TRANSACTION EXPENSES
The following table provides information about the Company's transaction expenses incurred during the second quarter and first six months of 2019 and 2018:
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2018
 
2019
 
2018
DPS Merger
$
4

 
$
39

 
$
6

 
$
75

Other transaction expenses
4

 
—

 
7

 
—

Total transaction expenses incurred
$
8

 
$
39

 
$
13

 
$
75


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

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

INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The following table summarizes investments in unconsolidated affiliates as of June 30, 2019 and December 31, 2018:
 
 
 
 
June 30,
 
December 31,
(in millions)
 
Ownership Interest
 
2019
 
2018
BA Sports Nutrition, LLC ("BA")
 
12.5
%
 
$
52

 
$
62

Bedford Systems, LLC
 
30.0
%
 
65

 
79

Dyla LLC
 
12.6
%
 
14

 
15

Force Holdings LLC
 
33.3
%
 
5

 
6

Beverage startup companies
 
(various)

 
28

 
19

Other
 
(various)

 
6

 
5

Investments in unconsolidated affiliates
 
 
 
$
170

 
$
186


3. Leases
The Company leases certain facilities and machinery and equipment, including fleet. These leases expire at various dates through 2044. Some lease agreements contain standard renewal provisions that allow us to renew the lease at rates equivalent to fair market value at the end of the lease term. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Operating leases are included within other non-current assets, other current liabilities, and other non-current liabilities within our unaudited Condensed Consolidated Balance Sheets. Refer to Note 12 for further information. Finance leases are included within property, plant and equipment, net, other current liabilities, and other non-current liabilities. Leases with an initial term of 12 months or less are not recognized on the balance sheet.
Right of use assets and lease liabilities are recognized in the unaudited Condensed Consolidated Balance Sheets at the present value of future minimum lease payments over the lease term on the commencement date. As the rate implicit in the lease is generally not provided to the Company, KDP uses its incremental borrowing rate based on information available at the commencement date to determine the present value of future minimum lease payments. KDP's incremental borrowing rate is determined using a portfolio of secured borrowing rates commensurate with the term of the lease and is reassessed on a quarterly basis.
KDP has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.
The following table presents the components of lease cost:
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2019
Operating lease cost
$
20

 
$
40

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

 
20

Interest on lease liabilities
3

 
7

Variable lease cost(1)
8

 
14

Short-term lease cost
2

 
3

Sublease income
(1
)
 
(1
)
Total lease cost
$
42

 
$
83

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

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

The following table presents supplemental cash flow information about the Company's leases:
 
First Six Months
(in millions)
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
38

Operating cash flows from finance leases
7

Financing cash flows from finance leases
19


The following table presents information about the Company's weighted average discount rate and remaining lease term as of June 30, 2019:
Weighted average discount rate
 
Operating leases
4.6
%
Finance leases
5.3
%
Weighted average remaining lease term
 
Operating leases
8 years

Finance leases
12 years


Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
(in millions)
Operating Leases
 
Finance Leases
Remainder of 2019
$
39

 
$
26

2020
70

 
49

2021
56

 
42

2022
47

 
36

2023
39

 
33

2024
37

 
30

Thereafter
133

 
171

Total future minimum lease payments
421

 
387

Less: imputed interest
(70
)
 
(97
)
Present value of minimum lease payments
$
351

 
$
290



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

 
$
35

 
$
10

2020
53

 
34

 
10

2021
44

 
33

 
10

2022
34

 
33

 
10

2023
25

 
30

 
10

Thereafter
98

 
189

 
62

Total future minimum lease payments
$
312

 
354

 
112

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

 
$
75


SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED
As of June 30, 2019, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $470 million. These leases will commence between 2020 and 2021, with initial lease terms ranging from 7 years to 16 years.

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

4. Goodwill and Other Intangible Assets
GOODWILL
Changes in the carrying amount of goodwill by reportable segment are as follows:
 
Coffee Systems
 
Packaged Beverages
 
Beverage Concentrates
 
Latin America Beverages
 
Unallocated
 
Total
Balance as of January 1, 2019
$
9,725

 
$
4,878

 
$
4,265

 
$
618

 
$
525

 
$
20,011

Foreign currency translation
46

 
27

 
16

 
14

 
—

 
103

Acquisitions(1)
3

 
254

 
242

 
(73
)
 
(501
)
 
(75
)
Balance as of June 30, 2019
$
9,774

 
$
5,159

 
$
4,523

 
$
559

 
$
24

 
$
20,039


(1)
Amounts primarily represent measurement period adjustments for the DPS Merger, the Big Red Acquisition, and the Core Acquisition. Refer to Note 2 for further information.
INTANGIBLE ASSETS OTHER THAN GOODWILL
The net carrying amounts of intangible assets other than goodwill with indefinite lives are as follows:
 
 
June 30, 2019
 
December 31, 2018
Brands(1)
 
$
20,025

 
$
19,712

Trade names
 
2,479

 
2,479

Contractual arrangements
 
122

 
119

Distribution rights
 
2

 
—

Total
 
$
22,628

 
$
22,310


(1)
Approximately $113 million of the increase in brands with indefinite lives was due to foreign currency translation during the period. The remaining change represents measurement period adjustments for the DPS Merger. Refer to Note 2 for further information.
The net carrying amounts of intangible assets other than goodwill with definite lives are as follows:
 
June 30, 2019
 
December 31, 2018
(in millions)
 Gross Amount
 
Accumulated Amortization
 
Net Amount
 
 Gross Amount
 
Accumulated Amortization
 
Net Amount
Acquired technology
$
1,146

 
$
(218
)
 
$
928

 
$
1,146

 
$
(182
)
 
$
964

Customer relationships
638

 
(85
)
 
553

 
629

 
(67
)
 
562

Trade names
127

 
(47
)
 
80

 
127

 
(40
)
 
87

Contractual arrangements
25

 
(2
)
 
23

 
26

 
(1
)
 
25

Brands
11

 
(1
)
 
10

 
9

 
—

 
9

Distribution rights
6

 
—

 
6

 
—

 
—

 
—

Favorable leases(1)
—

 
—

 
—

 
13

 
(3
)
 
10

Total
$
1,953

 
$
(353
)
 
$
1,600

 
$
1,950

 
$
(293
)
 
$
1,657


(1)
Amounts recorded as favorable lease intangible assets were reclassified to operating lease right-of-use assets in connection with the adoption of ASC 842 as of January 1, 2019. Refer to Note 3 for further information regarding the adoption of ASC 842.
Amortization expense for intangible assets with definite lives was as follows:
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2018
 
2019
 
2018
Amortization expense for intangible assets with definite lives
$
32

 
$
29

 
$
63

 
$
59


Amortization expense of these intangible assets over the remainder of 2019 and the next five years is expected to be as follows:
 
Remainder of 2019
 
For the Years Ending December 31,
(in millions)
 
2020
 
2021
 
2022
 
2023
 
2024
Expected amortization expense for intangible assets with definite lives
$
63

 
$
126

 
$
126

 
$
126

 
$
126

 
$
121


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

IMPAIRMENT TESTING
KDP conducts impairment tests on goodwill and all indefinite lived intangible assets annually, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not identify any circumstances that indicated that the carrying amount of any goodwill or any indefinite lived intangible asset may not be recoverable as of June 30, 2019.
5. Restructuring and Integration Costs
The Company implements restructuring programs from time to time and incurs costs that are designed to improve operating effectiveness and lower costs. When the Company implements these programs, the Company incurs expenses, such as employee separations, lease terminations and other direct exit costs, that qualify as exit and disposal costs under U.S. GAAP.
The Company also incurs expenses that are an integral component of, and directly attributable to, its restructuring activities, which do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments, implementation costs and other incremental costs. These costs are recorded within SG&A expenses on the income statement and are held primarily within unallocated corporate costs.
Restructuring and integration charges incurred were as follows:
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2018
 
2019
 
2018
Keurig 2.0 exit
$
—

 
$
7

 
$
1

 
$
12

Integration program
32

 
26

 
92

 
26

Other restructuring programs
—

 
1

 
—

 
2

Total restructuring and integration charges
$
32

 
$
34

 
$
93

 
$
40


Restructuring liabilities that qualify as exit and disposal costs under U.S. GAAP are included in accounts payable and accrued expenses on the unaudited condensed consolidated financial statements. Restructuring liabilities as of June 30, 2019 and December 31, 2018 along with charges to expense, cash payments and non-cash charges for the period were as follows:
(in millions)
Workforce Reduction Costs
 
Other(1)
 
Total
Balance as of December 31, 2018
$
28

 
$
1

 
$
29

Charges to expense
10

 
—

 
10

Cash payments
(34
)
 
—

 
(34
)
Non-cash adjustment items
1

 
(1
)
 
—

Balance as of June 30, 2019
$
5

 
$
—

 
$
5

(1)
Primarily reflects activities associated with the closure of certain facilities, excluding contract termination costs, which include any associated asset write-downs and accelerated depreciation.
RESTRUCTURING PROGRAMS
Integration Program
As part of the DPS Merger, the Company established a transformation management office to enable integration and maximize value capture. The Company developed a program to deliver $600 million in synergies over a three-year period through supply chain optimization, reduction of indirect spend through new economies of scale, elimination of duplicative support functions and advertising and promotion optimization. The Company expects to incur total cash expenditures of $750 million, comprised of both capital expenditures and expense, and expects to complete the program by 2021. The restructuring and integration program resulted in cumulative pre-tax charges of approximately $247 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through June 30, 2019.

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

6. Income Taxes
Our effective tax rates were as follows:
 
Second Quarter
 
First Six Months
 
2019
 
2018
 
2019
 
2018
Effective tax rate
24.5
%
 
13.3
%
 
25.6
%
 
26.9
%

The increase in our effective tax rate from the second quarter of 2018 to the second quarter of 2019 was primarily due to the benefit received in the second quarter of 2018 from refining the estimated impact related to the legislation commonly known as the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 (“TCJA”). The decrease in our effective tax rate from the first six months of 2018 to the first six months of 2019 was primarily due to reduction in the U.S. federal tax rate from 24.5% to 21% and exclusion of DPS Merger-related non-deductible transaction costs, partially offset by the loss of tax benefits associated with the U.S. domestic manufacturing deduction in 2019. The TCJA reduced the U.S. federal statutory tax rate from 35% to 21% and eliminated the domestic manufacturing deduction. Guidance under the TCJA for non-calendar year filers resulted in a 24.5% federal statutory rate for companies with a September tax year-end for the period ended June 30, 2018. 
7. Long-term Obligations and Borrowing Arrangements
The following table summarizes the Company's long-term obligations:
(in millions)
June 30, 2019
 
December 31, 2018
Senior unsecured notes
$
11,785

 
$
12,019

Term loans
1,724

 
2,561

Subtotal
13,509

 
14,580

Less - current portion
(345
)
 
(379
)
Long-term obligations
$
13,164

 
$
14,201


The following table summarizes the Company's short-term borrowings and current portion of long-term obligations:
 
Fair Value Hierarchy Level
 
June 30, 2019
 
December 31, 2018
(in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Commercial paper
2
 
$
1,461

 
$
1,461

 
$
1,079

 
$
1,079

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

 
249

 
250

 
250

Term loans
2
 
97

 
97

 
129

 
129

Short-term borrowings and current portion of long-term obligations
 
 
$
1,806

 
$
1,807

 
$
1,458

 
$
1,458



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

SENIOR UNSECURED NOTES 
The Company's senior unsecured notes (collectively, the "Notes") consisted of the following:
(in millions)
 
 
 
 
 
Fair Value Hierarchy Level
 
June 30, 2019
 
December 31, 2018
Issuance
 
Maturity Date
 
Rate
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
2019 Notes(1)
 
January 15, 2019
 
2.600%
 
2
 
$
—

 
$
—

 
$
250

 
$
250

2020 Notes
 
January 15, 2020
 
2.000%
 
2
 
250

 
249

 
250

 
245

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

 
1,823

 
1,750

 
1,742

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

 
253

 
250

 
244

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

 
250

 
250

 
240

2022 Notes
 
November 15, 2022
 
2.700%
 
2
 
250

 
249

 
250

 
237

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

 
2,152

 
2,000

 
1,988

2023 Notes
 
December 15, 2023
 
3.130%
 
2
 
500

 
506

 
500

 
474

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

 
1,072

 
1,000

 
999

2025 Notes
 
November 15, 2025
 
3.400%
 
2
 
500

 
509

 
500

 
467

2026 Notes
 
September 15, 2026
 
2.550%
 
2
 
400

 
383

 
400

 
346

2027 Notes
 
June 15, 2027
 
3.430%
 
2
 
500

 
505

 
500

 
458

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

 
2,180

 
2,000

 
1,981

2038 Notes
 
May 1, 2038
 
7.450%
 
2
 
125

 
163

 
125

 
151

2038 Merger Notes
 
May 25, 2038
 
4.985%
 
2
 
500

 
548

 
500

 
483

2045 Notes
 
November 15, 2045
 
4.500%
 
2
 
550

 
554

 
550

 
478

2046 Notes
 
December 15, 2046
 
4.420%
 
2
 
400

 
398

 
400

 
342

2048 Merger Notes
 
May 25, 2048
 
5.085%
 
2
 
750

 
839

 
750

 
716

Principal amount
 
 
 
 
 
 
 
$
11,975

 
$
12,633

 
$
12,225

 
$
11,841

Unamortized debt issuance costs and fair value adjustment for Notes assumed in the DPS Merger
 
 
 
(190
)
 
 
 
(206
)
 
 
Carrying amount
 
 
 
 
 
 
 
$
11,785

 
 
 
$
12,019

 
 

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

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

364-Day Credit Agreement
The Company entered into a new credit agreement on May 29, 2019 (the "364-Day Credit Agreement") among the Company, the banks party thereto and JP Morgan, as administrative agent, pursuant to which the Company obtained a $750 million commitment. The 364-Day Credit Agreement is unsecured, and its proceeds may be used for general corporate purposes. Under this credit agreement, $750 million is available for issuance, none of which was utilized as of June 30, 2019.
The interest rate applicable to borrowings under the 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a margin of 1.000% to 1.625% or a base rate plus a margin of 0.000% to 0.625%, depending on the rating of certain index debt of the Company. The 364-Day Credit Agreement will mature on May 27, 2020, subject to the Company’s option to extend the maturity date by one year so long as certain customary conditions are satisfied.
KDP Revolving Credit Facility
The following table provides amounts utilized and available under the Company's revolving credit facilities ("KDP Revolver") as of June 30, 2019:
(in millions)
Amount Utilized
 
Balances Available
KDP Revolver
$
—

 
$
2,400

Letters of credit
—

 
200

The Company's KDP Revolver, 364-Day Credit Agreement and term loans, collectively the ("KDP Credit Agreements"), consisted of the following carrying values and estimated fair values that are not required to be measured at fair value in the unaudited Condensed Consolidated Balance Sheets:
(in millions)
 
 
 
Fair Value Hierarchy Level
 
June 30, 2019
 
December 31, 2018
Issuance
 
Maturity Date
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
KDP Term Loan(1)
 
February 2023
 
2
 
$
—

 
$
—

 
$
2,583

 
$
2,583

New KDP Term Loan(2)
 
February 2023
 
2
 
1,735

 
1,735

 
—

 
—

KDP Revolver
 
February 2023
 
2
 
—

 
—

 
—

 
—

364-Day Credit Agreement
 
May 2020
 
2
 
—

 
—

 
—

 
—

Principal amount
 
 
 
 
 
$
1,735

 
$
1,735

 
$
2,583

 
$
2,583

Unamortized discounts and debt issuance costs
 
 
(11
)
 
 
 
(22
)
 
 
Carrying amount
 
 
 
 
 
$
1,724

 
 
 
$
2,561

 
 

(1)
In January 2019, the Company borrowed $583 million of Commercial Paper to prepay a portion of its outstanding obligations under the KDP Term Loan, all of which was a voluntary prepayment. As a result of these voluntary prepayments, the Company recorded no loss on extinguishment of debt during the second quarter of 2019 and $5 million of loss on early extinguishment during the first six months of 2019. This KDP Term Loan was refinanced with the New KDP Term Loan in February 2019.
(2)
The Company borrowed $65 million and $215 million of Commercial Paper during the second quarter and first six months of 2019, respectively, to prepay a portion of its outstanding obligations under the 2019 New Term Loan Agreement, all of which were voluntary prepayments. As a result of these voluntary prepayments, the Company recorded no loss on extinguishment of debt during the second quarter of 2019 and $1 million of loss on early extinguishment during the first six months of 2019.
As of June 30, 2019, the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements.
Commercial Paper Program
The following table provides information about the Company's weighted average borrowings under its commercial paper program:
 
Second Quarter
 
First Six Months
 
2019
 
2018
 
2019
 
2018
Weighted average commercial paper borrowings
$
2,074

 
$
—

 
$
1,911

 
$
—

Weighted average borrowing rates
2.76
%
 
—
%
 
2.83
%
 
—
%


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

Letter of Credit Facility
In addition to the portion of the KDP Revolver reserved for issuance of letters of credit, the Company has an incremental letter of credit facility. Under this facility, $100 million is available for the issuance of letters of credit, $48 million of which was utilized as of June 30, 2019 and $52 million of which remains available for use.
8. Derivatives
KDP is exposed to market risks arising from adverse changes in interest rates, commodity prices, and foreign exchange ("FX") rates.
KDP manages these risks through a variety of strategies, including the use of interest rate contracts, FX forward contracts, commodity forward, future, swap and option contracts and supplier pricing agreements. KDP does not designate these contracts as hedges for accounting purposes, and KDP does not hold or issue derivative financial instruments for trading or speculative purposes.
INTEREST RATES 
The Company is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate swaps to provide predictability in the Company's overall cost structure, including both receive-fixed, pay-variable and receive-variable, pay-fixed swaps. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the unaudited Condensed Consolidated Statements of Income. These interest rate swap contracts have maturities between approximately 2 years and 19 years as of June 30, 2019.
FOREIGN EXCHANGE
The Company's Canadian and Mexican businesses purchase certain inventory through transactions denominated and settled in U.S. dollars, a currency different from the functional currency of those businesses. The Company additionally has a subsidiary in Canada with intercompany notes denominated and settled in U.S. dollars, a currency different from the functional currency of the Canadian business. These inventory purchases and intercompany notes are subject to exposure from movements in exchange rates. During the second quarter and first six months of 2019 and 2018, the Company held FX forward contracts to economically manage the exposures resulting from changes in these foreign currency exchange rates. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same caption of the unaudited Condensed Consolidated Statements of Income as the associated risk. These FX contracts have maturities ranging from less than 1 month to approximately 5 years as of June 30, 2019.
COMMODITIES
KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts. The intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure. During the second quarter and first six months of 2019 and 2018, the Company held forward, future, swap and option contracts that economically hedged certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. These commodity contracts have maturities ranging from less than 1 month to approximately 6 years as of June 30, 2019.

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

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS
The following table presents the notional amounts of the Company's outstanding derivative instruments by type:
 
June 30,
 
December 31,
(in millions)
2019
 
2018
Interest rate contracts
 
 
 
Receive-fixed, pay-variable interest rate swaps(1)
$
50

 
$
1,070

Receive-variable, pay-fixed interest rate swaps(2)
575

 
2,125

FX contracts
475

 
348

Commodity contracts
271

 
296

(1)
During the first six months of 2019, the Company elected to terminate $920 million notional amount of receive-fixed, pay-variable interest rate swaps and received cash of $2 million.
(2)
During the first six months of 2019, the Company elected to terminate $1,400 million notional amount of receive-variable, pay-fixed interest rate swaps and received cash of $38 million.
FAIR VALUE OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS
The following table summarizes the fair value hierarchy and the location of the fair value of the Company's derivative instruments not designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018:
(in millions)
Fair Value Hierarchy Level
 
Balance Sheet Location
 
June 30,
2019
 
December 31,
2018
Assets:
 
 
 
 
 
 
 
Interest rate contracts
2
 
Prepaid expenses and other current assets
 
$
1

 
$
2

FX contracts
2
 
Prepaid expenses and other current assets
 
1

 
4

Commodity contracts
2
 
Prepaid expenses and other current assets
 
8

 
3

Interest rate contracts
2
 
Other non-current assets
 
20

 
77

FX contracts
2
 
Other non-current assets
 
9

 
15

Commodity contracts
2
 
Other non-current assets
 
6

 
3

 
 
 
 
 

 


Liabilities:
 
 
 
 
 
 
 
Interest rate contracts
2
 
Other current liabilities
 
$
—

 
$
7

FX contracts
2
 
Other current liabilities
 
2

 
—

Commodity contracts
2
 
Other current liabilities
 
27

 
27

Interest rate contracts
2
 
Other non-current liabilities
 
—

 
6

Commodity contracts
2
 
Other non-current liabilities
 
5

 
10


The fair values of commodity contracts, interest rate contracts and FX forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest rate contracts are valued using models based primarily on readily observable market parameters, such as LIBOR forward rates, for all substantial terms of the Company's contracts and credit risk of the counterparties. The fair value of FX forward contracts are valued using quoted forward FX prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.

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

IMPACT OF ECONOMIC HEDGES
The following table presents the amount of (gains) losses recognized in the unaudited Condensed Consolidated Statements of Income related to derivative instruments not designated as hedging instruments under U.S. GAAP during the periods presented. Amounts include both realized and unrealized gains and losses.
 
 
 
Second Quarter
 
First Six Months
(in millions)
Income Statement Location
 
2019
 
2018
 
2019
 
2018
Interest rate contracts
Interest expense
 
$
2

 
$
(6
)
 
$
4

 
$
(30
)
FX contracts
Cost of sales
 
1

 
—

 
3

 
—

FX contracts
Other expense (income), net
 
—

 
(7
)
 
6

 
(13
)
Commodity contracts
Cost of sales
 
(3
)
 
3

 
12

 
5

Commodity contracts
SG&A expenses
 
2

 
—

 
(12
)
 
—

Total
 
 
$
2

 
$
(10
)
 
$
13

 
$
(38
)

The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, the Company has not experienced credit losses as a result of counterparty nonperformance. The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.
9. Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities.
As a result of the DPS Merger, all historical per share data and number of shares and numbers of equity awards were retroactively adjusted. The following table presents the Company's basic and diluted EPS and shares outstanding:
 
Second Quarter
 
First Six Months
(in millions, except per share data)
2019
 
2018
 
2019
 
2018
Basic EPS:
 
 
 
 
 
 
 
Net income attributable to KDP
$
314

 
$
83

 
$
544

 
$
171

Weighted average common shares outstanding
1,406.7

 
790.5

 
1,406.5

 
790.5

Earnings per common share — basic
$
0.22

 
$
0.10

 
$
0.39

 
$
0.21

Diluted EPS:
 
 
 
 
 
 
 
Net income attributable to KDP
$
314

 
$
83

 
$
544

 
$
171

Impact of dilutive securities in Maple Parent Corporation
—

 
2

 
—

 
3

Total
$
314

 
$
81

 
$
544

 
$
168

Weighted average common shares outstanding
1,406.7

 
790.5

 
1,406.5

 
790.5

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
0.5

 
—

 
0.7

 
—

RSUs
12.0

 
—

 
11.3

 
—

Weighted average common shares outstanding and common stock equivalents
1,419.2

 
790.5

 
1,418.5

 
790.5

Earnings per common share — diluted
$
0.22

 
$
0.10

 
$
0.38

 
$
0.21

 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation
0.1

 
—

 
0.1

 
—



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

10. Stock-Based Compensation
Stock-based compensation expense is primarily recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense are presented below:
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2018
 
2019
 
2018
Total stock-based compensation expense
$
20

 
$
9

 
$
34

 
$
20

Income tax benefit recognized in the Statements of Income
(4
)
 
(2
)
 
(7
)
 
(5
)
Stock-based compensation expense, net of tax
$
16

 
$
7

 
$
27

 
$
15


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

 
$
15.68

 
3.5
 
$
478

Granted
5,200,620

 
26.25

 
 
 
 
Vested and released
(4,368
)
 
24.20

 
 
 
—

Forfeited
(1,136,796
)
 
19.07

 
 
 
 
Outstanding as of June 30, 2019
22,685,354

 
$
17.93

 
3.0
 
$
656


As of June 30, 2019, there was $297 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.9 years.
11. Accumulated Other Comprehensive Income (Loss)
The following table provides a summary of changes in Accumulated Other Comprehensive Income (Loss), net of taxes:
 (in millions)
Foreign Currency Translation Adjustments
 
Pension and PRMB Liabilities
 
Accumulated Other Comprehensive Income (Loss)
Balance as of April 1, 2019
$
(33
)
 
$
(4
)
 
$
(37
)
Other comprehensive income
88

 
—

 
88

Balance as of June 30, 2019
$
55

 
$
(4
)
 
$
51

 
 
 
 
 
 
Balance as of January 1, 2019
$
(126
)
 
$
(4
)
 
$
(130
)
Other comprehensive income
181

 
—

 
181

Balance as of June 30, 2019
$
55

 
$
(4
)
 
$
51

 
 
 
 
 
 
Balance as of April 1, 2018
$
75

 
$
—

 
$
75

Other comprehensive loss
(16
)
 
—

 
(16
)
Balance as of June 30, 2018
$
59

 
$
—

 
$
59

 
 
 
 
 
 
Balance as of January 1, 2018
$
99

 
$
—

 
$
99

Other comprehensive loss
(40
)
 
—

 
(40
)
Balance as of June 30, 2018
$
59

 
$
—

 
$
59



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

12. Other Financial Information
The tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:
 
June 30,
 
December 31,
(in millions)
2019
 
2018
Inventories:
 
 
 
Raw materials
$
207

 
$
204

Work in process
8

 
7

Finished goods
471

 
415

Total inventories
$
686

 
$
626

Prepaid expenses and other current assets:
 
 
 
Other receivables
$
49

 
$
51

Customer incentive programs
80

 
12

Derivative instruments
10

 
9

Prepaid marketing
43

 
29

Spare parts
45

 
43

Assets held for sale
7

 
8

Income tax receivable
13

 
22

Other
70

 
80

Total prepaid expenses and other current assets
$
317

 
$
254

Other non-current assets:
 
 
 
Customer incentive programs
$
29

 
$
34

Marketable securities - trading(1)
40

 
44

Operating lease right-of-use assets(2)
355

 
—

Derivative instruments
35

 
95

Equity securities without readily determinable fair values
1

 
1

Non-current restricted cash and restricted cash equivalents
10

 
10

Related party notes receivable(3)
32

 
17

Other
70

 
58

Total other non-current assets
$
572

 
$
259


(1)
Fair values of marketable securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. The fair value of marketable securities was $40 million and $44 million as of June 30, 2019 and December 31, 2018, respectively.
(2)
Refer to Note 3 for additional information.
(3)
Refer to Note 15 for additional information.


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

 
June 30,
 
December 31,
(in millions)
2019
 
2018
Accrued expenses:
 
 
 
Customer rebates & incentives
$
374

 
$
342

Accrued compensation
148

 
214

Insurance reserve
39

 
37

Accrued interest
53

 
77

Accrued professional fees
29

 
113

Other accrued expenses
226

 
229

Total accrued expenses
$
869

 
$
1,012

Other current liabilities:
 
 
 
Dividends payable
$
212

 
$
209

Income taxes payable
110

 
60

Operating lease liability(1)
61

 
—

Finance lease liability(2)
37

 
26

Derivative instruments
29

 
34

Holdback liabilities
42

 
44

Other
25

 
33

Total other current liabilities
$
516

 
$
406

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

 
$
30

Insurance reserves
61

 
57

Operating lease liability(1)
290

 
—

Finance lease liability(2)
253

 
305

Derivative instruments
5

 
16

Deferred compensation liability
40

 
44

Other
93

 
107

Total other non-current liabilities
$
771

 
$
559


(1)
Refer to Note 3 for additional information.
(2)
Amounts as of December 31, 2018 include capital leases and financing obligations reported under ASC 840. Refer to Notes 1 and 3 for additional information.
ACCOUNTS PAYABLE
KDP entered into an agreement with a third party administrator to allow participating suppliers to track payment obligations from KDP, and if elected, sell payment obligations from KDP to financial institutions. Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted. KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted. As of June 30, 2019 and December 31, 2018, $2,096 million and $1,676 million, respectively, of KDP's outstanding payment obligations are payable to suppliers who utilize this third party service administrator.

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

13. Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported with the unaudited Condensed Consolidated Balance Sheets to the total of the same amounts shown in the unaudited Condensed Consolidated Statements of Cash Flows:
 
Fair Value Hierarchy Level
 
June 30, 2019
 
December 31, 2018
 (in millions)
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
1
 
$
106

 
$
106

 
$
83

 
$
83

Restricted cash and restricted cash equivalents(1)
1
 
44

 
44

 
46

 
46

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

 
10

 
10

 
10

Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows
 
 
$
160

 
$
160

 
$
139

 
$
139


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

Capital expenditures included in accounts payable and accrued expenses
205

 
39

Purchases of intangibles
2

 
—

Supplemental cash flow disclosures of non-cash financing activities:
 
 
 
Dividends declared but not yet paid
212

 
—

Finance lease additions
30

 
—

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest
272

 
47

Cash paid for related party interest
—

 
51

Cash paid for income taxes
142

 
71


14. Commitments and Contingencies
LEGAL MATTERS
The Company is involved from time to time in various claims, proceedings, and litigation, including those described below. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.
Proposition 65 Litigation
On May 9, 2011, an organization named Council for Education and Research on Toxics ("CERT") filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, against Keurig. The lawsuit is Council for Education and Research on Toxics v. Brad Barry LLC, et al., Case No. BC461182. CERT alleges that Keurig, in addition to nearly one hundred other defendants who manufacture, package, distribute, or sell coffee, failed to warn persons in California that Keurig's coffee products (the "Products") expose persons to the chemical acrylamide in violation of California's Safe Drinking Water and Toxic Enforcement Act of 1986, Health and Safety Code section 25249.5, et seq. ("Proposition 65"). CERT seeks equitable relief, including providing warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. CERT asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.

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

Keurig, as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff. Acrylamide is not added to coffee, but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. Keurig has asserted multiple affirmative defenses. The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees beginning on October 15, 2018, however on October 12, 2018, the California Court of Appeal granted the defendants' request for a stay of the third phase trial.
The Court of Appeal’s stay order was prompted by a notice published on June 15, 2018 by California’s Office of Environmental Health Hazard Assessment (“OEHHA”) proposing a new Proposition 65 regulation clarifying that cancer warnings are not required for Proposition 65 chemicals, such as acrylamide, that are present in coffee as a result of roasting coffee beans. After two rounds of public comments, the regulation was finalized, adopted and approved by the Office of Administrative Law on June 3, 2019. It will take effect on October 1, 2019. The Court of Appeal has lifted its 2018 stay order. Further litigation is anticipated based on CERT’s contentions that the regulation is legally invalid and, alternatively, cannot be applied to its pending claims. 
At this stage of the proceedings, prior to a trial on remedies issues, Keurig is unable to reasonably estimate the potential loss or effect on Keurig or its operations that could be associated with the lawsuit. The trial court has discretion to impose zero penalties against Keurig or to impose significant statutory penalties. Significant labeling or warning requirements that could potentially be imposed by the trial court may increase Keurig's costs and adversely affect sales of coffee products. We can provide no assurances as to the outcome of any litigation.
15. Related Parties
IDENTIFICATION OF RELATED PARTIES
The Company is indirectly controlled by a single stockholder, JAB Holding Company S.a.r.l ("JAB"), a privately held investor group. JAB has ownership control over certain investments that create the following related party transaction types:
•
Coffee Transactions include transactions with Peet's Coffee ("Peet's"), Caribou Coffee ("Caribou"), Panera Bread ("Panera"), Einstein Bros Bagels ("Einstein Bros") and Krispy Kreme Doughnuts ("Krispy Kreme"). The Company manufactures portion packs containing a selection of coffee and tea varieties under Peet’s brands for sale in the U.S. and Canada. As part of this agreement, Peet’s issues purchase orders to the Company for portion packs to be supplied to Peet’s and sold in select channels. In turn, the Company places purchase orders for Peet’s raw materials to manufacture portion packs for sale by the Company in select channels. The Company licenses the Caribou and Krispy Kreme trademarks for use in the Keurig system in the Company owned channels.
•
Restaurant Transactions include transactions with Panera, Peet's, Caribou, Einstein Bros and Krispy Kreme. The Company sells various beverage concentrates and packaged beverages to these companies.
The Company also has rights in certain territories to bottle and/or distribute various brands that the Company does not own. The Company holds investments in certain brand ownership companies. Refer to Note 2 for additional information about the Company's investments in unconsolidated affiliates. The Company purchases inventory from these brand ownership companies and sells finished product to third-party customers primarily in the U.S. Additionally, any transactions with significant partners in these investments, such as Anheuser-Busch InBev ("ABI"), are also included in this line. ABI purchases Clamato from the Company and pays the Company a royalty for use of the brand name.
LINE OF CREDIT WITH BEDFORD
The Company and ABI executed a line of credit agreement with Bedford on March 3, 2017, in conjunction with the creation of the joint venture ("Bedford Credit Agreement"), which was amended on December 7, 2018 to increase the line of credit (the credit agreement, as amended, the "Bedford Credit Agreement"). Under the Bedford Credit Agreement, the Company has committed to provide up to $51 million capacity with a fixed interest rate of 8.1% per annum. The Bedford Credit Agreement matures on March 3, 2024. The Company has outstanding receivable balances on the Bedford Credit Agreement of $32 million and $17 million as of June 30, 2019 and December 31, 2018, respectively.

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

16. Segments
Following the DPS Merger as described in Note 2, the Company revised its segment structure to consist of the following four reportable segments as of June 30, 2019 and December 31, 2018, and for the second quarter and first six months of 2019, and recasted for the second quarter and the first six months of 2018:
•
The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to the Company's coffee system, pods and brewers.
•
The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third-party brands, through both the Direct Store Delivery system and the Warehouse Direct system.
•
The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands.
•
The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.
Segment results are based on management reports. Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments. Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income. “Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.
Information about the Company's operations by reportable segment is as follows:
 
Second Quarter
 
First Six Months
(in millions)
2019
 
2018
 
2019
 
2018
Segment Results – Net sales
 
 
 
 
 
 
 
Coffee Systems
$
990

 
$
949

 
$
1,958

 
$
1,897

Packaged Beverages
1,311

 
—

 
2,427

 
—

Beverage Concentrates
370

 
—

 
674

 
—

Latin America Beverages
141

 
—

 
257

 
—

Net sales
$
2,812

 
$
949

 
$
5,316

 
$
1,897


 
Second Quarter
 
First Six Months
 (in millions)
2019
 
2018
 
2019
 
2018
Segment Results – Income from operations
 
 
 
 
 
 
 
Coffee Systems
$
287

 
$
274

 
$
580

 
$
531

Packaged Beverages
186

 
—

 
335

 
—

Beverage Concentrates
244

 
—

 
445

 
—

Latin America Beverages
26

 
—

 
37

 
—

Total income from operations - segments
743

 
274

 
1,397

 
531

Unallocated corporate costs
156

 
107

 
312

 
186

Income from operations
$
587

 
$
167

 
$
1,085

 
$
345



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

17. Revenue Recognition
The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include CSDs, NCBs, pods and appliances, occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.
The following table disaggregates the Company's revenue by portfolio for the second quarter and first six months of 2019 and 2018:
(in millions)
Coffee Systems
 
Packaged Beverages
 
Beverage Concentrates
 
Latin America Beverages
 
Total
For the second quarter of 2019:
 
 
 
 
 
 
 
 
 
CSD(1)
$
—

 
$
541

 
$
362

 
$
102

 
$
1,005

NCB(1)
—

 
662

 
3

 
38

 
703

Pods(2)
783

 
—

 
—

 
—

 
783

Appliances
154

 
—

 
—

 
—

 
154

Other
53

 
108

 
5

 
1

 
167

Net sales
$
990

 
$
1,311

 
$
370

 
$
141

 
$
2,812

 
 
 
 
 
 
 
 
 
 
For the first six months of 2019:
 
 
 
 
 
 
 
 
 
CSD(1)
$
—

 
$
1,063

 
$
660

 
$
182

 
$
1,905

NCB(1)
—

 
1,163

 
5

 
74

 
1,242

Pods(2)
1,576

 
—

 
—

 
—

 
1,576

Appliances
277

 
—

 
—

 
—

 
277

Other
105

 
201

 
9

 
1

 
316

Net sales
$
1,958

 
$
2,427

 
$
674

 
$
257

 
$
5,316

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

 
$
—

 
$
—

 
$
—

 
$
—

NCB(1)
—

 
—

 
—

 
—

 
—

Pods(2)
763

 
—

 
—

 
—

 
763

Appliances
131

 
—

 
—

 
—

 
131

Other
55

 
—

 
—

 
—

 
55

Net sales
$
949

 
$
—

 
$
—

 
$
—

 
$
949

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

 
$
—

 
$
—

 
$
—

 
$
—

NCB(1)
—

 
—

 
—

 
—

 
—

Pods(2)
1,557

 
—

 
—

 
—

 
1,557

Appliances
232

 
—

 
—

 
—

 
232

Other
108

 
—

 
—

 
—

 
108

Net sales
$
1,897

 
$
—

 
$
—

 
$
—

 
$
1,897

(1)    Represents net sales of owned and Allied Brands within our portfolio.
(2)
Represents net sales from owned brands, partner brands and private label owners. Net sales for partner brands and private label owners are contractual and long term in nature.

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

18. Guarantor and Non-Guarantor Financial Information
The Notes are fully and unconditionally guaranteed by certain direct and indirect subsidiaries of the Company (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are 100% owned either directly or indirectly by the Company and jointly and severally guarantee, subject to the release provisions described below, the Company's obligations under the Notes. None of the Company's subsidiaries organized outside of the U.S., immaterial subsidiaries used for charitable purposes, any of the subsidiaries held by Maple prior to the DPS Merger or any of the subsidiaries acquired after the DPS Merger (collectively, the "Non-Guarantors") guarantee the Notes. The subsidiary guarantees with respect to the Notes are subject to release upon the occurrence of certain events, including the sale of all or substantially all of a subsidiary's assets, the release of the subsidiary's guarantee of other indebtedness of the Company, the Company's exercise of its legal defeasance option with respect to the Notes and the discharge of the Company's obligations under the applicable indenture. The DPS Merger was accounted for under the acquisition method of accounting, using pushdown accounting for the purposes of presenting the following guarantor and non-guarantor financial information.
The second quarter and first six months of 2018 are not presented herein, as amounts reported prior to the DPS Merger are that of Maple, and would therefore be entirely reported within the Non-Guarantors column. Refer to the Condensed Consolidated Statements of Income, Statements of Comprehensive Income, and Statements of Cash Flows for the amounts which would be presented as Non-Guarantors for these historical periods.
The following schedules present the financial information for Keurig Dr Pepper Inc. (the "Parent"), Guarantors and Non-Guarantors. The consolidating schedules are provided in accordance with the reporting requirements of Rule 3-10 under SEC Regulation S-X for guarantor subsidiaries.
 
Condensed Consolidating Statements of Income
 
For the Second Quarter of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Net sales
$
—

 
$
1,660

 
$
1,207

 
$
(55
)
 
$
2,812

Cost of sales
—

 
661

 
580

 
(55
)
 
1,186

Gross profit
—

 
999

 
627

 
—

 
1,626

Selling, general and administrative expenses
1

 
668

 
359

 
—

 
1,028

Other operating expense, net
—

 
—

 
11

 
—

 
11

Income from operations
(1
)
 
331

 
257

 
—

 
587

Interest expense
198

 
3

 
28

 
(59
)
 
170

Interest expense - related party
—

 
—

 
—

 
—

 
—

Loss on early extinguishment of debt
—

 
—

 
—

 
—

 
—

Other expense (income), net
(239
)
 
192

 
(11
)
 
59

 
1

Income before provision for income taxes
40

 
136

 
240

 
—

 
416

Provision for income taxes
(5
)
 
42

 
65

 
—

 
102

Income before equity in earnings of consolidated subsidiaries
45

 
94

 
175

 
—

 
314

Equity in earnings of consolidated subsidiaries
269

 
14

 
—

 
(283
)
 
—

Net income
$
314

 
$
108

 
$
175

 
$
(283
)
 
$
314




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

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

 
$
3,070

 
$
2,345

 
$
(99
)
 
$
5,316

Cost of sales
—

 
1,232

 
1,159

 
(99
)
 
2,292

Gross profit
—

 
1,838

 
1,186

 
—

 
3,024

Selling, general and administrative expenses
5

 
1,230

 
704

 
—

 
1,939

Other operating expense, net
—

 
(10
)
 
10

 
—

 
—

Income from operations
(5
)
 
618

 
472

 
—

 
1,085

Interest expense
398

 
7

 
57

 
(123
)
 
339

Interest expense - related party
—

 
—

 
—

 
—

 
—

Loss on early extinguishment of debt
9

 
—

 
—

 
—

 
9

Other (income) expense, net
(251
)
 
147

 
(13
)
 
123

 
6

Income before provision for income taxes
(161
)
 
464

 
428

 
—

 
731

Provision for income taxes
(54
)
 
126

 
115

 
—

 
187

Income before equity in earnings of consolidated subsidiaries
(107
)
 
338

 
313

 
—

 
544

Equity in earnings of consolidated subsidiaries
651

 
14

 
—

 
(665
)
 
—

Net income
$
544

 
$
352

 
$
313

 
$
(665
)
 
$
544


 
Condensed Consolidating Statements of Comprehensive Income
 
For the Second Quarter of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income
$
402

 
$
178

 
$
264

 
$
(442
)
 
$
402



 
Condensed Consolidating Statements of Comprehensive Income
 
For the First Six Months of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Comprehensive income
$
725

 
$
497

 
$
495

 
$
(992
)
 
$
725




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

 
Condensed Consolidating Balance Sheets
 
As of June 30, 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
11

 
$
95

 
$
—

 
$
106

Restricted cash and restricted cash equivalents
40

 
2

 
2

 
—

 
44

Trade accounts receivable, net
—

 
642

 
426

 
—

 
1,068

Related party receivable
135

 
74

 
64

 
(273
)
 
—

Inventories
—

 
250

 
436

 
—

 
686

Prepaid expenses and other current assets
613

 
199

 
115

 
(610
)
 
317

Total current assets
788

 
1,178

 
1,138

 
(883
)
 
2,221

Property, plant and equipment, net
—

 
1,297

 
993

 
—

 
2,290

Investments in consolidated subsidiaries
41,003

 
4,971

 
—

 
(45,974
)
 
—

Investments in unconsolidated affiliates
—

 
63

 
107

 
—

 
170

Goodwill
—

 
8,239

 
11,800

 
—

 
20,039

Other intangible assets, net
—

 
16,857

 
7,371

 
—

 
24,228

Long-term receivable, related parties
5,066

 
8,623

 
—

 
(13,689
)
 
—

Other non-current assets
61

 
248

 
263

 
—

 
572

Deferred tax assets
—

 
—

 
27

 
—

 
27

Total assets
$
46,918

 
$
41,476

 
$
21,699

 
$
(60,546
)
 
$
49,547

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
990

 
$
1,919

 
$
—

 
$
2,909

Accrued expenses
53

 
596

 
220

 
—

 
869

Structured payables
—

 
47

 
548

 
—

 
595

Related party payable
74

 
95

 
104

 
(273
)
 
—

Short-term borrowings and current portion of long-term obligations
1,806

 
—

 
—

 
—

 
1,806

Other current liabilities
269

 
679

 
178

 
(610
)
 
516

Total current liabilities
2,202

 
2,407

 
2,969

 
(883
)
 
6,695

Long-term obligations to third parties
13,164

 
—

 
—

 
—

 
13,164

Long-term obligations to related parties
8,589

 
3,440

 
1,660

 
(13,689
)
 
—

Deferred tax liabilities
40

 
4,107

 
1,887

 
—

 
6,034

Other non-current liabilities
40

 
495

 
236

 
—

 
771

Total liabilities
24,035

 
10,449

 
6,752

 
(14,572
)
 
26,664

Total stockholders' equity
22,883

 
31,027

 
14,947

 
(45,974
)
 
22,883

Total liabilities and stockholders' equity
$
46,918

 
$
41,476

 
$
21,699

 
$
(60,546
)
 
$
49,547




31
Table of Contents
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

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

 
$
18

 
$
65

 
$
—

 
$
83

Restricted cash and restricted cash equivalents
42

 
3

 
1

 
—

 
46

Trade accounts receivable, net
—

 
596

 
554

 
—

 
1,150

Related party receivable
189

 
71

 
76

 
(336
)
 
—

Inventories
—

 
226

 
400

 
—

 
626

Prepaid expenses and other current assets
569

 
110

 
132

 
(557
)
 
254

Total current assets
800

 
1,024

 
1,228

 
(893
)
 
2,159

Property, plant and equipment, net
—

 
1,351

 
959

 
—

 
2,310

Investments in consolidated subsidiaries
40,119

 
4,882

 
—

 
(45,001
)
 
—

Investments in unconsolidated affiliates
—

 
63

 
123

 
—

 
186

Goodwill
50

 
8,371

 
11,590

 
—

 
20,011

Other intangible assets, net
—

 
16,583

 
7,384

 
—

 
23,967

Long-term receivable, related parties
5,503

 
7,827

 
—

 
(13,330
)
 
—

Other non-current assets
64

 
41

 
154

 
—

 
259

Deferred tax assets
—

 
—

 
26

 
—

 
26

Total assets
$
46,536

 
$
40,142

 
$
21,464

 
$
(59,224
)
 
$
48,918

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
497

 
$
1,803

 
$
—

 
$
2,300

Accrued expenses
78

 
610

 
324

 
—

 
1,012

Structured payables
—

 
47

 
479

 
—

 
526

Related party payable
65

 
106

 
165

 
(336
)
 
—

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

 
—

 
—

 
—

 
1,458

Other current liabilities
278

 
626

 
59

 
(557
)
 
406

Total current liabilities
1,879

 
1,886

 
2,830

 
(893
)
 
5,702

Long-term obligations to third parties
14,201

 
—

 
—

 
—

 
14,201

Long-term obligations to related parties
7,827

 
3,369

 
2,134

 
(13,330
)
 
—

Deferred tax liabilities
46

 
4,075

 
1,802

 
—

 
5,923

Other non-current liabilities
50

 
337

 
172

 
—

 
559

Total liabilities
24,003

 
9,667

 
6,938

 
(14,223
)
 
26,385

Total stockholders' equity
22,533

 
30,475

 
14,526

 
(45,001
)
 
22,533

Total liabilities and stockholders' equity
$
46,536

 
$
40,142

 
$
21,464

 
$
(59,224
)
 
$
48,918




32
Table of Contents
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

 
Condensed Consolidating Statements of Cash Flows
 
For the First Six Months of 2019
 (in millions)
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(178
)
 
$
812

 
$
581

 
$
(12
)
 
$
1,203

Investing activities:
 
 
 
 
 
 
 
 
 
Acquisitions of businesses
—

 
(3
)
 
(5
)
 
—

 
(8
)
Collections on (issuances of) related party notes receivable
535

 
(789
)
 
(14
)
 
254

 
(14
)
Investments in unconsolidated affiliates
—

 
(11
)
 
—

 
—

 
(11
)
Purchases of property, plant and equipment
—

 
(44
)
 
(74
)
 
—

 
(118
)
Proceeds from sales of property, plant and equipment
—

 
10

 
9

 
—

 
19

Purchases of intangibles
—

 
(4
)
 
—

 
—

 
(4
)
Return of capital from investments in consolidated subsidiaries
—

 
32

 
—

 
(32
)
 
—

Other, net
10

 
—

 
12

 
—

 
22

Net cash provided by (used in) investing activities
545

 
(809
)
 
(72
)
 
222

 
(114
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from (payments of) related party notes
763

 
—

 
(509
)
 
(254
)
 
—

Proceeds from term loan
2,000

 
—

 
—

 
—

 
2,000

Net issuance of commercial paper
381

 
—

 
—

 
—

 
381

Proceeds from structured payables
—

 
—

 
78

 
—

 
78

Payments on structured payables
—

 
—

 
(9
)
 
—

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

 
—

 
—

 
(250
)
Repayment of term loan
(2,848
)
 
—

 
—

 
—

 
(2,848
)
Payments on finance leases
—

 
(11
)
 
(8
)
 
—

 
(19
)
Cash dividends paid
(423
)
 
—

 
(44
)
 
44

 
(423
)
Other, net
8

 
—

 
2

 
—

 
10

Net cash used in financing activities
(369
)
 
(11
)
 
(490
)
 
(210
)
 
(1,080
)
Cash and cash equivalents — net change from:
 

 
 

 
 

 
 

 
 

Operating, investing and financing activities
(2
)
 
(8
)
 
19

 
—

 
9

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
12

 
—

 
12

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

 
31

 
66

 
—

 
139

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

 
$
23

 
$
97

 
$
—

 
$
160



33
Table of Contents


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

34
Table of Contents


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

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Table of Contents


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

36
Table of Contents


EXECUTIVE SUMMARY
Financial Overview
•The following table details our net income, diluted EPS, Adjusted net income and Adjusted diluted EPS for second quarter of 2019 and 2018:    
 
Second Quarter
 
Dollar
 
Percent
(in millions, except per share data)
2019
 
2018
 
Change
 
Change
Net income attributable to KDP
$
314

 
$
83

 
$
231

 
278.3
%
Diluted EPS
0.22

 
0.10

 
0.12

 
120.0

Adjusted net income(1)
423

 
356

 
67

 
18.8

Adjusted diluted EPS(1)
0.30

 
0.26

 
0.04

 
15.4

(1)
Adjusted net income and Adjusted diluted EPS are non-GAAP financial measures. For the second quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Net income attributable to KDP increased $231 million to $314 million for the second quarter of 2019 compared to the prior year driven primarily by the impact of the DPS Merger. Diluted EPS increased 120.0% to $0.22 per diluted share as compared to $0.10 in the prior year.
Adjusted net income advanced 18.8% to $423 million for the second quarter of 2019 as compared to Adjusted pro forma net income of $356 million in the prior period. This performance was driven by growth in Adjusted income from operations, primarily attributable to net productivity and merger synergies partially offset by inflation on input costs and logistics, and lower Adjusted interest expense primarily due to realized gains associated with the termination of certain interest rate swaps and lower indebtedness. Adjusted diluted EPS increased 15.4% to $0.30 per diluted share as compared to Adjusted pro forma diluted EPS of $0.26 per diluted share in the prior year.
•
During the first six months of 2019, we made net repayments of approximately $717 million related to our 2019 Notes, our term loans and Commercial Paper.
•
On May 29, 2019, we entered into a new 364-day credit agreement which provides a commitment for unsecured financing of up to $750 million.
Recent Developments
•
Our Board of Directors declared a quarterly dividend of $0.15 per share on May 3, 2019, which was paid on July 19, 2019 to shareholders of record on July 5, 2019.
RESULTS OF OPERATIONS
We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
References in the financial tables to percentage changes that are not meaningful are denoted by "NM."

37
Table of Contents


Second Quarter of 2019 Compared to the Second Quarter of 2018
Consolidated Operations
The following table sets forth our unaudited condensed consolidated results of operations for the second quarter of 2019 and 2018:
 
Second Quarter
 
 
 
 
 
2019
 
2018
 
Dollar
 
Percentage
($ in millions,except per share amounts)
Dollars
 
Percent
 
Dollars
 
Percent
 
Change
 
Change
Net sales
$
2,812

 
100.0
%
 
$
949

 
100.0
 %
 
$
1,863

 
196
%
Cost of sales
1,186

 
42.2

 
458

 
48.3

 
728

 
159

Gross profit
1,626

 
57.8

 
491

 
51.7

 
1,135

 
231

Selling, general and administrative expenses
1,028

 
36.6

 
321

 
33.8

 
707

 
220

Other operating expense, net
11

 
0.4

 
3

 
0.3

 
8

 
267

Income from operations
587

 
20.9

 
167

 
17.6

 
420

 
251

Interest expense
170

 
6.0

 
51

 
5.4

 
119

 
233

Interest expense - related party
—

 
—

 
26

 
2.7

 
(26
)
 
NM

Other expense (income), net
1

 
—

 
(8
)
 
(0.8
)
 
9

 
NM

Income before provision for income taxes
416

 
14.8

 
98

 
10.3

 
318

 
324

Provision for income taxes
102

 
3.6

 
13

 
1.4

 
89

 
685

Net income
314

 
11.2

 
85

 
9.0

 
229

 
269

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

 
—

 
2

 
0.2

 
(2
)
 
NM

Net income attributable to KDP
$
314

 
11.2
%
 
$
83

 
8.7
 %
 
$
231

 
278

 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 

 
 
 
 
 
 
Basic
$
0.22

 
 
 
$
0.10

 
 
 
0.12

 
120.0
%
Diluted
0.22

 
 
 
0.10

 
 
 
0.12

 
120.0
%
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
1,406.7

 
 
 
790.5

 
 
 
 
 
 
Diluted
1,419.2

 
 
 
790.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
24.5
%
 
NM

 
13.3
%
 
NM

 
NM

 
NM

Net Sales. Net sales increased $1,863 million for the second quarter of 2019 compared with the second quarter of 2018. The primary driver of the increase in net sales was the $1,822 million of sales acquired as a result of the DPS Merger.
Gross Profit. Gross profit increased $1,135 million for the second quarter of 2019 compared with the second quarter of 2018. Gross margin of 57.8% for the second quarter of 2019 was significantly improved compared to the 51.7% gross margin for the second quarter of 2018. The primary driver of the change in gross profit was incremental gross profit we acquired as a result of the consummation of the DPS Merger.
Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses increased $707 million for the second quarter of 2019 compared with the second quarter of 2018. The primary driver of the increase in SG&A expenses was the impact of the DPS Merger, which includes acquired operating costs associated with the integration of DPS and Keurig.
Income from Operations. Income from operations increased $420 million to $587 million for the second quarter of 2019 due to the increase in gross profit partially offset by an increase in SG&A expenses, driven by the DPS Merger.
Interest Expense. Interest expense increased $119 million for the second quarter of 2019 compared with the second quarter of 2018 due primarily to the assumption of the existing senior unsecured notes and increased borrowings as a result of the DPS Merger, which was partially offset by the impact of the net repayments related to our 2019 Notes, our term loans and Commercial Paper.


38


Interest Expense - Related Party. Interest expense - related party decreased $26 million for the second quarter of 2019 compared with the second quarter of 2018 as a result of the capitalization of the related party term loans into additional paid in capital during the third quarter of 2018.
Effective Tax Rate. The effective tax rates for the second quarter of 2019 and 2018 were 24.5% and 13.3%, respectively. For the second quarter of 2019, the provision for income taxes was higher than the second quarter of 2018 primarily due to the benefit received from the one time transition tax related to the TCJA in the second quarter of 2018. See Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information.
Adjusted Results of Operations
The following table sets forth certain unaudited condensed consolidated adjusted results of operations for the second quarter of 2019 and 2018:
 
Second Quarter
 
Dollar
 
Percent
(in millions, except per share amounts)
2019
 
2018
 
Change
 
Change
Adjusted net sales(1)
$
2,812

 
$
2,822

 
$
(10
)
 
(0.4
)%
Adjusted income from operations(1)
702

 
640

 
62

 
9.7

Adjusted interest expense(1)
138

 
175

 
(37
)
 
(21.1
)
Adjusted provision for income taxes(1)
142

 
115

 
27

 
23.5

Adjusted net income(1)
423

 
356

 
67

 
18.8

Adjusted diluted EPS(1)
0.30

 
0.26

 
0.04

 
15.4

 
 
 
 
 
 
 
 
Adjusted diluted weighted average shares(1)
1,419.2

 
1,386.5

 
 
 
 
Adjusted operating margin(1)
25.0
%
 
22.7
%
 
 
 
230 bps

Adjusted effective tax rate(1)
25.1
%
 
24.4
%
 
 
 
 
(1)
These adjusted measures are non-GAAP financial measures. For the second quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of this term and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Adjusted Net Sales. Adjusted net sales decreased $10 million, or 0.4%, to $2,812 million for the second quarter of 2019 as compared to Adjusted pro forma net sales of $2,822 million for the second quarter of 2018. This performance reflected strong underlying net sales growth of 2.6%, driven by higher volume/mix of 2.1% and net price realization of 0.5%, as well as a 0.2% benefit from the shift of Easter into the second quarter of 2019. More than offsetting these positive drivers was the expected unfavorable impacts of 3.0% related to changes in our Allied Brands portfolio, as well as unfavorable foreign currency translation of 0.2%.
Adjusted Income from Operations. Adjusted income from operations increased $62 million, or 9.7%, to $702 million compared to Adjusted pro forma income from operations of $640 million in the second quarter of 2018. This strong growth was despite comparison to the prior year quarter that included a $16 million gain on the acquisition of Big Red and a $5 million one-time reimbursement from a resin supplier, which reduced the year-over-year growth rate by more than three percentage points. Driving the performance in the quarter were strong productivity and merger synergies, both of which benefitted SG&A and cost of sales, and growth in underlying net sales, partially offset by inflation in input costs, led by packaging and logistics. Adjusted operating margin grew 230 bps to 25.0% in the second quarter of 2019.
Adjusted Interest Expense. Adjusted interest expense decreased $37 million, or 21.1%, to $138 million for the second quarter of 2019 compared to Adjusted pro forma interest expense of $175 million in the prior year. This change was primarily the result of the benefit of lower indebtedness due to continued deleveraging, realized gains associated with the termination of certain interest rate swaps and realized gains on existing interest rate swaps.
Adjusted Effective Tax Rate. The Adjusted effective tax rate increased 0.7 points to 25.1% for the second quarter of 2019 compared to Adjusted pro forma effective tax rate of 24.4% in the prior year. This increase in our Adjusted effective tax rate was primarily due to the loss of tax benefits associated with the U.S. domestic manufacturing deduction in 2019.

39


Results of Operations by Segment
The following tables set forth net sales and income from operations for our segments for the second quarter of 2019 and 2018, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP:
 
Second Quarter
(in millions)
2019
 
2018
Segment Results — Net sales
 
 
 
Coffee Systems
$
990

 
$
949

Packaged Beverages
1,311

 
—

Beverage Concentrates
370

 
—

Latin America Beverages
141

 
—

Net sales
$
2,812

 
$
949

 
 
 
 
 
Second Quarter
(in millions)
2019
 
2018
Segment Results — Income from Operations
 
 
 
Coffee Systems
$
287

 
$
274

Packaged Beverages
186

 
—

Beverage Concentrates
244

 
—

Latin America Beverages
26

 
—

Total income from operations
743

 
274

Unallocated corporate costs
156

 
107

Income from operations
$
587

 
$
167

COFFEE SYSTEMS
The following table details our Coffee Systems segment's net sales, income from operations, operating margin, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the second quarter of 2019 and 2018:
 
Second Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
990

 
$
949

 
$
41

 
4.3
%
Income from operations
287

 
274

 
13

 
4.7

Operating margin
29.0
%
 
28.9
%
 
 
 
10 bps

Adjusted income from operations(1)
331

 
306

 
25

 
8.2

Adjusted operating margin(1)
33.4
%
 
32.2
%
 
 
 
120 bps

(1)
Adjusted income from operations is a non-GAAP financial measure. For the second quarter of 2018, this financial measure was prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. The volume/mix growth for the Coffee Systems segment was driven by a 12.8% increase in K-Cup pod volume and a 19.4% increase in brewer volume, partially offset by unfavorable pod sales mix, primarily reflecting the impact of volume growth of branded partners in the second quarter of 2019.
Net Sales. Net sales increased 4.3% to $990 million for the second quarter of 2019 compared to net sales of $949 million in the second quarter of 2018 due to volume/mix growth of 8.3%, partially offset by lower net price realization of 3.5% and unfavorable foreign currency translation of 0.5%.
Income from Operations. Income from operations increased $13 million, or 4.7%, to $287 million for the second quarter of 2019, compared with the second quarter of 2018, primarily reflecting the benefits of productivity, net sales growth and lower administrative expenses. Partially offsetting these growth drivers were expenses associated with our productivity projects and inflation in input costs, led by packaging and logistics. Operating margin grew 10 basis points ("bps") to 29.0% for the second quarter of 2019.

40


Adjusted Income from Operations. Adjusted income from operations increased $25 million, or 8.2%, to $331 million for the second quarter of 2019, compared with Adjusted pro forma income from operations of $306 million for the second quarter of 2018, primarily reflecting the benefits of productivity and strong growth in pod sales, partially offset by inflation in packaging and logistics. Adjusted operating margin grew 120 bps to 33.4%.
PACKAGED BEVERAGES
The following table details our Packaged Beverages segment's net sales, income from operations, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the second quarter of 2019 and 2018:
 
Second Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
1,311

 
$
—

 
$
1,311

 
NM
Income from operations
186

 
—

 
186

 
NM
Adjusted net sales(1)
1,311

 
1,378

 
(67
)
 
(4.9
)%
Adjusted income from operations(1)
190

 
161

 
29

 
18.0

Adjusted operating margin(1)
14.5
%
 
11.7
%
 
 
 
280 bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the second quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. Sales volume for the second quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the second quarter of 2019 declined 4.6% due to the net unfavorable impact of changes in our Allied Brands portfolio and lower CSD volume, partially offset by growth of Core Hydration and higher volume from contract manufacturing.
Net Sales. Net sales of $1,311 million for the second quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales decreased 4.9% to $1,311 million, compared with Adjusted pro forma net sales of $1,378 million in the second quarter of 2018, reflecting underlying net sales growth of 1.0%, driven by higher net price realization of 2.0% from pricing actions taken late in 2018 partially offset by lower volume/mix of 1.0%, as well as a 0.5% benefit from the shift of Easter into the second quarter of 2019. More than offsetting these growth drivers was the expected unfavorable impacts of 6.3% from changes in the Allied Brands portfolio, as well as unfavorable foreign currency translation of 0.1%.
Income from Operations. Income from operations was $186 million for the second quarter of 2019, which were wholly incremental as a result of the DPS Merger, as net sales were reduced by cost of sales and SG&A expenses. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs. SG&A expenses were primarily comprised of people costs, marketing investments and logistics expense.
Adjusted Income from Operations. Adjusted income from operations increased $29 million, or 18.0%, to $190 million for the second quarter of 2019, compared with Adjusted pro forma income from operations of $161 million for the second quarter of 2018, largely reflecting strong productivity and merger synergies, as well as timing of marketing investments. These drivers were partially offset by inflation particularly in packaging and manufacturing input costs. Adjusted operating margin grew 280 bps versus the year ago period to 14.5%.
BEVERAGE CONCENTRATES
The following table details our Beverage Concentrates segment's net sales, income from operations, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the second quarter of 2019 and 2018:
 
Second Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
370

 
$
—

 
$
370

 
NM
Income from operations
244

 
—

 
244

 
NM
Adjusted net sales(1)
370

 
359

 
11

 
3.1
%
Adjusted income from operations(1)
246

 
236

 
10

 
4.2

Adjusted operating margin(1)
66.5
%
 
65.7
%
 
 
 
80 bps

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

41


Sales volume. Sales volume for the second quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted sales volume. Adjusted sales volume for the second quarter of 2019 declined 1.0% due to CSD category volume declines.
Net Sales. Net sales were $370 million for the second quarter of 2019, which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales increased 3.1% to $370 million for the second quarter of 2019, compared with Adjusted pro forma net sales of $359 million for the second quarter of 2018, driven by net price realization of 4.4%, partially offset by lower volume/mix of 1.1% and unfavorable foreign currency translation of 0.2%.
Income from Operations. Income from operations was $244 million for the second quarter of 2019, which was wholly incremental as a result of the DPS Merger, as net sales were reduced by SG&A expenses and cost of sales. SG&A expenses were primarily comprised of marketing investments and people costs. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs.
Adjusted Income from Operations. Adjusted income from operations increased $10 million, or 4.2%, to $246 million for the second quarter of 2019 compared with Adjusted pro forma income from operations of $236 million for the second quarter of 2018. This performance reflected the growth in Adjusted net sales. Adjusted operating margin grew 80 bps versus the year ago period to 66.5%.
LATIN AMERICA BEVERAGES
The following table details our Latin America Beverages segment's net sales, income from operations, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the second quarter of 2019 and 2018:
 
Second Quarter
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
141

 
$
—

 
$
141

 
NM
Income from operations
26

 
—

 
26

 
NM
Adjusted net sales(1)
141

 
136

 
5

 
3.7
 %
Adjusted income from operations(1)
20

 
26

 
(6
)
 
(23.1
)%
Adjusted operating margin(1)
14.2
%
 
19.1
%
 
 
 
(490) bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the second quarter of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. Sales volume for the second quarter of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the second quarter of 2019 declined 3.7% due to the exit of our Aguafiel bulk water business of 4.7% and an increase of 1.0% in the balance of the portfolio.
Net Sales. Net sales were $141 million for the second quarter of 2019, which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales increased 3.7% to $141 million for the second quarter of 2019, compared with Adjusted pro forma net sales of $136 million for the second quarter of 2018, driven by higher net price realization of 3.8% from pricing actions taken in 2018 and favorable foreign currency translation of 1.3%, partially offset by unfavorable volume/mix of 1.4%.
Income from Operations. Income from operations was $26 million for the second quarter of 2019, which was wholly incremental as a result of the DPS Merger, as net sales were reduced by cost of sales and SG&A expenses. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs. SG&A expenses were primarily comprised of logistics expense, people costs and marketing investments.
Adjusted Income from Operations. Adjusted income from operations decreased $6 million, or 23.1%, to $20 million for the second quarter of 2019, compared with Adjusted pro forma income from operations of $26 million for the second quarter of 2018. This performance reflected the benefit of net sales growth and productivity, which were more than offset by inflation in logistics and input costs, as well as the comparison to a $5 million benefit in the second quarter of 2018 related to a previous reimbursement by a resin supplier. Adjusted operating margin declined 490 bps versus the year ago period to 14.2%.

42


First Six Months of 2019 Compared to First Six Months of 2018
Consolidated Operations
The following table sets forth our unaudited condensed consolidated results of operations for the first six months of 2019 and 2018:
 
First Six Months
 
 
 
 
 
2019
 
2018
 
Dollar
 
Percentage
($ in millions, except per share amounts)
Dollars
 
Percent
 
Dollars
 
Percent
 
Change
 
Change
Net sales
$
5,316

 
100.0
%
 
$
1,897

 
100.0
%
 
$
3,419

 
180.2
%
Cost of sales
2,292

 
43.1

 
925

 
48.8

 
1,367

 
147.8

Gross profit
3,024

 
56.9

 
972

 
51.2

 
2,052

 
211.0

Selling, general and administrative expenses
1,939

 
36.5

 
621

 
32.7

 
1,318

 
212.0

Other operating expense, net
—

 
—

 
6

 
0.3

 
(6
)
 
NM

Income from operations
1,085

 
20.4

 
345

 
18.2

 
740

 
214.0

Interest expense
339

 
6.4

 
49

 
2.6

 
290

 
NM

Interest expense - related party
—

 
—

 
51

 
5.5

 
(51
)
 
NM

Loss on early extinguishment of debt
9

 
0.2

 
2

 
0.1

 
7

 
NM

Other expense (income), net
6

 
0.1

 
5

 
0.3

 
1

 
NM

Income before provision for income taxes
731

 
13.8

 
238

 
12.5

 
493

 
207.0

Provision for income taxes
187

 
3.5

 
64

 
3.4

 
123

 
192.0

Net income
544

 
10.2

 
174

 
9.2

 
370

 
213.0

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

 
—

 
3

 
0.2

 
(3
)
 
NM

Net income attributable to KDP
$
544

 
10.2
%
 
$
171

 
9.0
%
 
373

 
218.0

 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.39

 
 
 
$
0.21

 
 
 
$
0.18

 
86.0
%
Diluted
0.38

 
 
 
0.21

 
 
 
0.17

 
81.0

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
1,406.5

 
 
 
790.5

 
 
 
 
 
 
Diluted
1,418.5

 
 
 
790.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective tax rate
25.6

 
 
 
26.9

 
 
 
 
 
 
Net Sales. Net sales increased $3,419 million, or approximately 180%, for the first six months of 2019 compared with the first six months of 2018. The primary factor of the increase in net sales was the $3,358 million of sales acquired as a result of the DPS Merger.
Gross Profit. Gross profit increased $2,052 million for the first six months of 2019 compared with the first six months of 2018. Gross margin of 56.9% for the first six months of 2019 significantly improved from the 51.2% gross margin for the first six months of 2018. The primary driver of the change was the incremental gross profit we acquired as a result of the consummation of the DPS Merger.
Selling, General and Administrative Expenses. SG&A expenses increased $1,318 million for the first six months of 2019 compared with the first six months of 2018. The primary driver of the increase in SG&A expenses was the impact of the DPS Merger, which includes acquired operating costs and restructuring expenses associated with the integration of DPS and Keurig.
Income from Operations. Income from operations increased $740 million to $1,085 million for the first six months of 2019 due to the increase in gross profit partially offset by an increase in SG&A expenses, driven by the DPS Merger.

43


Interest Expense. Interest expense increased $290 million for the first six months of 2019 compared with the first six months of 2018 due primarily to the increased borrowings and assumption of the existing senior unsecured notes as a result of the DPS Merger and the impact of our interest rate derivative instruments, which was partially offset by the impact of the net repayments related to our 2019 Notes, our term loans and Commercial Paper.
Interest Expense - Related Party. Interest expense - related party decreased $51 million for the first six months of 2019 compared with the first six months of 2018 as a result of the capitalization of the related party term loans into additional paid in capital during the DPS Merger.
Effective Tax Rate. The effective tax rates for the first six months of 2019 and 2018 were 25.6% and 26.9%, respectively. The decrease in our effective tax rate was primarily due to a reduction in the U.S. federal tax rate from 24.5% to 21.0% and exclusion of DPS Merger related non-deductible transaction costs offset by the elimination of the domestic manufacturing deduction. Refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
Adjusted Results of Operations
The following table sets forth certain unaudited condensed consolidated adjusted results of operations for the first six months of 2019 and 2018:
 
For the First Six Months
 
Dollar
 
Percent
(in millions, except per share amounts)
2019
 
2018
 
Change
 
Change
Adjusted net sales(1)
$
5,316

 
$
5,355

 
$
(39
)
 
(0.7
)%
Adjusted income from operations(1)
1,323

 
1,202

 
121

 
10.1

Adjusted interest expense(1)
262

 
341

 
(79
)
 
(23.2
)
Adjusted provision for income taxes(1)
270

 
218

 
52

 
23.9

Adjusted net income(1)
785

 
612

 
173

 
28.3

Adjusted diluted EPS(1)
0.55

 
0.44

 
0.11

 
25.0

 
 
 
 
 
 
 
 
Adjusted diluted weighted average shares(1)
1,418.5

 
1,386.5

 
 
 
 
Adjusted operating margin(1)
24.9
%
 
22.4
%
 
 
 
250 bps

Adjusted effective tax rate(1)
25.6
%
 
26.3
%
 
 
 
 
(1)
These adjusted measures are non-GAAP financial measures. For the first six months of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of this term and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Adjusted Net Sales. Adjusted net sales decreased $39 million, or 0.7%, to $5,316 million for the first six months of 2019 as compared to Adjusted pro forma net sales of $5,355 million for the first six months of 2018. This performance reflected strong underlying net sales growth of 2.4%, driven by higher volume/mix of 1.6% and net price realization of 0.8%, more than offset by the expected unfavorable impacts related to changes in our Allied Brands portfolio of 2.8%. Unfavorable foreign currency translation also impacted the period by 0.3%.
Adjusted Income from Operations. Adjusted income from operations increased $121 million, or 10.1%, to $1,323 million compared to Adjusted pro forma income from operations of $1,202 million in the prior year. This performance primarily reflected strong productivity and merger synergies, both of which benefitted SG&A and cost of sales, as well as favorable timing in marketing spending. Partially offsetting these growth drivers were inflation in input costs, led by packaging, and logistics, and the comparison to a $16 million gain in the prior year from the remeasurement of our equity investment in Big Red and a $5 million one-time reimbursement from a resin supplier. Adjusted operating margin grew 250 bps to 24.9% in the first six months of 2019.
Adjusted Interest Expense. Adjusted interest expense decreased $79 million, or 23.2%, to $262 million for the first six months of 2019 compared to Adjusted pro forma interest expense of $341 million in the prior year. This change was primarily the result of the benefit of lower indebtedness due to continued deleveraging, realized gains associated with the termination of certain interest rate swaps and the benefit of lower interest rates as a result of our existing interest rate swaps.
Adjusted Effective Tax Rate. The Adjusted effective tax rate decreased 0.7 points to 25.6% for the first six months of 2019 compared to Adjusted pro forma effective tax rate of 26.3% in the prior year. This improvement in our Adjusted effective tax rate was primarily due to a reduction in the U.S. federal tax rate from 24.5% to 21.0%, partially offset by the loss of tax benefits associated with the U.S. domestic manufacturing deduction in 2019.


44


Results of Operations by Segment
The following tables set forth net sales and income from operations for our segments for the first six months of 2019 and 2018, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP:
(in millions)
First Six Months
Segment Results — Net sales
2019
 
2018
Coffee Systems
$
1,958

 
$
1,897

Packaged Beverages
2,427

 
—

Beverage Concentrates
674

 
—

Latin America Beverages
257

 
—

Net sales
$
5,316

 
$
1,897

 
 
 
 
 
First Six Months
(in millions)
2019
 
2018
Segment Results — Income from Operations
 
 
 
Coffee Systems
$
580

 
$
531

Packaged Beverages
335

 
—

Beverage Concentrates
445

 
—

Latin America Beverages
37

 
—

Total income from operations
1,397

 
531

Unallocated corporate costs
312

 
186

Income from operations
$
1,085

 
$
345

COFFEE SYSTEMS
The following table details our Coffee Systems segment's net sales, income from operations, operating margin, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the first six months of 2019 and 2018:
 
For the First Six Months
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
1,958

 
$
1,897

 
$
61

 
3.2
%
Income from operations
580

 
531

 
49

 
9.2

Operating margin
29.6
%
 
28.0
%
 
 
 
160 bps

Adjusted net sales(1)
1,958

 
1,901

 
57

 
3.0

Adjusted income from operations(1)
666

 
618

 
48

 
7.8

Adjusted operating margin(1)
34.0
%
 
32.5
%
 
 
 
150 bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first six months of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. The volume/mix growth for the Coffee Systems segment reflected a 9.8% increase in K-Cup pod volume and a 16.4% increase in brewer volume, partially offset by unfavorable pod sales mix, primarily reflecting the impact of volume growth of branded partners and private label in the first six months of 2019.
Net Sales. Net sales increased 3.2% to $1,958 million for the first six months of 2019 compared to the first six months of 2018 due to volume/mix growth of 6.7%, partially offset by lower net price realization of 2.9%, reflecting the continued moderation in strategic pod pricing investments and unfavorable foreign currency translation of 0.6%.
Adjusted Net Sales. Adjusted net sales increased 3.0% to $1,958 million for the first six months of 2019 compared to the first six months of 2018 due to volume/mix growth of 6.7%, partially offset by lower net price realization of 3.1%, reflecting the continued moderation in strategic pod pricing investments and unfavorable foreign currency translation of 0.6%.
Income from Operations. Income from operations increased $49 million for the first six months of 2019, compared with the first six months of 2018, primarily reflecting the benefits of productivity, partially offset by inflation in input costs, led by packaging and logistics. Operating margin grew 160 bps to 29.6%.

45


Adjusted Income from Operations. Adjusted income from operations increased $48 million, or 7.8%, to $666 million for the first six months of 2019, compared with Adjusted pro forma income from operations of $618 million for the first six months of 2018, primarily reflecting the benefits of productivity, partially offset by inflation in input costs, led by packaging, and logistics. Adjusted operating margin grew 150 bps versus the year ago period to 34.0%.
PACKAGED BEVERAGES
The following table details our Packaged Beverages segment's net sales, income from operations, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the first six months of 2019 and 2018:
 
For the First Six Months
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
2,427

 
$
—

 
$
2,427

 
NM
Income from operations
335

 
—

 
335

 
NM
Adjusted net sales(1)
2,427

 
2,556

 
(129
)
 
(5.0
)%
Adjusted income from operations(1)
350

 
321

 
29

 
9.0

Adjusted operating margin(1)
14.4
%
 
12.6
%
 
 
 
180 bps

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first six months of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. Sales volume for the first six months of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the first six months of 2019 declined 4.7% due to the net unfavorable impact of 3.6% related to changes in our Allied Brands portfolio and lower CSD volume, partially offset by growth of Core Hydration and higher volume from contract manufacturing.
Net Sales. Net sales were $2,427 million for the first six months of 2019, which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales decreased 5.0% to $2,427 million for the first six months of 2019 compared with Adjusted pro forma net sales of $2,556 million for the first six months of 2018, reflecting underlying net sales growth of 1.3%, driven by higher net price realization of 2.1% from pricing actions taken late in 2018 partially offset by lower volume/mix of 0.8%. More than offsetting the underlying net sales growth were the expected unfavorable impacts of 5.9% from changes in the Allied Brands portfolio, 0.3% from one less shipping day in the first quarter of 2019 and unfavorable foreign currency translation of 0.1%.
Income from Operations. Income from operations was $335 million for the first six months of 2019, which were wholly incremental as a result of the DPS Merger, as net sales were reduced by cost of sales and SG&A expenses. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs. SG&A expenses were primarily comprised of employee salaries, marketing investments and logistics expense.
Adjusted Income from Operations. Adjusted income from operations increased $29 million, or 9.0%, to $350 million for the first six months of 2019 compared with Adjusted pro forma income from operations of $321 million for the first six months of 2018, largely reflecting strong productivity and merger synergies and timing of marketing investments. These drivers were partially offset by inflation on input costs, led by packaging, and logistics. Adjusted operating margin grew 180 bps versus the year ago period to 14.4%.
BEVERAGE CONCENTRATES
The following table details our Beverage Concentrates segment's net sales, income from operations, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the first six months of 2019 and 2018:
 
For the First Six Months
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
674

 
$
—

 
$
674

 
NM
Income from operations
445

 
—

 
445

 
NM
Adjusted net sales(1)
674

 
649

 
25

 
3.9
%
Adjusted income from operations(1)
447

 
415

 
32

 
7.7

Adjusted operating margin(1)
66.3
%
 
63.9
%
 
 
 
240 bps

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

46


Sales Volume. Sales volume for the first six months of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the first six months of 2019 declined 1.7% due to CSD category volume declines.
Net Sales. Net sales were $674 million for the first six months of 2019, which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales increased 3.9% to $674 million for the first six months of 2019 compared with Adjusted pro forma net sales of $649 million for the first six months of 2018, driven by net price realization of 5.6%, partially offset by lower volume/mix of 1.5% and unfavorable foreign currency translation of 0.2%.
Income from Operations. Income from operations was $445 million for the first six months of 2019, which were wholly incremental as a result of the DPS Merger, as net sales were reduced by SG&A expenses and cost of sales. SG&A expenses were primarily comprised of marketing investments and employee salaries. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs.
Adjusted Income from Operations. Adjusted income from operations increased $32 million, or 7.7%, to $447 million for the first six months of 2019 compared with Adjusted pro forma income from operations of $415 million for the first six months of 2018. This performance reflected the growth in Adjusted net sales as well as timing of marketing investments. Adjusted operating margin grew 240 bps versus the year ago period to 66.3%.
LATIN AMERICA BEVERAGES
The following table details our Latin America Beverages segment's net sales, income from operations, Adjusted net sales, Adjusted income from operations and Adjusted operating margin for the first six months of 2019 and 2018:
 
For the First Six Months
 
Dollar
 
Percent
(in millions)
2019
 
2018
 
Change
 
Change
Net sales
$
257

 
$
—

 
$
257

 
NM
Income from operations
37

 
—

 
37

 
NM
Adjusted net sales(1)
257

 
249

 
8

 
3.2
 %
Adjusted income from operations(1)
32

 
38

 
(6
)
 
(15.8
)
Adjusted operating margin(1)
12.5
%
 
15.3
%
 
 
 
(280 bps)

(1)
Adjusted net sales and Adjusted income from operations are non-GAAP financial measures. For the first six months of 2018, these financial measures were prepared on an adjusted pro forma basis. For a definition of these terms and a reconciliation to the most directly comparable GAAP measures, please see Non-GAAP Financial Measures below.
Sales Volume. Sales volume for the first six months of 2019 were wholly incremental as a result of the DPS Merger.
Adjusted Sales Volume. Adjusted sales volume for the first six months of 2019 declined 5.0% due to the exit of our Aguafiel bulk water business of 4.6% and a decline of 0.4% in the balance of the portfolio.
Net Sales. Net sales were $257 million for the first six months of 2019, which were wholly incremental as a result of the DPS Merger.
Adjusted Net Sales. Adjusted net sales increased 3.2% to $257 million for the first six months of 2019 compared with Adjusted pro forma net sales of $249 million for the first six months of 2018, driven by higher net price realization of 4.0% from pricing actions taken in 2018, partially offset by unfavorable volume/mix of 0.4% and unfavorable foreign currency translation of 0.4%.
Income from Operations. Income from operations was $37 million for the first six months of 2019, which was wholly incremental as a result of the DPS Merger, as net sales were reduced by cost of sales and SG&A expenses. Cost of sales were primarily comprised of ingredients and packaging costs and other manufacturing costs. SG&A expenses were primarily comprised of logistics expense, employee salaries and marketing investments.
Adjusted Income from Operations. Adjusted income from operations decreased $6 million, or 15.8%, to $32 million in the first six months of 2019 compared with Adjusted pro forma income from operations of $38 million in the first six months of 2018. This performance reflected the benefit of net sales growth, which were more than offset by inflation on input costs, logistics and energy, a comparison to a $5 million benefit in the second quarter of 2018 related to a previous reimbursement by a resin supplier and unfavorable foreign currency impacts. Adjusted operating margin declined 280 bps versus the year ago period to 12.5%.

47


CRITICAL ACCOUNTING ESTIMATES
The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Critical accounting estimates are both fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective or complex estimates and assessments. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. These critical accounting estimates are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2018.
LIQUIDITY AND CAPITAL RESOURCES
Trends and Uncertainties Affecting Liquidity
Customer and consumer demand for our products may be impacted by all risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, that could have a material effect on production, delivery and consumption of our products in the U.S., Mexico and the Caribbean or Canada, which could result in a reduction in our sales volume. Similarly, disruptions in financial and credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. These disruptions could have a negative impact on the ability of our customers to timely pay their obligations to us, thus reducing our cash flow, or the ability of our vendors to timely supply materials.
We believe that the following events, trends and uncertainties may also impact liquidity:
•
our intention to drive significant cash flow generation to enable rapid deleveraging within two to three years from the DPS Merger;
•
our ability to issue unsecured commercial paper notes ("Commercial Paper") on a private placement basis up to a maximum aggregate amount outstanding at any time of $2,400 million;
•
our ability to access our other financing arrangements, including the KDP Revolver and 364-Day Credit Agreement, which have availability of $3,150 million as of June 30, 2019;
•
our continued integration of DPS;
•
our continued capital expenditures;
•
our continued payment of dividends;
•
seasonality of our operating cash flows, which could impact short-term liquidity;
•
fluctuations in our tax obligations;
•
future equity investments; and
•
future mergers or acquisitions of brand ownership companies, regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage.
Financing Arrangements
Refer to Note 7 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of financing arrangements.
Liquidity
Based on our current and anticipated level of operations, we believe that our operating cash flows will be sufficient to meet our anticipated obligations for the next twelve months. To the extent that our operating cash flows are not sufficient to meet our liquidity needs, we may utilize cash on hand or amounts available under our financing arrangements, if necessary.
The following table summarizes our cash activity for the first six months of 2019 and 2018:
 
First Six Months
(in millions)
2019
 
2018
Net cash provided by operating activities
$
1,203

 
$
578

Net cash used in investing activities
(114
)
 
(80
)
Net cash (used in) provided by financing activities
(1,080
)
 
7,690


48


NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities increased $625 million for the first six months of 2019, as compared to the first six months of 2018, primarily due to additional cash flows from operations generated as a result of the DPS Merger. The increase in net cash provided by operating activities was driven by the increase in net income adjusted for non-cash items, the deferral of estimated tax payments and the improvement in working capital primarily driven by extended payment terms with our suppliers, partially offset by the payment and deferral of customer incentives.
During the first six months of 2019, the Company deferred estimated tax payments of $150 million, which were paid in July and August 2019, as compared to the deferral of estimated tax payments of $36 million during the first six months of 2018.
Cash Conversion Cycle
Our cash conversion cycle is defined as days inventory outstanding ("DIO") and days sales outstanding ("DSO") less days of payables outstanding ("DPO"). The calculation of each component of the cash conversion cycle is provided below:
Component
 
Calculation (on a trailing twelve month basis)
DIO
 
(Average inventory divided by cost of sales) * Number of days in the period
DSO
 
(Accounts receivable divided by net sales) * Number of days in the period
DPO
 
(Accounts payable * Number of days in the period) divided by cost of sales and SG&A expenses
Our cash conversion cycle declined 42 days to approximately (36) days as of June 30, 2019 as compared to (78) days in the prior year period. The change was primarily driven by a reduction of 64 days in our DPO as the DPS operations had significantly shorter terms than the legacy KGM business. DIO improved 25 days as a result of the DPS Merger. DSO was relatively consistent as compared to the prior year period. In future periods, DPO will continue to have a positive impact on our cash conversion cycle as a result of our supplier terms initiative, which has set our customary terms as we integrate our legacy businesses.
Accounts payable program
We entered into an agreement with a third party administrator to allow participating suppliers to track payment obligations from us, and if elected, sell payment obligations from us to financial institutions. Suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted. We have no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. As of June 30, 2019 and December 31, 2018, $2,096 million and $1,676 million, respectively, of our outstanding payment obligations are payable to suppliers who utilize this third party service administrator.
A significant downgrade in our credit ratings could limit a financial institution's willingness to participate in the accounts payable program. In addition, a significant downgrade in our credit ratings could also reduce the attractiveness of the accounts payable program to participating suppliers who may sell payment obligations from us to financial institutions.
NET CASH USED IN INVESTING ACTIVITIES
Cash used in investing activities for the first six months of 2019 and 2018 consisted primarily of purchases of property, plant and equipment of $118 million and $44 million, respectively.
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Cash used in financing activities for the first six months of 2019 consisted primarily of the voluntary and mandatory repayments on the term loan facility of $848 million, repayment of the 2019 Notes of $250 million, and dividend payments of $423 million. These cash outflows from financing activities were partially offset by net issuance of commercial paper of $381 million and net proceeds from structured payables of $69 million.
Net cash provided by financing activities for the first six months of 2018 consisted primarily of proceeds from senior unsecured notes of $8,000 million obtained in anticipation of funding the DPS Merger, partially offset by repayments on the term loan facility of $254 million, payments on deferred financing fees of $35 million and dividend payments of $23 million.

49


Debt Ratings
As of June 30, 2019, our credit ratings were as follows:
Rating Agency
Long-Term Debt Rating
Commercial Paper Rating
Outlook
Date of Last Change
Moody's
Baa2
P-2
Negative
May 11, 2018
S&P
BBB
A-2
Stable
May 14, 2018
These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash available to fund anticipated obligations.
Capital Expenditures
Capital expenditures were $118 million and $44 million for the first six months of 2019 and 2018, respectively.
Capital expenditures for the first six months of 2019 primarily related to machinery and equipment, our continued investment in the build-out of our new Spartanburg facility, information technology infrastructure, logistics equipment and replacement of existing cold drink equipment. Capital expenditures included in accounts payable and accrued expenses was $205 million for the first six months of 2019, which primarily related to our continued investment in the build-out of our new Spartanburg facility.
Capital expenditures for the first six months of 2018 was primarily related to portion pack manufacturing, information technology infrastructure, and the land for our new Spartanburg facility.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents increased $21 million from December 31, 2018 to June 30, 2019 due to the Company's focus on utilizing cash for debt repayment.
Our cash balances are used to fund working capital requirements, scheduled debt and interest payments, capital expenditures, income tax obligations, dividend payments and business combinations. Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements in those jurisdictions allow. Foreign cash balances were $59 million as of both June 30, 2019 and December 31, 2018. We accrue tax costs for repatriation, as applicable, as cash is generated in those foreign jurisdictions.
Contractual Commitments and Obligations
We enter into various contractual obligations that impact, or could impact, our liquidity. Based on our current and anticipated level of operations, we believe that our proceeds from operating cash flows combined with cash on hand and amounts available under our financing arrangements will be sufficient to meet our anticipated obligations.
The following table summarizes our contractual obligations and contingencies, as of June 30, 2019, that have significantly changed from the amounts disclosed in our Annual Report:
 
Payments Due in Year
 (in millions)
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
After 2023
Long-term obligations(1)
$
13,710

 
$
50

 
$
350

 
$
2,350

 
$
350

 
$
3,885

 
$
6,725

Interest payments
5,013

 
263

 
515

 
481

 
434

 
354

 
2,966

Finance leases(2)
312

 
25

 
48

 
41

 
36

 
32

 
130

Operating leases(3)
406

 
36

 
69

 
56

 
45

 
36

 
164

Purchase obligations(4)
2,695

 
943

 
709

 
261

 
249

 
373

 
160

(1)
Amounts represent payments for the senior unsecured notes issued by us and the term loan credit agreement. Refer to Note 7 for additional information.
(2)
Amounts represent our contractual payment obligations for our lease arrangements classified as finance leases. These amounts exclude renewal options, which were not yet executed but were included in the lease term to determine finance lease obligation as the lease imposes a penalty on us in such amount that the renewal appeared reasonably assured at lease inception. Amounts exclude leases not yet commenced in accordance with ASC 842. Refer to Note 3 for additional information.
(3)
Amounts represent minimum contractual rental commitments under our non-cancelable operating leases. Amounts exclude leases not yet commenced in accordance with ASC 842. Amounts previously recorded as financing obligations were reclassified within operating leases as a result of the adoption of ASC 842. Refer to Note 3 for additional information.
(4)
Amounts represent payments under agreements to purchase goods or services that are legally binding and that specify all significant terms, including capital obligations and long-term contractual obligations.
Through June 30, 2019, there have been no other material changes to the amounts disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

50


OFF-BALANCE SHEET ARRANGEMENTS
There are no material changes in off-balance sheet arrangements from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the Notes to our Unaudited Condensed Consolidated Financial Statements for a discussion of recently issued accounting standards and recently adopted provisions of U.S. GAAP.
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the DPS Merger for the second quarter of 2018, which was consummated on July 9, 2018, based on the historical results of operations of DPS and Maple. See Notes 1 and 2 of the Notes to our unaudited condensed consolidated financial statements for additional information on the DPS Merger.
The following unaudited pro forma condensed combined statement of income for the the second quarter of 2018 is based on the historical financial statements of Maple and DPS after giving effect to the DPS Merger, related equity investments, and the assumptions and adjustments described in the accompanying notes to this unaudited pro forma condensed combined statement of income. The Maple statement of income information for the the second quarter of 2018 was derived from the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. The DPS statement of income information for the second quarter of 2018 was derived from its unaudited condensed consolidated financial statements included in our Form 10-Q dated August 8, 2018. The unaudited pro forma condensed combined statement of income is presented as if the DPS Merger had been consummated on December 31, 2016, and combine the historical results of Maple and DPS.
The unaudited pro forma condensed combined statements of income set forth below primarily give effect to the following assumptions and adjustments:
•Application of the acquisition method of accounting;
•The issuance of Maple common stock to JAB in connection with the equity investments;
•The conversion of Maple Parent Corporation into KDP shares in accordance with the Merger Agreement;
•The pre-closing Maple share conversion;
•The exchange of one share of KDP common stock for each share of DPS common stock;
•The change in year-end for Maple; and
•The alignment of accounting policies.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. We utilized fair values at the Merger Date for the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed.
The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11 and is not necessarily indicative of the results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of our anticipated combined future results. In addition, the accompanying unaudited pro forma condensed combined statements of income do not reflect any anticipated synergies, operating efficiencies, cost savings or any integration costs that may result from the DPS Merger.
The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed combined statements of income to give effect to unaudited pro forma events that are (1) directly attributable to the DPS Merger, (2) factually supportable and (3) are expected to have a continuing impact on the results of operations of KDP. As a result, under SEC Regulation S-X Article 11, certain expenses such as transaction costs and costs associated with the impact of the step-up of inventory are eliminated from pro forma results in all periods presented. In contrast, under the U.S. GAAP presentation in Note 2, Acquisitions and Investments in Unconsolidated Affiliates, these expenses are required to be included in the pro forma results for the year ended December 31, 2017. See Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information.
As a result of the measurement period adjustments for the DPS Merger, we have finalized the accompanying unaudited pro forma condensed combined statements of income during the second quarter of 2019. Changes to the presentation for the year ended December 31, 2018 were not significant.

51


The unaudited pro forma condensed combined financial information, including the related notes, should be read in conjunction with the historical consolidated financial statements and related notes of DPS, and with our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
KEURIG DR PEPPER INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Second Quarter of 2018
(Unaudited)
(in millions, except per share data)
Reported KDP(1)
 
DPS Second Quarter of 2018(2)
 
Reclassifications
 
Pro Forma Adjustments(3)
 
Pro Forma Combined
Net sales
$
949

 
$
1,886

 
$
—

 
$
(13
)
 
$
2,822

Cost of sales
458

 
790

 
—

 
(15
)
 
1,233

Gross profit
491

 
1,096

 
—

 
2

 
1,589

Selling, general and administrative expenses
321

 
721

 
28

 
(50
)
 
1,020

Depreciation and amortization
—

 
28

 
(28
)
 
—

 
—

Other operating income (loss), net
3

 
(15
)
 
—

 
1

 
(11
)
Income from operations
167

 
362

 
—

 
51

 
580

Interest expense
51

 
43

 
—

 
76

 
170

Interest expense - related party
26

 
—

 
—

 
(26
)
 
—

Other income, net
(8
)
 
(2
)
 
3

 
(1
)
 
(8
)
Income before provision for income taxes
98

 
321

 
(3
)
 
2

 
418

Provision for income taxes
13

 
83

 
—

 
(1
)
 
95

Income before equity in loss of unconsolidated affiliates
85

 
238

 
(3
)
 
3

 
323

Equity in loss of unconsolidated affiliates, net of tax
—

 
(3
)
 
3

 
—

 
—

Net income
85

 
235

 
—

 
3

 
323

Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards
2

 
—

 
—

 
(2
)
 
—

Net income attributable to KDP
$
83

 
$
235

 
$
—

 
$
5

 
$
323

Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
0.10

 
$
1.30

 
 
 
 
 
$
0.23

Diluted
0.10

 
1.30

 
 
 
 
 
$
0.23

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
790.5

 
180.2

 
 
 
415.8

 
1,386.5

Diluted
790.5

 
181.1

 
 
 
414.9

 
1,386.5

(1)
Refer to the Statements of Income.
(2)
Refers to DPS's activity during the the second quarter of 2018. Refer to our Quarterly Report on Form 10-Q as filed on August 8, 2018.
(3)
Refer to Summary of Pro Forma Adjustments.


52


KEURIG DR PEPPER INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the First Six Months of 2018
(Unaudited)
(in millions, except per share data)
Reported KDP(1)
 
DPS First Six Months of 2018(2)
 
Reclassifications(3)
 
Pro Forma Adjustments(3)
 
Pro Forma Combined
Net sales
$
1,897

 
$
3,480

 
$
—

 
$
(26
)
 
$
5,351

Cost of sales
925

 
1,471

 
—

 
(28
)
 
2,368

Gross profit
972

 
2,009

 
—

 
2

 
2,983

Selling, general and administrative expenses
621

 
1,347

 
55

 
(99
)
 
1,924

Depreciation and amortization
—

 
55

 
(55
)
 
—

 
—

Other operating income (expense), net
6

 
(14
)
 
—

 
3

 
(5
)
Income from operations
345

 
621

 
—

 
98

 
1,064

Interest expense
49

 
84

 
—

 
182

 
315

Interest expense - related party
51

 
—

 
—

 
(51
)
 
—

Interest income
—

 
(1
)
 
1

 
—

 
—

Loss on early extinguishment of debt
2

 
—

 
—

 
—

 
2

Other expense (income), net
5

 
(2
)
 
8

 
14

 
25

Income before provision for income taxes
238

 
540

 
(9
)
 
(47
)
 
722

Provision for income taxes
64

 
137

 
—

 
(13
)
 
188

Income before equity in loss of unconsolidated affiliates
174

 
403

 
(9
)
 
(34
)
 
534

Equity in loss of unconsolidated affiliates, net of tax
—

 
(9
)
 
9

 
—

 
—

Net income
174

 
394

 
—

 
(34
)
 
534

Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards
3

 
—

 
—

 
(3
)
 
—

Net income attributable to KDP
$
171

 
$
394

 
$
—

 
$
(31
)
 
$
534

Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
0.21

 
$
2.19

 
 
 
 
 
$
0.39

Diluted
0.21

 
2.17

 
 
 
 
 
0.39

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
790.5

 
180.1

 
 
 
415.9

 
1,386.5

Diluted
790.5

 
181.0

 
 
 
415.0

 
1,386.5

(1)
Refer to the Statements of Income.
(2)
Refers to DPS's activity during the the second quarter of 2018. Refer to our Quarterly Report on Form 10-Q as filed on August 8, 2018.
(3)
Refer to Summary of Pro Forma Adjustments.


53


KEURIG DR PEPPER INC.
RECONCILIATION OF PRO FORMA SEGMENT INFORMATION
(Unaudited)
(in millions)
Reported KDP(1)
 
DPS Second Quarter of 2018(2)
 
Pro Forma Adjustments(3)
 
Pro Forma Combined
For the Second Quarter of 2018
 
 
 
 
 
 
 
Net Sales
 
 
 
 
 
 
 
Coffee Systems
$
949

 
$
—

 
$
—

 
$
949

Packaged Beverages
—

 
1,378

 
—

 
1,378

Beverage Concentrates
—

 
372

 
(13
)
 
359

Latin America Beverages
—

 
136

 
—

 
136

Total net sales
$
949

 
$
1,886

 
$
(13
)
 
$
2,822

 
 
 
 
 
 
 
 
Income from Operations
 
 
 
 
 
 
 
Coffee Systems
$
274

 
$
—

 
$
—

 
$
274

Packaged Beverages
—

 
148

 
11

 
159

Beverage Concentrates
—

 
248

 
(13
)
 
235

Latin America Beverages
—

 
26

 
—

 
26

Unallocated corporate costs
(107
)
 
(60
)
 
53

 
(114
)
Total income from operations
$
167

 
$
362

 
$
51

 
$
580


(in millions)
Reported KDP(1)
 
DPS First Six Months of 2018(2)
 
Pro Forma Adjustments(3)
 
Pro Forma Combined
For the First Six Months of 2018
 
 
 
 
 
 
 
Net Sales
 
 
 
 
 
 
 
Coffee Systems
$
1,897

 
$
—

 
$
—

 
$
1,897

Packaged Beverages
—

 
2,556

 
—

 
2,556

Beverage Concentrates
—

 
675

 
(26
)
 
649

Latin America Beverages
—

 
249

 
—

 
249

Total net sales
$
1,897

 
$
3,480

 
$
(26
)
 
$
5,351

 
 
 
 
 
 
 
 
Income from Operations
 
 
 
 
 
 
 
Coffee Systems
$
531

 
$
—

 
$
(3
)
 
$
528

Packaged Beverages
—

 
297

 
20

 
317

Beverage Concentrates
—

 
441

 
(27
)
 
414

Latin America Beverages
—

 
40

 
(2
)
 
38

Unallocated corporate costs
(186
)
 
(157
)
 
110

 
(233
)
Total income from operations
$
345

 
$
621

 
$
98

 
$
1,064

(1)
Refer to the Statements of Income.
(2)
Refers to DPS's activity during the second quarter and first six months of 2018.
(3)
Refer to Summary of Pro Forma Adjustments.

54


Summary of Pro Forma Adjustments
Pro forma adjustments included in the Pro Forma Condensed Combined Statements of Income for the second quarter and first six months of 2018 are as follows:
a.
A decrease in Net sales to remove the historical deferred revenue associated with DPS' arrangements with PepsiCo, Inc. and The Coca-Cola Company, which were eliminated in the fair value adjustments for DPS as part of purchase price accounting in connection with the DPS Merger.
b.
An increase in Net sales to remove the historical amortization of certain capitalized upfront customer incentive program payments. These were eliminated in the fair value adjustments for DPS as these upfront payments were revalued within the customer relationship intangible assets recorded in purchase price accounting.
c.
Adjustment to remove the impact of the step-up of inventory recorded in purchase price accounting.
d.
Adjustments to SG&A expenses due to changes in amortization as a result of the fair value adjustments for DPS' intangible assets with definite lives as part of purchase price accounting.
e.
Adjustments to SG&A expenses due to changes in depreciation as a result of the fair value adjustments for DPS' property, plant and equipment as part of purchase price accounting.
f.
A decrease to SG&A expenses for both DPS and Maple to remove non-recurring transaction costs as a result of the DPS Merger.
g.
Removal of the Interest expense - related party caption for Maple, as the related party debt was capitalized into Additional paid-in capital immediately prior to the DPS Merger.
h.
Adjustments to Interest expense to remove the historical amortization of deferred debt issuance costs, discounts and premiums and to record incremental amortization as a result of the fair value adjustments for DPS' senior unsecured notes as part of purchase price accounting.
i.
Adjustments to Interest expense to record incremental interest expense and amortization of deferred debt issuance costs for borrowings related to the DPS Merger.
j.
Removal of the Net income attributable to employee redeemable non-controlling interest and mezzanine equity awards caption as the Maple non-controlling interest was eliminated to reflect the capital structure of KDP.
Summary of Reclassifications
Reclassifications included in the Pro Forma Condensed Combined Statements of Income for the second quarter and first six months of 2018 are as follows:
a.
Foreign currency transaction gains and losses were reclassified from Cost of sales and SG&A expenses in the historical DPS Statements of Income to Other (income) expense, net.
b.
Depreciation and amortization expenses were reclassified from Depreciation and amortization in the historical DPS Statements of Income to SG&A expenses.
c.
Interest income was reclassified from Interest income in the historical DPS Statements of Income to Other (income) expense, net.
NON-GAAP FINANCIAL MEASURES
To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented in this report selected unaudited pro forma combined financial information. We also present for the second quarter and first six months of 2019 (i) Adjusted net sales, (ii) Adjusted income from operations, (iii) Adjusted net income and (iv) Adjusted diluted EPS and for the first quarter of 2018 (i) Adjusted pro forma net sales, (ii) Adjusted pro forma income from operations, (iii) Adjusted pro forma net income and (iv) Adjusted pro forma diluted EPS, which are considered non-GAAP financial measures. This pro forma financial information and non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. The adjusted measures are not substitutes for their comparable U.S. GAAP financial measures, such as net sales, income from operations, net income, diluted EPS, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.
For the second quarter and first six months of 2019, we define our Adjusted non-GAAP financial measures as certain financial statement captions and metrics adjusted for certain items affecting comparability, while for the second quarter and first six months of 2018, we define our Adjusted non-GAAP financial measures as certain pro forma financial statement captions and metrics adjusted for certain items affecting comparability. The items affecting comparability are defined below.

55


Items affecting comparability: Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP and do not have an offsetting risk reflected within the financial results; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger and Maple's acquisition of Keurig Green Mountain, Inc. in 2016 (the "Keurig Acquisition"); (iv) the amortization of the fair value adjustment of the senior unsecured notes obtained as a result of the DPS Merger; (v) stock compensation expense attributable to the matching awards made to employees who made an initial investment in the Keurig Green Mountain, Inc. Executive Ownership Plan or the Keurig Dr Pepper Omnibus Incentive Plan of 2009; and (vi) other certain items that are excluded for comparison purposes to prior year periods.
Prior to the second quarter of 2019, we did not add back the amortization of the fair value adjustment of the senior unsecured debt recognized as a result of the purchase price allocation for the DPS Merger. As this item is similar to the amortization of intangibles, we changed our method of computing Adjusted Pro Forma (2018) and Adjusted GAAP (2019) results to exclude the amortization of the fair value adjustment of the senior unsecured notes in order to reflect how management views our business results on a consistent basis.
For the second quarter and first six months of 2019, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to the DPS Merger and the Keurig Acquisition; (ii) productivity expenses; (iii) transaction costs not associated with the DPS Merger; (iv) provision for legal settlements; (v) the impact of the step-up of acquired inventory not associated with the DPS Merger (vi) the loss on early extinguishment of debt related to the redemption of debt and (vii) the loss related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment, as discussed in our Annual Report on Form 10-K.
For the second quarter and first six months of 2018, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to the DPS Merger and the Keurig Acquisition; (ii) productivity expenses; (iii) provisions for legal settlements; (iv) the loss on early extinguishment of debt related to the redemption of debt; and (v) tax reform associated with the TCJA.
For the second quarter and first six months of 2019, the supplemental financial data set forth below includes reconciliations of Adjusted net sales, Adjusted income from operations, Adjusted net income and Adjusted diluted EPS to the applicable financial measure presented in the unaudited condensed consolidated financial statement for the same period. For the second quarter and first six months of 2018, the supplemental financial data set forth below includes reconciliations of Adjusted pro forma net sales, Adjusted pro forma income from operations, Adjusted pro forma net income and Adjusted pro forma diluted EPS to the applicable financial measure presented in the unaudited pro forma condensed combined financial statements for the same period. For a reconciliation of the applicable financial measure presented in the unaudited pro forma condensed combined financial statement for the second quarter and first six months of 2018 to the applicable historical financial measure presented in accordance with U.S. GAAP, please see "Supplemental Unaudited Pro Forma Condensed Combined Financial Information" above.


56


KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS
For the Second Quarter of 2019
(Unaudited, in millions, except per share data)
 
Cost of sales
 
Gross profit
 
Gross margin
 
Selling, general and administrative expenses
 
Other operating expense, net
 
Income from operations
 
Operating margin
Reported
$
1,186

 
$
1,626

 
57.8
%
 
$
1,028

 
$
11

 
$
587

 
20.9
%
Items Affecting Comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mark to market
11

 
(11
)
 
 
 
(3
)
 
—

 
(8
)
 
 
Amortization of intangibles
—

 
—

 
 
 
(32
)
 
—

 
32

 
 
Stock compensation
—

 
—

 
 
 
(8
)
 
—

 
8

 
 
Restructuring and integration costs
(1
)
 
1

 
 
 
(37
)
 
—

 
38

 
 
Productivity
(1
)
 
1

 
 
 
(23
)
 
(9
)
 
33

 
 
Transaction costs
—

 
—

 
 
 
(1
)
 
—

 
1

 
 
Provision for settlements
—

 
—

 
 
 
(8
)
 
—

 
8

 
 
Malware Incident
—

 
—

 
 
 
(3
)
 
—

 
3

 
 
Adjusted GAAP
$
1,195

 
$
1,617

 
57.5
%
 
$
913

 
$
2

 
$
702

 
25.0
%
 
Interest expense
 
Other expense (income), net
 
Income before provision for income taxes
 
Provision for income taxes
 
Effective tax rate
 
Net income
 
Weighted Average Diluted shares
 
Diluted earnings per share
Reported
$
170

 
$
1

 
$
416

 
$
102

 
24.5
%
 
$
314

 
1,419
 
$
0.22

Items Affecting Comparability:
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Mark to market
(16
)
 
(2
)
 
10

 
4

 
 
 
6

 
 
 
—

Amortization of intangibles
—

 
—

 
32

 
9

 
 
 
23

 
 
 
0.02

Amortization of deferred financing costs
(3
)
 
—

 
3

 
1

 
 
 
2

 
 
 
—

Amortization of fair value debt adjustment
(6
)
 
—

 
6

 
1

 
 
 
5

 
 
 
—

Stock compensation
—

 
—

 
8

 
2

 
 
 
6

 
 
 
—

Restructuring and integration costs
—

 
—

 
38

 
11

 
 
 
27

 
 
 
0.02

Productivity
—

 
—

 
33

 
7

 
 
 
26

 
 
 
0.02

Transaction costs
(7
)
 
—

 
8

 
2

 
 
 
6

 
 
 
—

Provision for settlements
—

 
—

 
8

 
2

 
 
 
6

 
 
 
—

Malware Incident
—

 
—

 
3

 
1

 
 
 
2

 
 
 
—

Adjusted GAAP
$
138

 
$
(1
)
 
$
565

 
$
142

 
25.1
%
 
$
423

 
1,419

 
$
0.30

Diluted earnings per common share may not foot due to rounding.


57


KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS
For the Second Quarter of 2018
(Unaudited, in millions, except per share data)
 
Cost of sales
 
Gross profit
 
Gross margin
 
Selling, general and administrative expenses
 
Income from operations
 
Operating margin
Pro Forma
$
1,233

 
$
1,589

 
56.3
%
 
$
1,020

 
$
580

 
20.6
%
Items Affecting Comparability:
 
 
 
 
 
 
 
 
 
 
 
Mark to market
(2
)
 
2

 
 
 
9

 
(7
)
 
 
Amortization of intangibles
—

 
—

 
 
 
(31
)
 
31

 
 
Stock compensation
—

 
—

 
 
 
(6
)
 
6

 
 
Restructuring and integration costs
—

 
—

 
 
 
(33
)
 
33

 
 
Productivity
(2
)
 
2

 
 
 
7

 
(5
)
 
 
Provision for settlements
—

 
—

 
 
 
(2
)
 
2

 
 
Adjusted Pro Forma
$
1,229

 
$
1,593

 
56.4
%
 
$
964

 
$
640

 
22.7
%
 
Interest expense
 
Other expense (income), net
 
Income before provision for income taxes
 
Provision for income taxes
 
Effective tax rate
 
Net income
 
Weighted Average Diluted shares
 
Diluted earnings per share
Pro Forma
$
170

 
$
(8
)
 
$
418

 
$
95

 
22.7
%
 
$
323

 
1,386.5
 
$
0.23

Items Affecting Comparability:
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Mark to market
10

 
2

 
(19
)
 
(5
)
 
 
 
(14
)
 
 
 
(0.01
)
Amortization of intangibles
—

 
—

 
31

 
8

 
 
 
23

 
 
 
0.02

Amortization of fair value debt adjustment
(5
)
 
—

 
5

 
1

 
 
 
4

 
 
 
—

Stock compensation
—

 
—

 
6

 
—

 
 
 
6

 
 
 
—

Restructuring and integration costs
—

 
—

 
33

 
6

 
 
 
27

 
 
 
0.02

Productivity
—

 
—

 
(5
)
 
(1
)
 
 
 
(4
)
 
 
 
—

Provision for settlements
—

 
—

 
2

 
1

 
 
 
1

 
 
 
—

Tax reform
—

 
—

 
—

 
10

 
 
 
(10
)
 
 
 
(0.01
)
Adjusted Pro Forma
$
175

 
$
(6
)
 
$
471

 
$
115

 
24.4
%
 
$
356

 
1,386.5
 
$
0.26

Numbers may not foot due to rounding.

58


KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS
For the First Six Months of 2019
(Unaudited, in millions, except per share data)
 
Cost of sales
 
Gross profit
 
Gross margin
 
Selling, general and administrative expenses
 
Other operating expense, net
 
Income from operations
 
Operating margin
Reported
$
2,292

 
$
3,024

 
56.9
%
 
$
1,939

 
$
—

 
$
1,085

 
20.4
%
Items Affecting Comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mark to market
(1
)
 
1

 
 
 
9

 
—

 
(8
)
 
 
Amortization of intangibles
—

 
—

 
 
 
(63
)
 
—

 
63

 
 
Stock compensation
—

 
—

 
 
 
(15
)
 
—

 
15

 
 
Restructuring and integration costs
(2
)
 
2

 
 
 
(97
)
 
—

 
99

 
 
Productivity
(4
)
 
4

 
 
 
(29
)
 
(9
)
 
42

 
 
Transaction costs
—

 
—

 
 
 
(1
)
 
—

 
1

 
 
Inventory Step-Up
(3
)
 
3

 
 
 
—

 
—

 
3

 
 
Provision for settlements
—

 
—

 
 
 
(15
)
 
—

 
15

 
 
Malware Incident
(2
)
 
2

 
 
 
(6
)
 
—

 
8

 
 
Adjusted GAAP
$
2,280

 
$
3,036

 
57.1
%
 
$
1,722

 
$
(9
)
 
$
1,323

 
24.9
%
 
Interest expense
 
Loss on early extinguishment of debt
 
Income before provision for income taxes
 
Provision for income taxes
 
Effective tax rate
 
Net income
 
Weighted Average Diluted shares
 
Diluted earnings per share
Reported
$
339

 
$
9

 
$
731

 
$
187

 
25.6
%
 
$
544

 
1,418.5
 
$
0.38

Items Affecting Comparability:
 
 
 
 
—

 
 
 
 
 
—

 
 
 
 
Mark to market
(45
)
 
—

 
37

 
11

 
 
 
26

 
 
 
0.02

Amortization of intangibles
—

 
—

 
63

 
17

 
 
 
46

 
 
 
0.03

Amortization of deferred financing costs
(7
)
 
—

 
7

 
2

 
 
 
5

 
 
 
—

Amortization of fair value debt adjustment
(13
)
 
—

 
13

 
2

 
 
 
11

 
 
 
0.01

Stock compensation
—

 
—

 
15

 
4

 
 
 
11

 
 
 
0.01

Restructuring and integration costs
—

 
—

 
99

 
26

 
 
 
73

 
 
 
0.05

Productivity
—

 
—

 
42

 
9

 
 
 
33

 
 
 
0.02

Transaction costs
(12
)
 
—

 
13

 
3

 
 
 
10

 
 
 
0.01

Loss on early extinguishment of debt
—

 
(9
)
 
9

 
2

 
 
 
7

 
 
 
—

Inventory Step-Up
—

 
—

 
3

 
1

 
 
 
2

 
 
 
—

Provision for settlements
—

 
—

 
15

 
4

 
 
 
11

 
 
 
0.01

Malware Incident
—

 
—

 
8

 
2

 
 
 
6

 
 
 
—

Adjusted GAAP
$
262

 
$
—

 
$
1,055

 
$
270

 
25.6
%
 
$
785

 
1,418.5
 
$
0.55

Diluted earnings per common share may not foot due to rounding.

59


KEURIG DR PEPPER INC.
RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS
For the First Six Months of 2018
(Unaudited, in millions, except per share data)
 
Net sales
 
Cost of sales
 
Gross profit
 
Gross margin
 
Selling, general and administrative expenses
 
Other operating expense, net
 
Income from operations
 
Operating margin
Pro Forma
$
5,351

 
$
2,368

 
$
2,983

 
55.7
%
 
$
1,924

 
$
(5
)
 
$
1,064

 
19.9
%
Items Affecting Comparability:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mark to market
—

 
(16
)
 
16

 
 
 
9

 
—

 
7

 
 
Amortization of intangibles
—

 
—

 
—

 
 
 
(59
)
 
—

 
59

 
 
Stock compensation
—

 
—

 
—

 
 
 
(12
)
 
—

 
12

 
 
Restructuring and integration costs
—

 
—

 
—

 
 
 
(39
)
 
—

 
39

 
 
Productivity
—

 
(6
)
 
6

 
 
 
(7
)
 
(4
)
 
17

 
 
Provision for settlements
4

 
—

 
4

 
 
 
—

 
—

 
4

 
 
Adjusted Pro Forma
$
5,355

 
$
2,346

 
$
3,009

 
56.2
%
 
$
1,816

 
$
(9
)
 
$
1,202

 
22.4
%
 
Interest expense
 
Loss on early extinguishment of debt
 
Other expense (income), net
 
Income before provision for income taxes
 
Provision for income taxes
 
Effective tax rate
 
Net income
 
Weighted Average Diluted shares
 
Diluted earnings per share
Pro Forma
$
315

 
$
2

 
$
25

 
$
722

 
$
188

 
26.0
%
 
$
534

 
1,386.5
 
$
0.39

Items Affecting Comparability:
 
 
 
 
 
 
—

 
 
 
 
 

 
 
 
 
Mark to market
37

 
—

 
6

 
(36
)
 
(9
)
 
 
 
(27
)
 
 
 
(0.02
)
Amortization of intangibles
—

 
—

 
—

 
59

 
15

 
 
 
44

 
 
 
0.03

Amortization of deferred financing costs
(1
)
 
—

 
—

 
1

 
1

 
 
 
—

 
 
 
—

Amortization of fair value debt adjustment
(10
)
 
—

 
—

 
10

 
2

 
 
 
8

 
 
 
0.01

Stock compensation
—

 
—

 
—

 
12

 
2

 
 
 
10

 
 
 
0.01

Restructuring and integration costs
—

 
—

 
—

 
39

 
6

 
 
 
33

 
 
 
0.02

Productivity
—

 
—

 
—

 
17

 
5

 
 
 
12

 
 
 
0.01

Loss on early extinguishment of debt
—

 
(2
)
 
—

 
2

 
—

 
 
 
2

 
 
 
—

Provision for settlements
—

 
—

 
—

 
4

 
1

 
 
 
3

 
 
 
—

Tax reform
—

 
—

 
—

 
—

 
7

 
 
 
(7
)
 
 
 
(0.01
)
Adjusted Pro Forma
$
341

 
$
—

 
$
31

 
$
830

 
$
218

 
26.3
%
 
$
612

 
1,386.5
 
$
0.44

Numbers may not foot due to rounding.


60


Keurig Dr Pepper Inc.
Reconciliation of Pro Forma Segment Information to Certain Non-GAAP Adjusted Pro Forma Segment Information
(Unaudited)
(in millions)
Reported
 
Items Affecting Comparability
 
Adjusted GAAP
For the second quarter of 2019:
 
 
 
 
 
Net Sales
 
 
 
 
 
Coffee Systems
$
990

 
$
—

 
$
990

Packaged Beverages
1,311

 
—

 
1,311

Beverage Concentrates
370

 
—

 
370

Latin America Beverages
141

 
—

 
141

Total net sales
$
2,812

 
$
—

 
$
2,812

 
 
 
 
 
 
Income from Operations
 
 
 
 
 
Coffee Systems
$
287

 
$
44

 
$
331

Packaged Beverages
186

 
4

 
190

Beverage Concentrates
244

 
2

 
246

Latin America Beverages
26

 
(6
)
 
20

Unallocated corporate costs
(156
)
 
71

 
(85
)
Total income from operations
$
587

 
$
115

 
$
702

(in millions)
Pro Forma
 
Items Affecting Comparability
 
Adjusted Pro Forma
For the second quarter of 2018:
 
 
 
 
 
Net Sales
 
 
 
 
 
Coffee Systems
$
949

 
$
—

 
$
949

Packaged Beverages
1,378

 
—

 
1,378

Beverage Concentrates
359

 
—

 
359

Latin America Beverages
136

 
—

 
136

Total net sales
$
2,822

 
$
—

 
$
2,822

 
 
 
 
 
 
Income from Operations
 
 
 
 
 
Coffee Systems
$
274

 
$
32

 
$
306

Packaged Beverages
159

 
2

 
161

Beverage Concentrates
235

 
1

 
236

Latin America Beverages
26

 
—

 
26

Unallocated corporate costs
(114
)
 
25

 
(89
)
Total income from operations
$
580

 
$
60

 
$
640


61


KEURIG DR PEPPER INC.
RECONCILIATION OF SEGMENT ITEMS TO CERTAIN NON-GAAP ADJUSTED SEGMENT ITEMS
(Unaudited)
(in millions)
Reported
 
Items Affecting Comparability
 
Adjusted GAAP
For the first six months of 2019:
 
 
 
 
 
Net Sales
 
 
 
 
 
Coffee Systems
$
1,958

 
$
—

 
$
1,958

Packaged Beverages
2,427

 
—

 
2,427

Beverage Concentrates
674

 
—

 
674

Latin America Beverages
257

 
—

 
257

Total net sales
$
5,316

 
$
—

 
$
5,316

 
 
 
 
 
 
Income from Operations
 
 
 
 
 
Coffee Systems
$
580

 
$
86

 
$
666

Packaged Beverages
335

 
15

 
350

Beverage Concentrates
445

 
2

 
447

Latin America Beverages
37

 
(5
)
 
32

Unallocated corporate costs
(312
)
 
140

 
(172
)
Total income from operations
$
1,085

 
$
238

 
$
1,323

(in millions)
Pro Forma
 
Items Affecting Comparability
 
Adjusted Pro Forma
For the first six months of 2018:
 
 
 
 
 
Net Sales
 
 
 
 
 
Coffee Systems
$
1,897

 
$
4

 
$
1,901

Packaged Beverages
2,556

 
—

 
2,556

Beverage Concentrates
649

 
—

 
649

Latin America Beverages
249

 
—

 
249

Total net sales
$
5,351

 
$
4

 
$
5,355

 
 
 
 
 
 
Income from Operations
 
 
 
 
 
Coffee Systems
$
528

 
$
90

 
$
618

Packaged Beverages
317

 
4

 
321

Beverage Concentrates
414

 
1

 
415

Latin America Beverages
38

 
—

 
38

Unallocated corporate costs
(233
)
 
43

 
(190
)
Total income from operations
$
1,064

 
$
138

 
$
1,202




62


ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading.
FOREIGN EXCHANGE RISK
The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As of June 30, 2019, the impact to our income from operations of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $32 million on an annual basis.
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of June 30, 2019, we had derivative contracts outstanding with a notional value of $475 million maturing at various dates through September 25, 2024.
INTEREST RATE RISK
We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable rate debt. As of June 30, 2019, the carrying value of our fixed-rate debt, excluding lease obligations, was $11,785 million and our variable-rate debt was $3,185 million, inclusive of commercial paper.
Additionally, as of June 30, 2019, the total notional value of receive-fixed, pay-variable interest rate swaps was $50 million and the total notional value of receive-variable, pay-fixed interest rate swaps was $575 million.
The following table is an estimate of the impact to our interest rate expense based upon our variable rate debt and derivative instruments and the fair value of the interest rate swaps that could result from hypothetical interest rate changes during the term of the financial instruments, based on debt levels as of June 30, 2019:
 
 
 
Hypothetical Change in Interest Rates(1)
 
Annual Impact to Interest Expense
1-percent decrease
 
$27 million decrease
1-percent increase
 
$27 million increase
(1)
We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of certain derivative instruments and variable rate debt instruments. See Notes 7 and 8 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
COMMODITY RISKS
We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of coffee beans, PET, aluminum, diesel fuel, corn (for high fructose corn syrup), apple juice concentrate, apples, sucrose and natural gas (for use in processing and packaging).
We utilize commodities derivative instruments and supplier pricing agreements to hedge the risk of adverse movements in commodity prices for limited time periods for certain commodities. The fair market value of these contracts as of June 30, 2019 was a net liability of $18 million.
As of June 30, 2019, the impact of a 10% change (up or down) in market prices for these commodities where the risk of adverse movements has not been hedged is estimated to have a $5 million impact to our income from operations for the year ending December 31, 2019.

63
Table of Contents


ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, as of June 30, 2019, our disclosure controls and procedures are effective to (i) provide reasonable assurance that information required to be disclosed in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and (ii) ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
As described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, the DPS Merger was completed on July 9, 2018, and represented a change in internal control over financial reporting. Management continues to consolidate and integrate KDP’s system of controls. The processes and controls for significant areas including business combinations, intangibles and goodwill valuations, income taxes, treasury, consolidations and the preparation of financial statements and related disclosures, and entity level controls have been substantially impacted by the ongoing integration activities. The primary changes in these areas are related to the consolidation of process owner leadership and control owners, and where required, the modification of inputs, processes and associated systems. For all areas of change noted, management believes the control design and implementation thereof are being appropriately modified to address underlying risks. The above ongoing integration activities to KDP’s internal control over financial reporting are reasonably likely to materially affect KDP’s internal control over financial reporting in 2019.
In addition, the Company adopted ASC 842 as of January 1, 2019. The Company implemented a new IT system and internal controls related to the process of gathering, recording, accounting for and disclosing leases under the new standard.
There were no other changes during the quarter ended June 30, 2019 that have materially affected, or reasonably likely to materially affect, our internal controls over financial reporting.

64
Table of Contents


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

BA Sports Nutrition Litigation
On March 6, 2019, The American Bottling Company ("ABC"), a subsidiary of KDP, filed suit against BA and Mike Repole in the Superior Court for the State of Delaware. The complaint asserts claims for breach of contract and promissory estoppel against BA and asserts a claim for tortious interference against Mr. Repole, in each case in connection with BA's attempted early termination of the distribution contract between BA and ABC. The complaint seeks monetary damages, attorneys' fees and costs. ABC intends to vigorously prosecute the action. The Company is unable to predict the outcome of the lawsuit, the potential recovery, if any, associated with the resolution of the lawsuit or any potential effect it may have on the Company or its operations.
ITEM 1A. Risk Factors
Deterioration of general macro-economic conditions could have a negative impact on our business, financial condition, results of operations and liquidity due to impacts on our suppliers, customers and operating costs.
Our business depends on developing and maintaining close relationships with our suppliers and on our suppliers’ ability and willingness to sell quality products to us at favorable prices and terms. Many factors outside our control may harm these relationships and the ability or willingness of these suppliers to sell us products on favorable terms. Such factors include a general decline in the economy and economic conditions and prolonged recessionary conditions. These events could negatively affect our suppliers’ operations and make it difficult for them to obtain the credit lines or loans necessary to finance their operations in the short-term or long-term and meet our product requirements.
Financial or operational difficulties that some of our suppliers may face, including their ability to access working capital, could also increase the cost of the products we purchase from them, the timing of settlement for our obligation to the supplier or our ability to source product from them. We might not be able to pass our increased costs onto our customers and, to the extent these difficulties impact the timing of settlement for our obligation to the supplier, we may have a decrease in our cash flow from operations and may have to use our various financing arrangements for short-term liquidity needs.
There have been no other material changes that we are aware of from the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

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ITEM 6. Exhibits
2.1
Separation and Distribution Agreement between Cadbury Schweppes plc and Dr Pepper Snapple Group, Inc. and, solely for certain provisions set forth therein, Cadbury plc, dated as of May 1, 2008 (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (filed on May 5, 2008) and incorporated herein by reference).
2.2
Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K (filed on November 23, 2016) and incorporated herein by reference).
2.3
Amendment No. 1, dated as of January 31, 2017, to the Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K (filed on January 31, 2017) and incorporated herein by reference).
2.4
Agreement and Plan of Merger, dated as of January 29, 2018, by and among Dr Pepper Snapple Group, Inc., Maple Parent Holdings Corp. and Salt Merger Sub, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (filed on January 31, 2018) and incorporated herein by reference).
3.1
Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
3.2
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 17, 2012 (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (filed July 26, 2012) and incorporated herein by reference).
3.3
Certificate of Second Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 19, 2016 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed May 20, 2016) and incorporated herein by reference).
3.4
Certificate of Third Amendment to the Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of July 9, 2018 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 9, 2018) and incorporate herein by reference).
3.5
Amended and Restated By-Laws of Dr Pepper Snapple Group, Inc. effective as of January 25, 2016 (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K (filed January 25, 2016) and incorporated herein by reference).
3.6
Amended and Restated By-Laws of Keurig Dr Pepper Inc. effective as of July 9, 2018 (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K (filed July 9, 2018) and incorporated herein by reference.
4.1
Indenture, dated April 30, 2008, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A. (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.2
Form of 7.45% Senior Notes due 2038 (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.3
Registration Rights Agreement, dated April 30, 2008, between Dr Pepper Snapple Group, Inc., J.P. Morgan Securities Inc., Banc of America Securities LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, UBS Securities LLC, BNP Paribas Securities Corp., Mitsubishi UFJ Securities International plc, Scotia Capital (USA) Inc., SunTrust Robinson Humphrey, Inc., Wachovia Capital Markets, LLC and TD Securities (USA) LLC (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
4.4
Registration Rights Agreement Joinder, dated May 7, 2008, by the subsidiary guarantors named therein (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
4.5
Supplemental Indenture, dated May 7, 2008, among Dr Pepper Snapple Group, Inc., the subsidiary guarantors named therein and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
4.6
Second Supplemental Indenture dated March 17, 2009, to be effective as of December 31, 2008, among Splash Transport, Inc., as a subsidiary guarantor, Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K (filed on March 26, 2009) and incorporated herein by reference).
4.7
Third Supplemental Indenture, dated October 19, 2009, among 234DP Aviation, LLC, as a subsidiary guarantor; Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q (filed November 5, 2009) and incorporated herein by reference).
4.8
Fourth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184 Innovations Inc., a Delaware corporation (each as a new subsidiary guarantors under the Indenture dated April 30, 2008 (as referenced in Item 4.1 in this Exhibit Index), Dr Pepper Snapple Group, Inc., each other then-existing Guarantor under the Indenture and Wells Fargo, National Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed February 2, 2017) and incorporated herein by reference).
4.9
Indenture, dated as of December 15, 2009, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
Second Supplemental Indenture, dated as of January 11, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on January 11, 2011) and incorporated herein by reference).

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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).
Investor Rights Agreement by and among Keurig Dr Pepper Inc. and The Holders Listed on Schedule A thereto, dated as of July 9, 2018 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Base Indenture, dated as of May 25, 2018 between Maple Escrow Subsidiary and Wells Fargo Bank, N.A. as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
First Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2021 Notes (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).

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Second Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2023 Notes (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Third Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2025 Notes (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Fourth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2028 Notes (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Fifth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2038 Notes (filed as Exhibit 4.6 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Sixth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2048 Notes (filed as Exhibit 4.7 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Seventh Supplemental Indenture, dated as of July 9, 2018, among Keurig Dr Pepper Inc., the subsidiary guarantors thereto, and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Registration Rights Agreement, dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representative of the several purchasers of the Notes (filed as Exhibit 4.9 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Joinder to the Registration Rights Agreement, dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representative of the several purchasers of the Notes (filed as Exhibit 4.10 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Term Loan Agreement, dated as of February 28, 2018, among Maple Parent Holdings Corp., the banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Term Loan Agreement, dated as of February 8, 2019, among Keurig Dr Pepper Inc., the banks party thereto and JPMorgan Chase, Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on February 11, 2019) and incorporated herein by reference).
Credit Agreement, dated as of February 28, 2018, among Maple Parent Holdings Corp., the banks and issuers of credit party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Borrower Joinder (Term Loan Agreement), dated as of July 9, 2018, among Keurig Dr Pepper Inc., Maple Parent Holdings Corp. and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Borrower Joinder (Credit Agreement), dated as of July 9, 2018, among Keurig Dr Pepper Inc., Maple Parent Holdings Corp. and JPMorgan Chase Bank, N.A. as administrative agent (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Credit Agreement, dated as of May 29, 2019, among Keurig Dr Pepper Inc., the banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on May 29, 2019) and incorporated herein by reference).

Amended and Restated Employment Agreement, dated as of July 2, 2018, by and between Keurig Green Mountain, Inc. and Robert J. Gamgort (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Employment Agreement, dated as of April 12, 2016, by and between Keurig Green Mountain, Inc. and Ozan Dokmecioglu (filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Matching Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Directors' Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Keurig Dr Pepper Inc. Omnibus Stock Incentive Plan of 2019 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on June 11, 2019) and incorporated herein by reference).++

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Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Stock Incentive Plan of 2019.* ++
Matching Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Stock Incentive Plan of 2019.* ++
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 Keurig Dr Pepper Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statement of Changes in Stockholders' Equity, and (vi) the Notes to Condensed Consolidated Financial Statements. The Instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
* Filed herewith.
** Furnished herewith.
++ Indicates a management contract or compensatory plan or arrangement.


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

 
Keurig Dr Pepper Inc.
 
 
 
 
 
 
 
By:
 
/s/ Ozan Dokmecioglu
 
 
 
 
 
 
Name:
 
Ozan Dokmecioglu
 
 
Title:
 
Chief Financial Officer of Keurig Dr Pepper Inc.
 
 
 
 
(Principal Financial Officer)
 
Date: August 8, 2019
 
 
 
 


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Exhibit 10.13

Restricted Stock Unit Award
Terms and Conditions
Under
KEURIG DR PEPPER INC. OMNIBUS STOCK INCENTIVE PLAN OF 2019

This instrument (the “Terms and Conditions”) evidences the grant effective on _________ (the “Grant Date”) of an award of restricted stock units (the “Restricted Stock Units”) by Keurig Dr Pepper Inc., a Delaware corporation (the “Company”), under the Keurig Dr Pepper Inc. Omnibus Stock Incentive Plan of 2019, as amended (the “Plan”). Any term capitalized but not defined in these Terms and Conditions will have the meaning set forth in the Plan.
1.
Restricted Stock Unit Grant. In accordance with the terms of the Plan and subject to these Terms and Conditions, as of the Grant Date you are hereby granted the number of Restricted Stock Units in the shares of the Common Stock of the Company (each, a “Share”) as set forth in your award notice (the “Award”). The Restricted Stock Units, and any Shares acquired upon settlement thereof, are subject to the following terms and conditions and to the provisions of the Plan, the terms of which are incorporated by reference herein.  
2.
Vesting Period.
(a)
In General. The Restricted Stock Units shall vest on ___________ provided that you have remained in continuous Service through such date.
(b)
Death or Disability. The Restricted Stock Units shall vest in full in the event of your termination of Service by reason of death or Disability.
(c)
Retirement. If before the Restricted Stock Units have otherwise become vested your Service terminates due to Retirement, then the Restricted Stock Units shall (i) immediately become vested with respect to that portion of the Restricted Stock Units determined by multiplying the Restricted Stock Units by a fraction, the numerator of which is the number of complete months elapsed from the Grant Date of this Award to the date of your Retirement and the denominator of which is 60, and (ii) be immediately forfeited and canceled with respect to the remaining Restricted Stock Units. For purposes of this Agreement, “Retirement” means your termination of Service (other than a termination of Service for Cause) after attaining age 60 and having completed at least 5 years of continuous service with the Company and its Subsidiaries or any of their respective affiliates.
(d)
Change in Control. In the event of a Change in Control, any Restricted Stock Units then outstanding shall continue in effect or shall become vested and payable, in either case, as provided in, and subject to the conditions of, Section 4. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following:
(i)
any person or “group” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or JAB Holding Company S.a.r.l and any successor thereto (the “Parent”), or any affiliate of the Company or the Parent, is or becomes the “beneficial owner” (as defined below), directly or indirectly, of securities representing more than 50% of the combined voting power of the Company’s then outstanding securities.  For purposes of this clause

1


(i), “beneficial owner” has the meaning given that term in Rule 13d‑3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the 60-day period referred to in such Rule; or
(ii)
the consummation of a plan or agreement approved by the Company’s or the Parent’s shareholders, providing (i) for a merger or consolidation of the Company (other than with a wholly owned subsidiary of such entity and other than a merger or consolidation that would result in the voting securities of such entity outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of such entity or such surviving entity outstanding immediately after such merger or consolidation or (ii) for a sale, exchange or other disposition of all or substantially all of the business or assets of the Company.
(e)
Service. For purposes of this Agreement, “Service” means the provision of services in the capacity of an employee or Director. For purposes of this Agreement, “Director” means any person who is not an employee and who is serving as a member of the Board of Directors of the Company (the “Board”), the board of directors or equivalent governing body of any of the Company’s subsidiaries or affiliates. If, upon termination of employment with the Company, any Subsidiary or any of their respective affiliates, you become or continue to serve as a member of the Board or the board of directors of such an affiliate you shall not be deemed to have had an interruption in Service. For this purpose, years of service shall be based on the period of time elapsed from your commencement of services (whether as an employee of Director) with the Company, any of its Subsidiaries or any of their respective affiliates to the date such services terminate, whether due to Retirement, death, Disability or for any other reason. A transfer of Service from the Company to a Subsidiary or an affiliate or from an affiliate of the Company to the Company, a Subsidiary or another affiliate of the Company shall not constitute a termination of Service. All determinations regarding Service, including whether any leave of absence is a termination of Service, shall be made by the Remuneration and Nomination Committee (the “Committee”).
3.
Settlement of Restricted Stock Units.
(a)
Timing of Settlement. The Shares related to such vested Restricted Stock Units shall be delivered promptly (and in all events within 60 days) following the date such Restricted Stock Units vest pursuant to Section 2 hereof.
(b)
Withholding Obligation. Upon settlement of any Restricted Stock Units, all federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld (each, a “Withholding Tax”) must be satisfied. You may satisfy the Withholding Tax pursuant to such procedures as the Committee may specify from time to time, by either (i) paying the amount of required Withholding Tax to the Company in cash, (ii) electing to have the Company sell that number of whole Shares that you have acquired through the vesting of Restricted Stock Units having a Fair Market Value at least equal to the amount of the required Withholding Tax, (iii) electing to have the Company withhold

2


Shares otherwise issuable in respect of the Restricted Stock Units having a Fair Market Value at least equal to the amount of the required Withholding Tax, or (iv) a combination of the foregoing; provided, however, that if and to the extent that the Withholding Tax is satisfied using Shares issuable in settlement of the Restricted Stock Units, the applicable Withholding Tax shall be based on no more than the statutory maximum amount for the applicable jurisdictions. The “Fair Market Value” of a Share on any date shall be the closing price of a Share on such date on the principal national securities exchange on which the Shares are then listed, or if there were no sales on such date, on the next preceding day on which there were sales, or if such Shares are not listed on a national securities exchange, the last reported bid price in the applicable over-the-counter market.
4.
Change in Control.
(a)
Double Trigger Protection Upon a Change in Control. In the event of a Change in Control, unless otherwise determined by the Committee prior to the occurrence of a Change in Control, the Company shall take all actions necessary or appropriate to assure that each Award outstanding under the Plan shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an "Alternative Award") by the entity for which you will be performing Service immediately following the Change in Control (or the parent or a subsidiary of such entity); provided that any such Alternative Award must provide that if your Service is terminated upon or following such Change in Control (x) by the Company other than for Cause or (y) by you for Good Reason (as defined below), in either case, within 24 months following the Change in Control, your rights under each such Alternative Award shall become fully vested and exercisable or payable, whichever is applicable, in accordance with its otherwise applicable terms (including, without limitation, provisions similar to Section 4(d) hereof). In addition, any such Alternative Award granted to you must
(i)
provide you with rights and entitlements substantially equivalent to or better than the rights and entitlements applicable under the corresponding Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment (including all provisions applicable in respect of such Award that provide for accelerated vesting); and
(ii)
have substantially equivalent economic value to such Award (as determined by the Committee as constituted immediately prior to the Change in Control).
(b)
Accelerated Vesting and Payment. Notwithstanding the provisions of Section 4(a), the Committee may otherwise determine that, upon the occurrence of a Change in Control, all or any portion of the Restricted Stock Units that are then still outstanding shall become vested and shall be immediately payable in Shares (or, if so directed by the Committee, cash in an amount equal to the Fair Market Value of the Shares that would otherwise have been deliverable to you).
(c)
Good Reason. For purposes of this Section 4, “Good Reason” shall have the meaning set forth in any employment, severance or other bilateral written agreement between you and the Company, a Subsidiary or any affiliate of the Company. If there is no employment, severance or other bilateral written agreement between you and the Company, a Subsidiary or an affiliate of the Company, or if such agreement does not define “Good Reason,” then “Good Reason” shall mean the occurrence of any of the following:

3


(i)
a material reduction in your base salary, other than as part of an overall expense reduction program that is generally applicable to all similarly situated employees;
(ii)
a material adverse reduction in your duties and responsibilities such that you are required to serve in a position that is at least two salary grades lower than the position in which you had been serving prior to such reduction; or
(iii)
the relocation of your principal workplace without your consent to a location more than 50 miles distant from the location at which you had previously been principally providing services.
(d)
Deferred Compensation Subject to Section 409A. Notwithstanding the foregoing provisions of this Section 4, if you are or will become eligible for Retirement prior to the date that the Restricted Stock Units would otherwise vest in accordance with the terms hereof (“Retirement Eligible Units”), such Restricted Stock Units shall not become payable at the time specified under the provisions of Section 4(a) or 4(b). Instead, to the extent that any such Retirement Eligible Units become vested in accordance with the terms of the Plan or these Terms and Conditions (including Section 4(a) or 4(b)), such Restricted Stock Units shall be payable at the time that they would otherwise have been payable without regard to the occurrence of a Change in Control.
(e)
Provisions Related to Golden Parachute Excise Tax. Notwithstanding anything to the contrary contained in these Terms and Conditions, to the extent that any of the payments and benefits provided for under the Plan, any Award or any other agreement or arrangement between the Company, any Subsidiary or any of their respective affiliates and you (collectively, the “Payments”) would constitute a “parachute payment” within the meaning of section 280G of the Code (a “Parachute Payment”), then, if and solely to the extent that reducing the benefits payable hereunder would result in your receiving a greater amount, on an after-tax basis, taking into account any Excise Tax and all applicable income, employment and other taxes payable on such amounts, the amount of such Payments shall be reduced to the amount (the “Safe Harbor Amount”) that would result in no portion of the Payments being treated as an excess parachute payment pursuant to section 280G of the Code (the “Excise Tax”). Any reduction in the amount of compensation or benefits effected pursuant to this Section 4 shall first come, in order and, in each case, solely to the extent necessary, from any cash severance benefits payable to you, then ratably from any other payments which are treated in their entirety as Parachute Payments and then ratably from any other Parachute Payments payable to you.
5.
Nontransferability of Restricted Stock Units; Transferability of Shares. The Restricted Stock Units granted hereby may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent or distribution and all rights with respect to the Restricted Stock Units shall be available during your lifetime only to you or your guardian or legal representative. The Committee may, in its sole discretion, require your guardian or legal representative to supply it with evidence the Committee deems necessary to establish the authority of the guardian or legal representative to act on behalf of you.
6.
No Limitation on Rights of the Company. The grant of the Restricted Stock Units does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.

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7.
Plan and Terms and Conditions Not a Contract of Employment or Service. Neither the Plan nor these Terms and Conditions are a contract of employment or Service, and no terms of your employment or Service will be affected in any way by the Plan, these Terms and Conditions or related instruments, except to the extent specifically expressed therein. Neither the Plan nor these Terms and Conditions will be construed as conferring any legal rights on you to continue to be employed or remain in Service with the Company, nor will it interfere with any right of the Company, any Subsidiary or any of their respective affiliates to discharge you or to deal with you regardless of the existence of the Plan, these Terms and Conditions or the Restricted Stock Units.
8.
Employee Confidentiality and Non-Competition Obligations.    As a condition to your eligibility to receive an Award under the Plan and the vesting of any Shares granted thereunder, you must execute and comply fully with the Employee Confidentiality and Non-Competition Agreement that is attached as Exhibit A to these Terms and Conditions, which is incorporated herein by reference.
9.
No Rights as a Shareholder. Before the date as of which you are recorded on the books of the Company as the holder of any Shares related to the Restricted Stock Units, you will have no rights as a shareholder by reason of this Restricted Stock Units Award.
10.
Continued Effect of Award Agreement. To the extent that the Plan or these Terms and Conditions contain provisions that are intended to have effect after the date(s) as of which your rights in respect to the Restricted Stock Unit Award have become vested (including, but not limited to, following the date of your termination of Service), this Restricted Stock Unit Award and any Shares issued in respect of such Restricted Stock Unit Award shall continue to be subject to the terms of the Plan and these Terms and Conditions
11.
Securities Law Requirements. If at any time the Committee determines that issuing Shares would violate applicable securities laws, the Company will not be required to issue such Shares. The Committee may declare any provision of these Terms and Conditions or action of its own null and void, if it determines the provision or action fails to comply with the short-swing trading rules. As a condition to issuance, the Company may require you to make written representations it deems necessary or desirable to comply with applicable securities laws. No person who acquires Shares under these Terms and Conditions may sell the Shares, unless they make the offer and sale pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which is current and includes the Shares to be sold, or an exemption from the registration requirements of the Securities Act.
12.
Notice. Any notice or other communication required or permitted under these Terms and Conditions must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender’s expense. Notice will be deemed given when delivered personally or, if mailed, three (3) days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to:
Keurig Dr Pepper Inc.
5301 Legacy Drive
Plano, TX 75024
Attention: Chief Legal Officer, Corporate General Counsel and Secretary

Notice to you should be sent to the address on file with the Company. Either party may change the Person and/or address to which the other party must give notice under this Section 11 by

5


giving such other party written notice of such change, in accordance with the procedures described above.
13.
Successors. All obligations of the Company under these Terms and Conditions will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business of the Company, or a merger, consolidation, or otherwise.
14.
Governing Law. To the extent not preempted by federal law, these Terms and Conditions, except as otherwise provided in Exhibit A, will be construed and enforced in accordance with, and governed by, the laws of the State of Delaware, without giving effect to its conflicts of law principles that would require the application of the law of any other jurisdiction.
15.
Plan Document Controls. The rights granted under these Terms and Conditions are in all respects subject to the provisions set forth in the Plan to the same extent and with the same effect as if set forth fully in these Terms and Conditions. If the terms of these Terms and Conditions conflict with the terms of the Plan document, the Plan document will control.
16.
Amendment. These Terms and Conditions may be amended unilaterally by the Company to the extent determined by the Committee and permitted under the Plan, or by a written instrument signed by both parties.
17.
Entire Agreement. These Terms and Conditions, including Exhibit A, together with the Plan, constitute the entire obligation of the parties with respect to the subject matter of these Terms and Conditions and supersede any prior written or oral expressions of intent or understanding with respect to such subject matter.
18.
Administration. The Committee administers the Plan and these Terms and Conditions. Your rights under these Terms and Conditions are expressly subject to the terms and conditions of the Plan, including any guidelines the Committee adopts from time to time. You hereby acknowledge receipt of a copy of the Plan.
19.
Section 409A. The Restricted Stock Units awarded pursuant to these Terms and Conditions are intended to comply with or, in the alternative, be exempt from Section 409A. Any reference to a termination of Service shall be construed as a “separation from service” for purposes of Section 409A.
20.
Data Protection. By accepting the award of Restricted Stock Units, you hereby agree to permit the Company, its Subsidiaries and each of their respective affiliates to process personal data and sensitive personal data about you in connection with the Plan. Such data includes, but is not limited to, the information provided hereunder and any changes thereto, other appropriate personal and financial data, and information about your participation in the Plan and the Restricted Stock Units granted to you under the Plan from time to time (collectively, “Personal Data”). You consent to each and any of the Company, any Subsidiary and each of their respective affiliates processing and transferring any Personal Data outside the country in which you work or are employed to the United States and any other third countries. The legal persons for whom Personal Data is intended include the Company, each Subsidiary and each of their respective affiliates, the Committee and the Board, any administrator selected from time to time to administer the Plan, and any other person or entity that the Company, the Committee or the Board involves in the administration of the Plan. Each of the Company, any Subsidiary and each of their respective will take all reasonable measures to keep Personal Data confidential and accurate.

6


You can access and correct your Personal Data by contacting your human resources representative. By accepting participation in the Plan, you agree and acknowledge that the transfer of information is important to the administration of the Plan and failure to consent to the transmission of that information may limit your ability to participate in the Plan.

7


EMPLOYEE CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT

This Employee Confidentiality and Non-Competition Agreement (this “Agreement”) by and between Keurig Dr Pepper Inc. on behalf of itself and its subsidiaries (collectively, the “Company”) and the undersigned employee (“Employee”) is effective as of the date accepted, or signed below. Employee and Company agree as follows:1
A.Definition of Trade Secrets and Confidential Business Information. The Company has invested substantial time, money, and effort developing its trade secrets, including, without limitation: products; business and strategy plans; pricing and pricing strategies; financial strategies, projections and forecasts; supply chain and manufacturing processes; consumer propositions; marketing and sales programs and presentations; private or sensitive employee information (such as social security information or birth dates, and information obtained from any confidential human resources or employee files/records to which Employee may have access); names, addresses and contact information of customers and suppliers and prospective customers and suppliers; customer and supplier information (including, without limitation, methods of operation, requirements, preferences and history of dealings with the Company); research and development plans, results and experimental work; improvements; ingredients; formulas; inventions; creative works; engineering; designs; know-how; licenses; permits; and other unique processes and compilations of information that have recognized value and are not generally available through other sources (“Trade Secrets”). The same is true of information regarding its various products, ingredients, supply chain, marketing programs and financials that is treated as confidential by the Company that may not rise to the level of a Trade Secret, which may include confidential or proprietary information of third parties that has been disclosed to the Company in confidence (“Confidential Business Information”). Confidential Business Information does not include information that properly and lawfully has become generally known to the public other than as a result of the act or omission of Employee. Collectively, Trade Secrets and Confidential Business Information are referred to hereafter as “Confidential Information.” Confidential Information does not include information lawfully acquired by a non-supervisory employee about wages, hours or other terms and conditions of non-supervisory employees if used by them for purposes protected by §7 of the National Labor Relations Act (the NLRA) such as joining or forming a union, engaging in collective bargaining, or engaging in other concerted activity for their mutual aid or protection.
B.Importance of Confidential Information. In order to develop Employee’s skills and enable Employee to perform his or her duties, Employee acknowledges that the Company hereby agrees to provide Employee with portions of its Confidential Information. By signing this Agreement, Employee acknowledges that he/she has received and/or will in the future receive portions of the Company’s Confidential Information. Employee acknowledges that he/she will be making use of, acquiring, accessing and/or adding to such Confidential Information on behalf of the Company throughout the period of his/her employment. Employee







_____________________
1 Employees in California, Louisiana, Massachusetts, Wisconsin, Virginia, Nebraska, and Oklahoma are directed to Appendix A for important limitations on the scope of this Agreement.

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recognizes that access to and knowledge of this information is essential to the performance of Employee’s duties with the Company. Employee acknowledges and agrees that the Company’s Confidential Information is a valuable, special, and unique asset of the Company and such Confidential Information is extremely important in the highly competitive non-alcoholic beverages industry in which Company is engaged, which includes, but is not limited to, the manufacture, sale, distribution and marketing of fruit-based purees/sauces, carbonated and non-carbonated soft drinks, concentrates and syrups for soft drinks, alcoholic beverages, coffee, tea, cocoa, water, juices or fruit-based beverages, energy drink, sports drinks, functional beverages, mixers and other forms of beverages, as well as the appliances or pods that brew, make or contain such beverages (collectively the “KDP Business”). Employee acknowledges that the disclosure of any Confidential Information will cause the Company imminent harm and substantial, irreparable injury, including loss of profit and other damages such as loss of goodwill and a decrease in market share which are difficult to calculate. Employee acknowledges that the Company retains a proprietary interest in its Confidential Information that continues beyond the termination of Employee’s employment. Employee further acknowledges that the preservation and protection of the Confidential Information is an essential part of Employee’s employment by and business relationship with the Company and that Employee has a duty of fidelity and trust to the Company in handling the Confidential Information both during and after Employee’s employment by the Company. Employee agrees to abide by the Company’s policies as communicated to Employee from time to time, including without limitation the Company’s policies with regard to protection of Confidential Information. It is important that each employee recognize and acknowledge that the Company would likely sustain great loss if such Confidential Information were improperly disclosed or misappropriated.
C.Non-Disclosure, Misuse, and Return of Documents. As a material inducement to the Company to provide Confidential Information to Employee and otherwise enter into this Agreement and employment relationship, Employee agrees that Employee will not disclose, copy or take away any of the Confidential Information, directly or indirectly, or use such information in any way, either during the term of Employee’s employment by the Company or at any time thereafter, except as required in the ordinary course of Employee’s employment for the benefit of the Company. Where an additional time limitation is necessary for this nondisclosure provision to be enforceable, Confidential Business Information shall be protected from disclosure for a period of three (3) years following termination of Employee’s employment by the Company. Trade Secrets shall be protected from disclosure as long as the information at issue continues to qualify as a trade secret under applicable law. Subject to the provisions of Section Q, if disclosure is compelled by law, Employee will give Company as much written notice as possible under the circumstances, will refrain from use or disclosure for as long as the law allows, and will cooperate with Company to protect such information, including taking every reasonable step to protect against unnecessary disclosure. Employee agrees, if he or she becomes aware of an unauthorized use or disclosure of Company’s Confidential Information, he or she will immediately notify Company’s Legal Department, whether or not Employee is a Company employee when he or she becomes aware of the disclosure. Employee agrees that Employee will not use a personal mobile device (e.g., cellphone, smartphone, blackberry, tablet) to create or store any Confidential Information unless Employee has the prior written consent of Company. Employee further agrees that if Employee stores Confidential Information (i) on a personal mobile device without Company’s prior written consent, (ii) on any other personally owned computer (e.g., desktop, laptop) or electronic storage device (e.g., thumb drive, CD), or

9


(iii) in any personal online account (e.g., Yahoo, Dropbox, iCloud), then Employee will provide Company with access to such device, computer or account, upon request consistent with applicable law, so that Company may inspect the device, computer and/or account to insure that all Company materials have been returned and not copied or retained, and/or so that the Company may permanently delete any Confidential Information stored therein. Employee understands and agrees that the storage of Confidential Information on a personal mobile device as described in this subsection, without proper and prior authorization, would violate Company policy. When Employee terminates employment with Company, or earlier if so requested, he or she will return to Company all documents, records, and materials of any kind in his or her possession or under his or her control, incorporating Confidential Information or otherwise, relating to Company’s business, and any copies thereof (electronic or otherwise), other than documents regarding Employee’s individual compensation, such as pay stubs and benefit plan booklets. Employee is not authorized to access and use the Company’s computers, email, or related computer systems to compete or to prepare to compete, or to otherwise compromise the Company’s legitimate business interests, and unauthorized access to or use of the Company’s computers in violation of this understanding may subject Employee to civil and/or criminal liability.
D.Noncompetition and Nonsolicitation. Employee acknowledges and agrees that customer goodwill and information, including the Confidential Information, Employee has acquired and will acquire during the course of Employee’s employment will enable Employee to irreparably injure the Company if Employee should engage in unfair competition. Ancillary to the above agreements and in consideration of the compensation, benefits2 and Confidential Information provided to Employee and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee hereby agrees that the following covenants are reasonable and necessary protective covenants for the protection of the value of the agreements described in Sections A-C above and the other terms and conditions contained in this Agreement:
1.Non-competition. During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not directly or indirectly, provide Competitive Services in the Restricted Area for a Competitor.
Definitions:
“Competitive Services” means to own, manage, operate, join, control, be employed by or with, or participate in any manner (including, without limitation, as a consultant) with a Competitor where doing so will require Employee to provide the same or substantially similar services to or on behalf of any such Competitor as those services Employee provided to or on behalf of the Company during the Look Back Period.
“Competitor” shall mean any person or entity that competes with those parts of the KDP Business as to which Employee provided services, had material involvement, or received








_____________________
2 Including, without limitation, the __________ Award made to you under the Keurig Dr Pepper Inc. Omnibus Incentive Plan of 2019 (as amended).

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Confidential Information during the Look Back Period. All employees at the level of vice president and above acknowledge and agree they provide services to, have material involvement in, and/or receive Confidential Information relating to all parts of the KDP Business.
“Look Back Period” shall mean the last forty-eight (48) months of Employee’s employment with the Company, or such shorter period as mandated by applicable law.
For employees whose areas of responsibilities and scope of Confidential Information are limited by territory or region, then “Restricted Area” means those territories and/or regions in which Employee had responsibilities and/or about which Employee had Confidential Information during the Look Back Period. For all other employees (meaning those employees who have responsibilities and/or Confidential Information concerning the Company’s operations as a whole), Restricted Area means those geographic areas in which the Company is engaged in manufacturing, selling, distributing, and/or marketing its products during the Look Back Period.
2.Non-interference with Customer Relationships.
During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not, on Employee’s own behalf or on behalf of any other person or entity, interfere with the relationship of the Company with any person or entity who was a customer of the Company as to which Employee had business-related dealings or about which Employee received Confidential Information during the Look Back Period. Where required by applicable law to be enforceable, the foregoing provisions are limited to the Restricted Area.
3.Non-solicitation of Customers. During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not, on Employee’s own behalf or on behalf of any other person or entity, interfere with the relationship of the Company with any person or entity who was a customer of the Company as to which Employee had business-related dealings or about which Employee received Confidential Information during the Look Back Period (referred to herein as a “Covered Customer”) by soliciting or communicating (regardless of who initiates the communication) with a Covered Customer to induce or encourage the Covered Customer to: (a) stop or reduce doing business with Company; or (b) to buy a Competing Product from a Competitor, unless a duly authorized Company officer gives Employee written authorization to do so. Where required by applicable law to be enforceable, the foregoing provisions are limited to the Restricted Area. “Competing Product” refers to a product that competes with a product of the Company, including products under development, as to which Employee had material involvement or received Confidential Information during the Look Back Period.
4.Non-solicitation of Employees. During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not, either directly or indirectly, participate in, or assist any third party in, recruiting or hiring away any employees of the Company, or encourage or induce any employees of the Company to terminate their employment with the Company. For purposes of this covenant, “Employees” shall refer to current employees of the Company and employees who are not employed by the Company at the

11


time of the attempted recruiting or hiring and/or interference, but were employed by the Company at any time during the six (6) months prior to the time of the attempted recruiting or hiring and/or interference. Further, “Employees” shall refer only to those employees of KDP with whom Employee had contact, or association with, or about whom Employee received Confidential Information, during Employee’s employment with the Company.
5.Reasonableness of Restrictions.
Employee has carefully read and considered the provisions of this Section D and agrees that the restrictions set forth herein, including, but not limited to, the time period of restriction, the geographic areas of restriction, and the scope of the restriction are fair and reasonable and do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company and its affiliated entities, officers, directors, members and other employees. Employee acknowledges that these restrictions will not unreasonably prevent Employee from obtaining gainful employment in Employee’s occupation or field of expertise or cause undue hardship.
6.Notification of Restrictions to Third Parties.
Employee agrees that the Company may notify any person or entity employing or contracting with Employee or evidencing an intention of employing or contracting with Employee of the existence and provisions of this Agreement in order to assure that the Company’s rights under this Agreement are adequately protected.

7.Notification by Employee of Post-Termination Employment.
If, within one (1) year after Employee’s employment with the Company terminates for any reason, Employee enters into an employment, consulting, or independent contractor relationship with any third party engaged in KDP Business, then Employee agrees to provide the Company written notice of Employee’s job responsibilities within five (5) business days of Employee’s acceptance of employment (or other relationship) (“Employment Notice”). The Employment Notice shall include (i) a description of the duties and responsibilities of the proposed position, (ii) the identity of the employer(s), and (iii) the territory in which Employee will be working. Written notice should be given to the Company, Attention: Chief Legal Officer, 5301 Legacy Drive Plano, TX  75024. Employee also agrees that, upon written request by the Company regarding the status of his/her employment or prospective employment, he/she will respond to the Company in writing as provided herein of the status of his/her employment or proposed employment with any party and that if Employee fails to timely provide the required response within fourteen (14) calendar days of the Company’s written request, the Company may presume that Employee’s employment violates the terms of Sections C or D, and the Company will be authorized by this Agreement to seek immediate injunctive relief as outlined in Section F.

8.Tolling.

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E.If Employee violates one of the post-employment restrictions in this Agreement on which there is a specific time limitation, the time period for that restriction will be extended by one day for each day Employee violates it, up to a maximum extension of one year, so as to give Company the full benefit of the bargained-for length of forbearance.
F.Court’s Right to Reform Restrictions. The Company and Employee have attempted to limit Employee’s ability to compete with the Company and solicit employees only to the extent necessary to protect the Company from unfair competition. However, should a court of competent jurisdiction determine that the scope of the covenants contained in Section D exceed the maximum restrictiveness such court deems reasonable and enforceable, the parties intend that the court should reform, modify and enforce the provisions to such narrower scope as it determines to be reasonable and enforceable under the circumstances existing at that time.
G.Enforcement of Covenants. Employee acknowledges that compliance with the confidentiality, noncompetition and non-solicitation restrictive covenants contained in Sections A through D (including subparts) of this Agreement are necessary to protect the business and goodwill of the Company. Employee also acknowledges that a breach of such covenants will result in irreparable and continuing damages to the Company, for which money damages may be an insufficient remedy to the Company. Further, Employee acknowledges that the ascertainment of the full amount of damages in the event of Employee’s breach of any provision of this Agreement would be difficult. Consequently, Employee agrees that, in the event of a breach or threatened breach of any of the restrictive covenants contained in this Agreement, that the Company, in addition to all other remedies it may have, shall be entitled to both (a) temporary, preliminary and/or permanent injunctive relief to restrain the breach of or otherwise to specifically enforce any of the covenants in order to prevent the continuation of such harm (with $1,000.00 being the agreed amount of any bond that need to be posted (if any) by the Company to secure such injunctive relief); and (b) money damages insofar as they can be determined. Injunctive relief to enforce Sections A through D may be sought by either party from any court of competent jurisdiction. Employee further agrees that the restrictions included within this Agreement are intended to be in addition to, and do not in any way limit, any other obligations owed by Employee to the Company regarding such matters, whether such obligations arise under common law, state or federal statute, ordinance or otherwise. Finally, the parties agree any alleged breach by the Company of any obligations under this Agreement or any other agreement between the parties shall not excuse Employee from performing his/her obligations hereunder or otherwise serve as a defense to the enforceability of this Agreement.
H.Property Rights. Employee will notify the Company promptly of all inventions, improvements, discoveries, or methods relating to or useful in connection with any business conducted by the Company, now or in the future, that Employee makes or discovers while employed by the Company. Employee agrees to and hereby does assign to the Company all rights, title and interest in such inventions, improvements, discoveries and methods and any related patents or patent applications which pertain to business in which the Company is engaged, is reasonably expected to engage or in which it has previously expressed an intention to enter. Employee agrees to cooperate with the Company in completing and executing any documents required to perfect the Company’s interest in any intellectual property developed by or with the Employee, including to the extent such cooperation is required after termination, provided that the Company bears the expense thereof.

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1.Inventions Retained and Licensed. Employee has previously submitted to the Legal Affairs Manager for Intellectual Property a list describing all inventions, original works of authorship, developments, improvements and trade secrets that (i) were made by Employee prior to Employee’s employment with the Company, (ii) belong to Employee or in which Employee has an interest, (iii) relate to the Company’s current or proposed business, products or research and development, and (iv) are not assigned to the Company hereunder (collectively, “Prior Inventions”); or, if no such list is submitted, Employee represents and warrants that there are no such Prior Inventions. Employee agrees that Employee will not use, incorporate, or permit to be used or incorporated, any Prior Invention with or into a Company product, process or service without the Company’s prior written consent. Notwithstanding the foregoing sentence, if, in the course of Employee’s employment with the Company, Employee uses with or incorporates into a Company product, process or service a Prior Invention, then Employee hereby grants to the Company a nonexclusive, royalty-free, fully paid-up, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or service, and to practice any method related thereto.
2.Inventions Assigned to the Company. Employee agrees to promptly make full written disclosure to the Company, to hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all of Employee’s right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks and trade secrets, whether or not patentable or registrable under copyright or similar laws, which Employee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time Employee is in the employ of the Company (collectively, “Inventions”), together with all patent, copyright, mask work, trademark, trade secret, and other intellectual property rights therein throughout the world (collectively, “Intellectual Property Rights”), except as provided in Section G(6) below. Employee further acknowledges that all original works of authorship which are created by Employee (solely or jointly with others) within the scope of and during the period of Employee’s employment with the Company and which are subject to copyright protection are “works made for hire” as that term is defined in the United States Copyright Act, and such works and all copyrights therein belong solely to the Company. Employee understands and agrees that the decision whether or not to commercialize or market any Invention is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to Employee as a result of the Company’s efforts to commercialize or market any such Invention.
3.Inventions Assigned to Third Parties. Employee agrees to assign to any third party all of Employee’s right, title, and interest in and to any and all Inventions and related Intellectual Property Rights whenever such full title is

14


required to be in such third party by a contract between the Company and such third party.
4.Maintenance of Records. Employee agrees to keep and maintain adequate and current written records of all Inventions during the term of Employee’s employment with the Company. Such records will be in the form of notes, sketches, drawings and any other format that may be specified by the Company. The records will be available to and remain the Company’s sole property at all times.
5.Registrations. Employee agrees to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in any Inventions and Intellectual Property Rights relating thereto in any and all countries, including but not limited to the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, and all other instruments that the Company deems necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive right, title and interest in and to such Inventions and Intellectual Property Rights relating thereto. Employee further agrees that Employee’s obligation to execute or cause to be executed, when it is in Employee’s power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of Employee’s mental or physical incapacity or for any other reason to secure Employee’s signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering any Inventions or original works of authorship assigned to the Company as above, then Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Employee’s agent and attorney in fact, to act for and on Employee’s behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by Employee.
6.Exceptions to Assignments. To the extent state law where Employee resides requires it (such as under Cal. Lab. Code, § 2870; Del. Code Title 19 § 805; Illinois 765 ILCS 1060/1-3; Kan. Stat. Section 44-130; Minn. Statutes, 13A, Section 181.78; N. Car. General Statutes, Art. 10A, Chapter 66, Commerce and Business, § 66-57.1; Utah Code § 34-39-1 through 34-39-3; Wash. Rev. Code, Title 49 RCW: Labor Regulations, Chapter 49.44.140), Employee is notified that no provision in this Agreement requires Employee to assign any of his or her rights to an invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on Employee’s own time, unless (a) the invention relates at the time of conception or reduction to practice of the invention, (i) to the business of the Company, or (ii) to the Company’s actual or demonstrably anticipated research or development, or (b) the invention results from any work

15


performed by Employee for the Company. Inventions excluded by the foregoing are referred to herein as “Other Inventions.” Employee will advise the Company promptly in writing of any Invention that Employee believes constitutes an Other Invention and was not previously identified to the Company. Employee will not use or incorporate, or permit to be used or incorporated, any Other Invention owned by Employee or in which Employee has an interest with or into a Company product, process or service without the Company’s prior written consent. Notwithstanding the foregoing sentence, if, in the course of Employee’s employment with the Company, Employee uses with or incorporates into a Company product, process or service an Other Invention owned by Employee or in which Employee has an interest, Employee hereby grants to the Company a nonexclusive, royalty-free, fully paid-up, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Other Invention as part of or in connection with such product, process or service, and to practice any method related thereto.
I.Absence of Restrictions. Employee represents and warrants that Employee knows of no reason that Employee cannot legally enter into this Agreement and perform the personal services contemplated by this Agreement. Specifically, Employee represents and warrants that Employee is not a party to any agreement with a former employer containing any post-employment restrictions, noncompetition provisions or any other restrictive covenants with respect to (i) the rendition of any personal services that Employee is expected to perform or conduct, (ii) the disclosure or use of any information which, directly or indirectly, relates to the business of the Company or the services to be rendered by Employee, or (iii) any other obligation which would impact or restrict Employee’s employment by the Company or the performance of Employee’s duties.
J.Other Party’s Confidential Information. The Company prohibits Employee from engaging in any unfair competition or otherwise misusing confidential information of any other party, including former employers. Accordingly, Employee represents and warrants that Employee (a) will hold and safeguard the confidential information and trade secrets of any other party and will not misappropriate, use, disclose or make available to anyone at the Company any such information; (b) will comply with any lawful non-solicitation agreement applicable to any former employer’s employees, clients or customers; (c) has not wrongfully retained or removed any files, books, correspondence, reports, proposals, records or other documents concerning another party’s business, whether prepared by Employee or not; and (d) will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such other party unless consented to in writing by such other party and the Company.
K.Attorneys’ Fees. Employee agrees and understands that Employee will pay the reasonable attorney’s fees and court costs incurred by the Company if the Company prevails in any lawsuit brought by the Company to enforce the terms of this Agreement. Provided, however, that if Employee resides in and is subject to the law of a state that would convert this recovery of attorney’s fees provision to a reciprocal obligation or an obligation where the prevailing party would recover fees and costs, then such recovery of attorneys’ fees and costs provision shall not apply and each party will bear its own attorneys’ fees and costs.

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L.Severability. The validity or unenforceability of any provision herein shall in no way affect the validity or enforceability of any other provision of this Agreement. It is the intention of the parties that if any provision of the Agreement is determined by a court of competent jurisdiction to be void, illegal or unenforceable, in whole or in part, despite the power of the Court to judicially modify this Agreement (as provided by Section E), all other provisions will remain in full force and effect, as if the void, illegal, or unenforceable provision is not part of the Agreement.
M.Governing Law; Venue. This Agreement shall be governed by the laws of the State of Texas without regard to the choice of law provisions thereof. Venue for the enforcement of this Agreement shall be exclusively in an arbitrator or court of competent jurisdiction in Collin County, Texas (as further set forth in Section P below), and the parties to this Agreement hereby consent to personal jurisdiction therein. This Agreement does not alter, reduce or modify any obligations Employee owes to the Company under any other applicable statute or the common law.
N.Assignability. By reason of the special and unique nature of the services hereunder, it is agreed that neither party hereto may assign any interest, rights or duties which it or they may have in this Agreement without the written consent of the other, provided, however, that the Company may, without the written consent of Employee, assign this Agreement to (a) any entity into which the Company is merged or to which the Company transfers all or substantially all of its assets or (b) any entity controlling, under common control with, or controlled by the Company, and Employee agrees that any one or more of these assignees may enforce this Agreement without the need for further consent by Employee.
O.At-Will Employment. This Agreement does not and is not intended to alter or modify in any way the employment-at-will status of the Employee. Employee acknowledges that employment with the Company is not for any specific time and may be terminated at will, with or without cause and without prior notice, by the Company, or Employee may resign for any reason at any time. Employee understands that no supervisor, manager, or representative other than the Company’s President, General Counsel or Executive Vice President of Human Resources has any authority to enter into any agreements with Employee for employment for any specified time period or to make any oral or written promises or agreements contrary to this policy. Further, any agreement limiting the at-will nature of Employee’s employment with the Company entered into by the designated officers shall not be enforceable unless it is in writing.
P.Employee Acknowledgment. Employee acknowledges that he or she has been given an adequate opportunity to seek legal counsel. Employee agrees that he or she has either relied upon the advice of Employee’s attorney or Employee has knowingly and willingly not sought the advice of such attorney. Employee hereby understands and acknowledges the significance and consequence of this Agreement and represents that Employee fully understands and voluntarily accepts the terms of this Agreement.
Q.Binding Arbitration. If Employee has executed Company’s Mutual Arbitration Agreement and Class Action Waiver, then the terms of that Agreement will apply to any controversy, claim or dispute with respect to this Agreement. Otherwise any controversy, claim or dispute arising out of or relating to this Agreement or the breach, termination or invalidity

17


thereof, shall be submitted to, and determined exclusively by, binding arbitration in accordance with the then current Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association (the “AAA Rules”), to the extent such rules do not conflict with the provisions of this Agreement. The arbitrator shall have the exclusive authority to determine the arbitrability of any dispute asserted by and between the parties. Notwithstanding the foregoing, this Paragraph shall not prevent the Company from seeking a temporary restraining order or temporary injunctive relief from a court of competent jurisdiction in order to protect its rights under this Agreement, provided, however, that such litigation shall be stayed following entry of the temporary restraining order or temporary injunction and the matter shall be compelled to arbitration so that the adjudication of any underlying claim(s) upon which the request for injunctive relief may be based must be pursued through final and binding arbitration, the award from which may serve as the basis for permanent injunctive relief by the arbitrator and, if necessary for entry of same, an appropriate court. Mandatory venue for the arbitration hearing shall be in Collin County, Texas. Employee and the Company agree that upon application of either party to the United States District Court for the Eastern District of Texas, the Court shall enter judgment confirming, modifying or vacating the award made pursuant to the arbitration as provided by the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 1 et seq. and that either party may also pursue such remedy or relief to which it may be entitled pursuant to the FAA in any proceeding as to which this agreement to arbitrate may apply.
R.Protected Conduct. Nothing in this Agreement, including without limitation Sections C and F, prevents Employee from communicating with the Equal Employment Opportunity Commission, the Securities and Exchange Commission, the Department of Labor, or any other governmental authority, making a report in good faith and with a reasonable belief of any violations of law or regulation to a governmental authority, or cooperating with or participating in a legal proceeding relating to such violations; provided, however, that to the extent allowed by law, Employee will give the Company as much written notice as possible under the circumstances and will cooperate with the Company in any legal action undertaken to protect the confidentiality of the information; however, nothing herein shall be construed to prohibit Employee from reporting what Employee reasonably believes, in good faith is a violation of the law to an appropriate law enforcement agency, with or without advance notice to the Company.
Employee must sign where indicated below unless this Agreement is being adopted in connection with an award of Restricted Stock Units, Performance Share Units, Stock Options, or other similar awards (“Awards”). In that event, Employee will indicate acceptance of the terms of this Agreement by following the electronic signature procedures on the Global Shares on-line portal, or any other future site to which Employee is directed by the Company for that purpose. By accepting the Awards, Employee accepts and agrees to this Employee Confidentiality and Non-Competition Agreement.





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EMPLOYEE:
 
KEURIG DR PEPPER INC.:
 
 
 
 
 
By:
 
 
 
Print Name:
 
 
Print Name:
 
 
 
 
Title:
 
Date:
 
 
Date:
 
 






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Appendix A
STATE SPECIFIC MODIFICATIONS
1.    If Employee resides in California or North Dakota: Section D(1) shall not apply; Section D(2) is limited to situations where Employee is aided in his or her conduct by the use or disclosure of the Company’s trade secrets; Section D(3) is limited to solicitation of a Protected Employee to terminate his or her relationship with the Company; the Collin County, Texas, mandatory venue in Section P shall not apply; and no provision or requirement of the Agreement will be construed or interpreted in a manner contrary to the public policy of the State of California or North Dakota.
2.    If Employee resides in Louisiana, for so long as Employee resides in Louisiana and is subject to its laws: the enforcement of the restrictions in Sections D(1) and D(2) will be limited within Louisiana to the parishes and outside of Louisiana to those counties in which Employee assisted the Company in providing its products and services during the Look-Back Period, as are indicated below; provided, however, that nothing in Agreement may be construed to prohibit the enforcement of Sections D(1) and D(2) in accordance with their terms in states outside of Louisiana:
The Restricted Area shall specifically include the following Louisiana parishes: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Calcasieu, Caldwell, Cameron, Catahoula, Claiborne, De Soto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant, Iberia, Iberville, Jackson, Jefferson, Jefferson Davis, Lafayette, Lafourche, La Salle, General, Livingston, Madison, Morehouse, Natchitoches, Orleans, Ouachita, Plaquemines, Pointe Coupee, Rapides, Red River, Richland, Sabine, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, St. Tammany, Tangipahoa, Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana, and Winn.
The Restricted Area shall also specifically include the following Texas counties: Cass, Marion, Harrison, Panola, Shelby, Sabine, Newton, Orange, and Jefferson.
The Restricted Area shall also specifically include the following Arkansas counties: Miller, Lafayette, Columbia, Union, Ashley and Chicot.
The Restricted Area shall also include the following Mississippi counties: Issaquena, Warren, Claiborne, Jefferson, Adams, Wilkinson, Amite, Pike, Walthall, Marion, Pearl River and Hancock.
3.    If Employee resides in Wisconsin or Georgia, for so long as Employee resides in Wisconsin or Georgia and is subject to its laws, the tolling provision in Section D(8) shall not apply.
4.    If Employee resides in Virginia, for so long as Employee resides in Virginia and is subject to its laws, the definition of “Competitive Services” in Section D(1) shall be replaced with “services that are the same or similar in function or purpose to those Employee provided to the Company during the Look-Back Period.”
6.    In Employee resides in Nebraska, for so long as Employee resides in Nebraska and is subject to its laws, the customer restriction in Section D(2) is limited to customers with which Employee had contact and the “or received Confidential Information about” language shall not apply.

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7.     If Employee resides in Oklahoma, for so long as Employee resides in Oklahoma and is subject to its laws, the customer restriction in Section D(2)and (3) shall be limited as follows: Employee covenants and agrees that for a period of twelve (12) months after employment with Company ends (for any reason), Employee will not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the Company. Section D(1) shall not apply. A customer will be presumed to be established where actual sales and/or services have occurred or been performed in the preceding year and/or where there is an active proposal for sales or services pending or being negotiated as of the date Employee’s employment with the Company ends.
8.    If Employee resides or works in Massachusetts and is subject to its laws, then Sections D(1) and L are amended as follows:
D.    Non-Competition and Non-Solicitation
1. Non-Competition.
Employee and Company acknowledge and agree that the ___________ Award made to Employee under the Keurig Dr Pepper Inc. Omnibus Incentive Plan of 2019 (as amended from time to time), as well as Employee’s continued access to the Company’s Confidential Information, satisfy the “mutually-agreed upon consideration between the employer and employee” required by the Massachusetts Non-Competition Agreement Act, MGL c.149, § 24L (the “Act”). However, in the event a court of competent jurisdiction determines further consideration is required by the Act, and unless the Company decides to waive the non-competition period, Company will pay the continuation payments described in the Act.
The Restraint Period shall be extended to twenty-four (24) months if Employee (i) breached Employee’s fiduciary duty(ies) to Company, or (ii) unlawfully took, physically or electronically, property belonging to Company (the “Extended Restraint Period”). Employee shall not be entitled to receive any payments from the Company during the Extended Restraint Period.
Employee acknowledges that the Employee Confidentiality and Non-Competition Agreement, including this Massachusetts Addendum, was delivered to Employee at least ten (10) business days before the date that both the Agreement and this Addendum were executed by both of the Parties (the “Effective Date”).
Employee acknowledges that he or she has been advised of his or her right to consult with counsel of his or her own choosing prior to signing the Restrictive Covenants Agreement and this Massachusetts Addendum.
Employee acknowledges (i) that the Non-Competition covenant contained in this Section D(1) is no broader than necessary to protect Company’s trade secrets, Confidential Information, and good will, and (ii) that the those business interests, and the business interests identified in the Agreement, cannot be adequately protected through restrictive covenants other than the Non-Competition covenant contained in this section, as well as the non-solicitation,

21


non-interference, non-disclosure, and other restrictions set forth in Section D of the Agreement.
L.    Governing Law, Venue.
The interpretation, validity, and enforcement of the Non-Competition provision set forth in Section D(1) of this Agreement will be governed by the laws of the Commonwealth of Massachusetts, without regard to any conflicts of laws principles that would require the application of the law of another jurisdiction. Subject to the binding arbitration provisions of Section P Employee agrees that any action relating to or arising out of the Non-Competition provision shall be brought in (i) the United States District Court for the District of Massachusetts, Eastern Division, if that Court has subject matter jurisdiction over the dispute; or, if it does not, in (ii) the Business Litigation Session of the Suffolk County Superior Court, or, if the Business Litigation Session does not accept the case for whatever reason whatsoever, the Suffolk County Superior Court.
The interpretation, validity, and enforcement of the provisions of this Agreement other than the Non-Competition provision set forth in Section D(1) of this Addendum shall be governed by the laws of the State of Texas without regard to the choice of law provisions thereof and venue for the enforcement of those provisions shall be exclusively in an arbitrator or court of competent jurisdiction in Collin County, Texas (as further set forth in Section P of the Agreement), and the parties to this Agreement hereby consent to personal jurisdiction therein.



22


Exhibit 10.14

Matching Restricted Stock Unit Award
Terms and Conditions
Under
KEURIG DR PEPPER OMNIBUS INCENTIVE PLAN OF 2019

This instrument (the “Terms and Conditions”) evidences the grant effective on _________ (the “Grant Date”) of an award of restricted stock units (the “Restricted Stock Units”) by Keurig Dr Pepper Inc., a Delaware corporation (the “Company”), under the Keurig Dr Pepper Omnibus Incentive Plan of 2019, as amended (the “Plan”). Any term capitalized but not defined in these Terms and Conditions will have the meaning set forth in the Plan. The Restricted Stock Units granted hereby are granted as a matching award (the “Award”) on the condition that you hold Shares (as hereinafter defined) (whether you shall have purchased such Shares through open market transactions consistent with the Company’s applicable securities trading policies; received such Shares in connection with your conversion of Dr Pepper Snapple Group, Inc. (“DPSG”) equity in the merger by and between a wholly owned subsidiary of DPSG and Maple Parent Holdings Corp. on July 9, 2018 (the “Merger”) or otherwise), in your Morgan Stanley Smith Barney LLC (“Morgan Stanley”) account established by the Company (such account, your “Measurement Account”) on the Share Ownership Determination Date (as defined below), and on the Share Ownership Determination Date such number of Shares in your Measurement Account equal or exceed the number of shares you elected to purchase in your Investment Election (the “Minimum Share Ownership Condition”).
1.
Restricted Stock Unit Grant.
(a)
In accordance with the terms of the Plan and subject to these Terms and Conditions, as of the Grant Date you are hereby granted the number of Restricted Stock Units in the shares of Common Stock of the Company (each, a “Share”) set forth in your award notice (the “Award”). The Restricted Stock Units, and any Shares acquired upon settlement thereof, are subject to the following terms and conditions and to the provisions of the Plan, the terms of which are incorporated by reference herein.
(b)
Share Ownership Condition. Notwithstanding anything else contained herein to the contrary, you shall forfeit the Specified Portion (as defined below) of the Restricted Stock Units on the Share Ownership Determination Date, if on such date you have not satisfied the Minimum Share Ownership Condition. If on the Share Ownership Determination Date, you hold Shares in your Measurement Account (the “Owned Shares”) representing at least the number of Shares required to satisfy the minimum investment required under the Elite Investment Plan (such minimum number of Shares required to participate in the Elite Investment Plan, the “Baseline Number of Shares”), the Specified Portion shall mean a percentage determined by dividing (i) the remainder of (A) the number of Shares required to satisfy the Minimum Share Ownership Condition (the “Target Number of Shares”) minus (B) the Owned Shares by (ii) the Target Number of Shares. The “Share Ownership Determination Date” shall mean the earliest to occur of (i) __________, (ii) the date on which a Change in Control (as defined below) occurs; (iii) the date on which your Service (as defined below) terminates by reason of your death or Disability (as defined below); and (iv) the date which is 90 days prior to the date on which your Service terminates due to your Retirement (as defined below).
(c)
Risk of Forfeiture.

1


(i)
You acknowledge and agree that the Restricted Stock Units granted in accordance with these Terms and Conditions were granted to you because you agreed to hold, on the Share Ownership Determination Date and in your Measurement Account, the Target Number of Shares (or Specified Portion thereof, if applicable) (the “Matching Shares”).
(ii)
If you do not continue to own the Baseline Number of Shares on the Share Ownership Determination Date or at any time after the Share Ownership Date and prior to the Vesting Date, you shall forfeit this Award in its entirety.
(iii)
Except as provided in the next sentence, if you transfer any Matching Shares outside of your Measurement Account prior to the Vesting Date you shall forfeit a corresponding portion of Restricted Stock Units for each Matching Share you transfer outside of your Measurement Account. However, no forfeiture shall occur under the immediately preceding sentence upon a transfer of Matching Shares to an immediate family member or a trust, partnership or other collective ownership vehicle solely for the benefit of you and your immediate family members, so long as following such transfer all of the transfer and forfeiture restrictions otherwise applicable in respect of your Matching Shares continue to apply to such family member or collective ownership vehicle on the same terms as applied to you immediately prior to such transfer, and that you continue to provide the Company with audit rights over such holdings.
2.
Vesting Period.
(a)
In General. The Restricted Stock Units shall vest on the date that is fifth anniversary of the Grant Date (the “Vesting Date”), provided that you have remained in continuous Service through such date and provided that you have not forfeited such Restricted Stock Units pursuant to Section 1(c) hereof.
(b)
Death or Disability. The Restricted Stock Units shall vest in full in the event of your termination of Service by reason of death or Disability.
(c)
Retirement. If before the Restricted Stock Units have otherwise become vested your Service terminates due to Retirement, then the Restricted Stock Units shall (i) immediately become vested with respect to that portion of the Restricted Stock Units determined by multiplying the Restricted Stock Units by a fraction, the numerator of which is the number of complete months elapsed from the Grant Date of this Award to the date of your Retirement and the denominator of which is 60, and (ii) be immediately forfeited and canceled with respect to the remaining Restricted Stock Units. For purposes of this Agreement, “Retirement” means your termination of Service (other than a termination of Service for Cause) after attaining age 60 and having completed at least 5 years of continuous service with the Company and its Subsidiaries or any of their respective affiliates.
(d)
Change in Control. In the event of a Change in Control, any Restricted Stock Units then outstanding shall continue in effect or shall become vested and payable, in either case, as

2


provided in, and subject to the conditions of, Section 4. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following:
(i)
any person or “group” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or JAB Holding Company S.a.r.l and any successor thereto (the “Parent”), or any affiliate of the Company or the Parent, is or becomes the “beneficial owner” (as defined below), directly or indirectly, of securities representing more than 50% of the combined voting power of the Company’s then outstanding securities.  For purposes of this clause (i), “beneficial owner” has the meaning given that term in Rule 13d‑3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the 60-day period referred to in such Rule; or
(ii)
the consummation of a plan or agreement approved by the Company’s or the Parent’s shareholders, providing (i) for a merger or consolidation of the Company (other than with a wholly owned subsidiary of such entity and other than a merger or consolidation that would result in the voting securities of such entity outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of such entity or such surviving entity outstanding immediately after such merger or consolidation or (ii) for a sale, exchange or other disposition of all or substantially all of the business or assets of the Company.
(e)
Service. For purposes of this Agreement, “Service” means the provision of services in the capacity of an employee or Director. For purposes of this Agreement, “Director” means any person who is not an employee and who is serving as a member of the Board of Directors of the Company (the “Board”), the board of directors or equivalent governing body of any of the Company’s subsidiaries or affiliates. If, upon termination of employment with the Company, any Subsidiary or any of their respective affiliates, you become or continue to serve as a member of the Board or the board of directors of such an affiliate you shall not be deemed to have had an interruption in Service. For this purpose, years of service shall be based on the period of time elapsed from your commencement of services (whether as an employee of Director) with the Company, any of its Subsidiaries or any of their respective affiliates to the date such services terminate, whether due to Retirement, death, Disability or for any other reason. A transfer of Service from the Company to a Subsidiary or an affiliate or from an affiliate of the Company to the Company, a Subsidiary or another affiliate of the Company shall not constitute a termination of Service. All determinations regarding Service, including whether any leave of absence is a termination of Service, shall be made by the Remuneration and Nomination Committee (the “Committee”).
3.
Settlement of Restricted Stock Units.
(a)
Timing of Settlement. The Shares related to such vested Restricted Stock Units shall be delivered promptly (and in all events within 60 days) following the date such Restricted Stock Units vest.

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(b)
Withholding Obligation. Upon settlement of any Restricted Stock Units, all federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld (each, a “Withholding Tax”) must be satisfied. You may satisfy the Withholding Tax pursuant to such procedures as the Committee may specify from time to time, by either (i) paying the amount of required Withholding Tax to the Company in cash, (ii) electing to have the Company sell that number of whole Shares that you have acquired through the vesting of Restricted Stock Units having a Fair Market Value at least equal to the amount of the required Withholding Tax, (iii) electing to have the Company withhold Shares otherwise issuable in respect of the Restricted Stock Units having a Fair Market Value at least equal to the amount of the required Withholding Tax, or (iv) a combination of the foregoing; provided, however, that if and to the extent that the Withholding Tax is satisfied using Shares issuable in settlement of the Restricted Stock Units, the applicable Withholding Tax shall be based on no more than the statutory maximum amount for the applicable jurisdictions. The “Fair Market Value” of a Share on any date shall be the closing price of a Share on such date on the principal national securities exchange on which the Shares are then listed, or if there were no sales on such date, on the next preceding day on which there were sales, or if such Shares are not listed on a national securities exchange, the last reported bid price in the applicable over-the-counter market.
4.
Change in Control.
(a)
Double Trigger Protection Upon a Change in Control. In the event of a Change in Control, unless otherwise determined by the Committee prior to the occurrence of a Change in Control, the Company shall take all actions necessary or appropriate to assure that each Award outstanding under the Plan shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an "Alternative Award") by the entity for which you will be performing Service immediately following the Change in Control (or the parent or a subsidiary of such entity); provided that any such Alternative Award must provide that if your Service is terminated upon or following such Change in Control (x) by the Company other than for Cause or (y) by you for Good Reason (as defined below), in either case, within 24 months following the Change in Control, your rights under each such Alternative Award shall become fully vested and exercisable or payable, whichever is applicable, in accordance with its otherwise applicable terms (including, without limitation, provisions similar to Section 4(d) hereof). In addition, any such Alternative Award granted to you must
(i)
provide you with rights and entitlements substantially equivalent to or better than the rights and entitlements applicable under the corresponding Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment (including all provisions applicable in respect of such Award that provide for accelerated vesting); and
(ii)
have substantially equivalent economic value to such Award (as determined by the Committee as constituted immediately prior to the Change in Control).
(b)
Accelerated Vesting and Payment. Notwithstanding the provisions of Section 4(a), the Committee may otherwise determine that, upon the occurrence of a Change in Control, all or any portion of the Restricted Stock Units that are then still outstanding shall become vested and shall be immediately payable in Shares (or, if so directed by the Committee, cash in an amount equal to the Fair Market Value of the Shares that would otherwise have been deliverable to you).

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(c)
Good Reason. For purposes of this Section 4, “Good Reason” shall have the meaning set forth in any employment, severance or other bilateral written agreement between you and the Company, a Subsidiary or any affiliate of the Company. If there is no employment, severance or other bilateral written agreement between you and the Company, a Subsidiary or an affiliate of the Company, or if such agreement does not define “Good Reason,” then “Good Reason” shall mean the occurrence of any of the following:
(i)
a material reduction in your base salary, other than as part of an overall expense reduction program that is generally applicable to all similarly situated employees;
(ii)
a material adverse reduction in your duties and responsibilities such that you are required to serve in a position that is at least two salary grades lower than the position in which you had been serving prior to such reduction;
(iii)
the relocation of your principal workplace without your consent to a location more than 50 miles distant from the location at which you had previously been principally providing services.
(d)
Deferred Compensation Subject to Section 409A. Notwithstanding the foregoing provisions of this Section 4, if you are or will become eligible for Retirement prior to the date that the Restricted Stock Units would otherwise vest in accordance with the terms hereof (“Retirement Eligible Units”), such Restricted Stock Units shall not become payable at the time specified under the provisions of Section 4(a) or 4(b). Instead, to the extent that any such Retirement Eligible Units become vested in accordance with the terms of the Plan or these Terms and Conditions (including Section 4(a) or 4(b)), such Restricted Stock Units shall be payable at the time that they would otherwise have been payable without regard to the occurrence of a Change in Control.
(e)
Provisions Related to Golden Parachute Excise Tax. Notwithstanding anything to the contrary contained in these Terms and Conditions, to the extent that any of the payments and benefits provided for under the Plan, any Award or any other agreement or arrangement between the Company, any Subsidiary or any of their respective affiliates and you (collectively, the “Payments”) would constitute a “parachute payment” within the meaning of section 280G of the Code (a “Parachute Payment”), then, if and solely to the extent that reducing the benefits payable hereunder would result in your receiving a greater amount, on an after-tax basis, taking into account any Excise Tax and all applicable income, employment and other taxes payable on such amounts, the amount of such Payments shall be reduced to the amount (the “Safe Harbor Amount”) that would result in no portion of the Payments being treated as an excess parachute payment pursuant to section 280G of the Code (the “Excise Tax”). Any reduction in the amount of compensation or benefits effected pursuant to this Section 4 shall first come, in order and, in each case, solely to the extent necessary, from any cash severance benefits payable to you, then ratably from any other payments which are treated in their entirety as Parachute Payments and then ratably from any other Parachute Payments payable to you.
5.
Nontransferability of Restricted Stock Units; Transferability of Shares.
(a)
The Restricted Stock Units granted hereby may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent or distribution and all rights with respect to the Restricted Stock Units shall be

5


available during your lifetime only to you or your guardian or legal representative. The Committee may, in its sole discretion, require your guardian or legal representative to supply it with evidence the Committee deems necessary to establish the authority of the guardian or legal representative to act on behalf of you.
6.
No Limitation on Rights of the Company. The grant of the Restricted Stock Units does not and will not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets.
7.
Plan and Terms and Conditions Not a Contract of Employment or Service. Neither the Plan nor these Terms and Conditions are a contract of employment or Service, and no terms of your employment or Service will be affected in any way by the Plan, these Terms and Conditions or related instruments, except to the extent specifically expressed therein. Neither the Plan nor these Terms and Conditions will be construed as conferring any legal rights on you to continue to be employed or remain in Service with the Company, nor will it interfere with any right of the Company, any Subsidiary or any of their respective affiliates to discharge you or to deal with you regardless of the existence of the Plan, these Terms and Conditions or the Restricted Stock Units.
8.
Employee Confidentiality and Non-Competition Obligations.    As a condition to your eligibility to receive an Award under the Plan and the vesting of any Shares granted thereunder, you must execute and comply fully with the Employee Confidentiality and Non-Competition Agreement that is attached as Exhibit A to these Terms and Conditions, which is incorporated herein by reference.
9.
No Rights as a Shareholder; Company Audit Rights. Before the date as of which you are recorded on the books of the Company as the holder of any Shares related to the Restricted Stock Units, you will have no rights as a shareholder (including the right to receive dividends) by reason of this Restricted Stock Units Award. You acknowledge and agree that the Company may at any time and from time to time verify your Matching Shares in your Measurement Account, and that the Company may require you to provide certifications with respect to your Matching Shares in the Measurement Account or otherwise, in order to confirm that you are continuing to meet the Minimum Share Ownership Condition (or portion thereof, if applicable).
10.
Continued Effect of Award Agreement. To the extent that the Plan or these Terms and Conditions contain provisions that are intended to have effect after the date(s) as of which your rights in respect to the Restricted Stock Unit Award have become vested (including, but not limited to, following the date of your termination of Service), this Restricted Stock Unit Award and any Shares issued in respect of such Restricted Stock Unit Award shall continue to be subject to the terms of the Plan and these Terms and Conditions

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11.
Securities Law Requirements. If at any time the Committee determines that issuing Shares would violate applicable securities laws, the Company will not be required to issue such Shares. The Committee may declare any provision of these Terms and Conditions or action of its own null and void, if it determines the provision or action fails to comply with the short-swing trading rules. As a condition to issuance, the Company may require you to make written representations it deems necessary or desirable to comply with applicable securities laws. No person who acquires Shares under these Terms and Conditions may sell the Shares, unless they make the offer and sale pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which is current and includes the Shares to be sold, or an exemption from the registration requirements of the Securities Act.
12.
Notice. Any notice or other communication required or permitted under these Terms and Conditions must be in writing and must be delivered personally, sent by certified, registered or express mail, or sent by overnight courier, at the sender’s expense. Notice will be deemed given when delivered personally or, if mailed, three (3) days after the date of deposit in the United States mail or, if sent by overnight courier, on the regular business day following the date sent. Notice to the Company should be sent to:

Keurig Dr Pepper Inc.
53 South Ave
Burlington, MA 01803
Attention: Chief Legal Officer, Corporate General Counsel and Secretary
Notice to you should be sent to the address on file with the Company. Either party may change the Person and/or address to which the other party must give notice under this Section 11 by giving such other party written notice of such change, in accordance with the procedures described above.
13.
Successors. All obligations of the Company under these Terms and Conditions will be binding on any successor to the Company, whether the existence of the successor results from a direct or indirect purchase of all or substantially all of the business of the Company, or a merger, consolidation, or otherwise.
14.
Governing Law. To the extent not preempted by federal law, these Terms and Conditions will be construed and enforced in accordance with, and governed by, the laws of the State of Delaware, without giving effect to its conflicts of law principles that would require the application of the law of any other jurisdiction.
15.
Plan Document Controls. The rights granted under these Terms and Conditions are in all respects subject to the provisions set forth in the Plan to the same extent and with the same effect as if set forth fully in these Terms and Conditions. If the terms of these Terms and Conditions conflict with the terms of the Plan document, the Plan document will control.

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16.
Amendment. These Terms and Conditions may be amended unilaterally by the Company to the extent determined by the Committee and permitted under the Plan, or by a written instrument signed by both parties.
17.
Entire Agreement. These Terms and Conditions, together with the Plan, constitute the entire obligation of the parties with respect to the subject matter of these Terms and Conditions and supersede any prior written or oral expressions of intent or understanding with respect to such subject matter.
18.
Administration. The Committee administers the Plan and these Terms and Conditions. Your rights under these Terms and Conditions are expressly subject to the terms and conditions of the Plan, including any guidelines the Committee adopts from time to time. You hereby acknowledge receipt of a copy of the Plan.
19.
Section 409A. The Restricted Stock Units awarded pursuant to these Terms and Conditions are intended to comply with or, in the alternative, be exempt from Section 409A. Any reference to a termination of Service shall be construed as a “separation from service” for purposes of Section 409A.
20.
Data Protection. By accepting the award of Restricted Stock Units, you hereby agree to permit the Company, its Subsidiaries and each of their respective affiliates to process personal data and sensitive personal data about you in connection with the Plan. Such data includes, but is not limited to, the information provided hereunder and any changes thereto, other appropriate personal and financial data, and information about your participation in the Plan and the Restricted Stock Units granted to you under the Plan from time to time (collectively, “Personal Data”). You consent to each and any of the Company, any Subsidiary and each of their respective affiliates processing and transferring any Personal Data outside the country in which you work or are employed to the United States and any other third countries. The legal persons for whom Personal Data is intended include the Company, each Subsidiary and each of their respective affiliates, the Committee and the Board, any administrator selected from time to time to administer the Plan, and any other person or entity that the Company, the Committee or the Board involves in the administration of the Plan. Each of the Company, any Subsidiary and each of their respective will take all reasonable measures to keep Personal Data confidential and accurate. You can access and correct your Personal Data by contacting your human resources representative. By accepting participation in the Plan, you agree and acknowledge that the transfer of information is important to the administration of the Plan and failure to consent to the transmission of that information may limit your ability to participate in the Plan.



8


EMPLOYEE CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT

This Employee Confidentiality and Non-Competition Agreement (this “Agreement”) by and between Keurig Dr Pepper Inc. on behalf of itself and its subsidiaries (collectively, the “Company”) and the undersigned employee (“Employee”) is effective as of the date accepted, or signed below. Employee and Company agree as follows:1  
A.Definition of Trade Secrets and Confidential Business Information. The Company has invested substantial time, money, and effort developing its trade secrets, including, without limitation: products; business and strategy plans; pricing and pricing strategies; financial strategies, projections and forecasts; supply chain and manufacturing processes; consumer propositions; marketing and sales programs and presentations; private or sensitive employee information (such as social security information or birth dates, and information obtained from any confidential human resources or employee files/records to which Employee may have access); names, addresses and contact information of customers and suppliers and prospective customers and suppliers; customer and supplier information (including, without limitation, methods of operation, requirements, preferences and history of dealings with the Company); research and development plans, results and experimental work; improvements; ingredients; formulas; inventions; creative works; engineering; designs; know-how; licenses; permits; and other unique processes and compilations of information that have recognized value and are not generally available through other sources (“Trade Secrets”). The same is true of information regarding its various products, ingredients, supply chain, marketing programs and financials that is treated as confidential by the Company that may not rise to the level of a Trade Secret, which may include confidential or proprietary information of third parties that has been disclosed to the Company in confidence (“Confidential Business Information”). Confidential Business Information does not include information that properly and lawfully has become generally known to the public other than as a result of the act or omission of Employee. Collectively, Trade Secrets and Confidential Business Information are referred to hereafter as “Confidential Information.” Confidential Information does not include information lawfully acquired by a non-supervisory employee about wages, hours or other terms and conditions of non-supervisory employees if used by them for purposes protected by §7 of the National Labor Relations Act (the NLRA) such as joining or forming a union, engaging in collective bargaining, or engaging in other concerted activity for their mutual aid or protection.
B.Importance of Confidential Information. In order to develop Employee’s skills and enable Employee to perform his or her duties, Employee acknowledges that the Company hereby agrees to provide Employee with portions of its Confidential Information. By signing this Agreement, Employee acknowledges that he/she has received and/or will in the future receive portions of the Company’s Confidential Information. Employee acknowledges that he/she will be making use of, acquiring, accessing and/or adding to such Confidential Information on behalf of the Company throughout the period of his/her employment. Employee





_____________________
1 Employees in California, Louisiana, Massachusetts, Wisconsin, Virginia, Nebraska, and Oklahoma are directed to Appendix A for important limitations on the scope of this Agreement.

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recognizes that access to and knowledge of this information is essential to the performance of Employee’s duties with the Company. Employee acknowledges and agrees that the Company’s Confidential Information is a valuable, special, and unique asset of the Company and such Confidential Information is extremely important in the highly competitive non-alcoholic beverages industry in which Company is engaged, which includes, but is not limited to, the manufacture, sale, distribution and marketing of fruit-based purees/sauces, carbonated and non-carbonated soft drinks, concentrates and syrups for soft drinks, alcoholic beverages, coffee, tea, cocoa, water, juices or fruit-based beverages, energy drink, sports drinks, functional beverages, mixers and other forms of beverages, as well as the appliances or pods that brew, make or contain such beverages (collectively the “KDP Business”). Employee acknowledges that the disclosure of any Confidential Information will cause the Company imminent harm and substantial, irreparable injury, including loss of profit and other damages such as loss of goodwill and a decrease in market share which are difficult to calculate. Employee acknowledges that the Company retains a proprietary interest in its Confidential Information that continues beyond the termination of Employee’s employment. Employee further acknowledges that the preservation and protection of the Confidential Information is an essential part of Employee’s employment by and business relationship with the Company and that Employee has a duty of fidelity and trust to the Company in handling the Confidential Information both during and after Employee’s employment by the Company. Employee agrees to abide by the Company’s policies as communicated to Employee from time to time, including without limitation the Company’s policies with regard to protection of Confidential Information. It is important that each employee recognize and acknowledge that the Company would likely sustain great loss if such Confidential Information were improperly disclosed or misappropriated.
C.Non-Disclosure, Misuse, and Return of Documents. As a material inducement to the Company to provide Confidential Information to Employee and otherwise enter into this Agreement and employment relationship, Employee agrees that Employee will not disclose, copy or take away any of the Confidential Information, directly or indirectly, or use such information in any way, either during the term of Employee’s employment by the Company or at any time thereafter, except as required in the ordinary course of Employee’s employment for the benefit of the Company. Where an additional time limitation is necessary for this nondisclosure provision to be enforceable, Confidential Business Information shall be protected from disclosure for a period of three (3) years following termination of Employee’s employment by the Company. Trade Secrets shall be protected from disclosure as long as the information at issue continues to qualify as a trade secret under applicable law. Subject to the provisions of Section Q, if disclosure is compelled by law, Employee will give Company as much written notice as possible under the circumstances, will refrain from use or disclosure for as long as the law allows, and will cooperate with Company to protect such information, including taking every reasonable step to protect against unnecessary disclosure. Employee agrees, if he or she becomes aware of an unauthorized use or disclosure of Company’s Confidential Information, he or she will immediately notify Company’s Legal Department, whether or not Employee is a Company employee when he or she becomes aware of the disclosure. Employee agrees that Employee will not use a personal mobile device (e.g., cellphone, smartphone, blackberry, tablet) to create or store any Confidential Information unless Employee has the prior written consent of Company. Employee further agrees that if Employee stores Confidential Information (i) on a personal mobile device without Company’s prior written consent, (ii) on any other personally owned computer (e.g., desktop, laptop) or electronic storage device (e.g., thumb drive, CD), or

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(iii) in any personal online account (e.g., Yahoo, Dropbox, iCloud), then Employee will provide Company with access to such device, computer or account, upon request consistent with applicable law, so that Company may inspect the device, computer and/or account to insure that all Company materials have been returned and not copied or retained, and/or so that the Company may permanently delete any Confidential Information stored therein. Employee understands and agrees that the storage of Confidential Information on a personal mobile device as described in this subsection, without proper and prior authorization, would violate Company policy. When Employee terminates employment with Company, or earlier if so requested, he or she will return to Company all documents, records, and materials of any kind in his or her possession or under his or her control, incorporating Confidential Information or otherwise, relating to Company’s business, and any copies thereof (electronic or otherwise), other than documents regarding Employee’s individual compensation, such as pay stubs and benefit plan booklets. Employee is not authorized to access and use the Company’s computers, email, or related computer systems to compete or to prepare to compete, or to otherwise compromise the Company’s legitimate business interests, and unauthorized access to or use of the Company’s computers in violation of this understanding may subject Employee to civil and/or criminal liability.
D.Noncompetition and Nonsolicitation. Employee acknowledges and agrees that customer goodwill and information, including the Confidential Information, Employee has acquired and will acquire during the course of Employee’s employment will enable Employee to irreparably injure the Company if Employee should engage in unfair competition. Ancillary to the above agreements and in consideration of the compensation, benefits2 and Confidential Information provided to Employee and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee hereby agrees that the following covenants are reasonable and necessary protective covenants for the protection of the value of the agreements described in Sections A-C above and the other terms and conditions contained in this Agreement:
1.Non-competition. During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not directly or indirectly, provide Competitive Services in the Restricted Area for a Competitor.
Definitions:
“Competitive Services” means to own, manage, operate, join, control, be employed by or with, or participate in any manner (including, without limitation, as a consultant) with a Competitor where doing so will require Employee to provide the same or substantially similar services to or on behalf of any such Competitor as those services Employee provided to or on behalf of the Company during the Look Back Period.
“Competitor” shall mean any person or entity that competes with those parts of the KDP Business as to which Employee provided services, had material involvement, or received






_____________________
2 Including, without limitation, the ____________ Award made to you under the Keurig Dr Pepper Inc. Omnibus Incentive Plan of 2019 (as amended).

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Confidential Information during the Look Back Period. All employees at the level of vice president and above acknowledge and agree they provide services to, have material involvement in, and/or receive Confidential Information relating to all parts of the KDP Business.
“Look Back Period” shall mean the last forty-eight (48) months of Employee’s employment with the Company, or such shorter period as mandated by applicable law.
For employees whose areas of responsibilities and scope of Confidential Information are limited by territory or region, then “Restricted Area” means those territories and/or regions in which Employee had responsibilities and/or about which Employee had Confidential Information during the Look Back Period. For all other employees (meaning those employees who have responsibilities and/or Confidential Information concerning the Company’s operations as a whole), Restricted Area means those geographic areas in which the Company is engaged in manufacturing, selling, distributing, and/or marketing its products during the Look Back Period.
2.Non-interference with Customer Relationships.
During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not, on Employee’s own behalf or on behalf of any other person or entity, interfere with the relationship of the Company with any person or entity who was a customer of the Company as to which Employee had business-related dealings or about which Employee received Confidential Information during the Look Back Period. Where required by applicable law to be enforceable, the foregoing provisions are limited to the Restricted Area.
3.Non-solicitation of Customers. During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not, on Employee’s own behalf or on behalf of any other person or entity, interfere with the relationship of the Company with any person or entity who was a customer of the Company as to which Employee had business-related dealings or about which Employee received Confidential Information during the Look Back Period (referred to herein as a “Covered Customer”) by soliciting or communicating (regardless of who initiates the communication) with a Covered Customer to induce or encourage the Covered Customer to: (a) stop or reduce doing business with Company; or (b) to buy a Competing Product from a Competitor, unless a duly authorized Company officer gives Employee written authorization to do so. Where required by applicable law to be enforceable, the foregoing provisions are limited to the Restricted Area. “Competing Product” refers to a product that competes with a product of the Company, including products under development, as to which Employee had material involvement or received Confidential Information during the Look Back Period.
4.Non-solicitation of Employees. During the term of Employee’s employment with the Company and for a period of one (1) year following the termination of Employee’s employment with the Company for any reason, Employee shall not, either directly or indirectly, participate in, or assist any third party in, recruiting or hiring away any employees of the Company, or encourage or induce any employees of the Company to terminate their employment with the Company. For purposes of this covenant, “Employees” shall refer to current employees of the Company and employees who are not employed by the Company at the time

12


of the attempted recruiting or hiring and/or interference, but were employed by the Company at any time during the six (6) months prior to the time of the attempted recruiting or hiring and/or interference. Further, “Employees” shall refer only to those employees of KDP with whom Employee had contact, or association with, or about whom Employee received Confidential Information, during Employee’s employment with the Company.
5.Reasonableness of Restrictions.
Employee has carefully read and considered the provisions of this Section D and agrees that the restrictions set forth herein, including, but not limited to, the time period of restriction, the geographic areas of restriction, and the scope of the restriction are fair and reasonable and do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company and its affiliated entities, officers, directors, members and other employees. Employee acknowledges that these restrictions will not unreasonably prevent Employee from obtaining gainful employment in Employee’s occupation or field of expertise or cause undue hardship.
6.Notification of Restrictions to Third Parties.
Employee agrees that the Company may notify any person or entity employing or contracting with Employee or evidencing an intention of employing or contracting with Employee of the existence and provisions of this Agreement in order to assure that the Company’s rights under this Agreement are adequately protected.
7.Notification by Employee of Post-Termination Employment.
If, within one (1) year after Employee’s employment with the Company terminates for any reason, Employee enters into an employment, consulting, or independent contractor relationship with any third party engaged in KDP Business, then Employee agrees to provide the Company written notice of Employee’s job responsibilities within five (5) business days of Employee’s acceptance of employment (or other relationship) (“Employment Notice”). The Employment Notice shall include (i) a description of the duties and responsibilities of the proposed position, (ii) the identity of the employer(s), and (iii) the territory in which Employee will be working. Written notice should be given to the Company, Attention: Chief Legal Officer, 5301 Legacy Drive Plano, TX  75024. Employee also agrees that, upon written request by the Company regarding the status of his/her employment or prospective employment, he/she will respond to the Company in writing as provided herein of the status of his/her employment or proposed employment with any party and that if Employee fails to timely provide the required response within fourteen (14) calendar days of the Company’s written request, the Company may presume that Employee’s employment violates the terms of Sections C or D, and the Company will be authorized by this Agreement to seek immediate injunctive relief as outlined in Section F.
8.Tolling.

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E.If Employee violates one of the post-employment restrictions in this Agreement on which there is a specific time limitation, the time period for that restriction will be extended by one day for each day Employee violates it, up to a maximum extension of one year, so as to give Company the full benefit of the bargained-for length of forbearance.
F.Court’s Right to Reform Restrictions. The Company and Employee have attempted to limit Employee’s ability to compete with the Company and solicit employees only to the extent necessary to protect the Company from unfair competition. However, should a court of competent jurisdiction determine that the scope of the covenants contained in Section D exceed the maximum restrictiveness such court deems reasonable and enforceable, the parties intend that the court should reform, modify and enforce the provisions to such narrower scope as it determines to be reasonable and enforceable under the circumstances existing at that time.
G.Enforcement of Covenants. Employee acknowledges that compliance with the confidentiality, noncompetition and non-solicitation restrictive covenants contained in Sections A through D (including subparts) of this Agreement are necessary to protect the business and goodwill of the Company. Employee also acknowledges that a breach of such covenants will result in irreparable and continuing damages to the Company, for which money damages may be an insufficient remedy to the Company. Further, Employee acknowledges that the ascertainment of the full amount of damages in the event of Employee’s breach of any provision of this Agreement would be difficult. Consequently, Employee agrees that, in the event of a breach or threatened breach of any of the restrictive covenants contained in this Agreement, that the Company, in addition to all other remedies it may have, shall be entitled to both (a) temporary, preliminary and/or permanent injunctive relief to restrain the breach of or otherwise to specifically enforce any of the covenants in order to prevent the continuation of such harm (with $1,000.00 being the agreed amount of any bond that need to be posted (if any) by the Company to secure such injunctive relief); and (b) money damages insofar as they can be determined. Injunctive relief to enforce Sections A through D may be sought by either party from any court of competent jurisdiction. Employee further agrees that the restrictions included within this Agreement are intended to be in addition to, and do not in any way limit, any other obligations owed by Employee to the Company regarding such matters, whether such obligations arise under common law, state or federal statute, ordinance or otherwise. Finally, the parties agree any alleged breach by the Company of any obligations under this Agreement or any other agreement between the parties shall not excuse Employee from performing his/her obligations hereunder or otherwise serve as a defense to the enforceability of this Agreement.
H.Property Rights. Employee will notify the Company promptly of all inventions, improvements, discoveries, or methods relating to or useful in connection with any business conducted by the Company, now or in the future, that Employee makes or discovers while employed by the Company. Employee agrees to and hereby does assign to the Company all rights, title and interest in such inventions, improvements, discoveries and methods and any related patents or patent applications which pertain to business in which the Company is engaged, is reasonably expected to engage or in which it has previously expressed an intention to enter. Employee agrees to cooperate with the Company in completing and executing any documents required to perfect the Company’s interest in any intellectual property developed by or with the Employee, including to the extent such cooperation is required after termination, provided that the Company bears the expense thereof.

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1.Inventions Retained and Licensed. Employee has previously submitted to the Legal Affairs Manager for Intellectual Property a list describing all inventions, original works of authorship, developments, improvements and trade secrets that (i) were made by Employee prior to Employee’s employment with the Company, (ii) belong to Employee or in which Employee has an interest, (iii) relate to the Company’s current or proposed business, products or research and development, and (iv) are not assigned to the Company hereunder (collectively, “Prior Inventions”); or, if no such list is submitted, Employee represents and warrants that there are no such Prior Inventions. Employee agrees that Employee will not use, incorporate, or permit to be used or incorporated, any Prior Invention with or into a Company product, process or service without the Company’s prior written consent. Notwithstanding the foregoing sentence, if, in the course of Employee’s employment with the Company, Employee uses with or incorporates into a Company product, process or service a Prior Invention, then Employee hereby grants to the Company a nonexclusive, royalty-free, fully paid-up, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or service, and to practice any method related thereto.
2.Inventions Assigned to the Company. Employee agrees to promptly make full written disclosure to the Company, to hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all of Employee’s right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks and trade secrets, whether or not patentable or registrable under copyright or similar laws, which Employee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time Employee is in the employ of the Company (collectively, “Inventions”), together with all patent, copyright, mask work, trademark, trade secret, and other intellectual property rights therein throughout the world (collectively, “Intellectual Property Rights”), except as provided in Section G(6) below. Employee further acknowledges that all original works of authorship which are created by Employee (solely or jointly with others) within the scope of and during the period of Employee’s employment with the Company and which are subject to copyright protection are “works made for hire” as that term is defined in the United States Copyright Act, and such works and all copyrights therein belong solely to the Company. Employee understands and agrees that the decision whether or not to commercialize or market any Invention is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to Employee as a result of the Company’s efforts to commercialize or market any such Invention.
3.Inventions Assigned to Third Parties. Employee agrees to assign to any third party all of Employee’s right, title, and interest in and to any and all Inventions and related Intellectual Property Rights whenever such full title is

15


required to be in such third party by a contract between the Company and such third party.
4.Maintenance of Records. Employee agrees to keep and maintain adequate and current written records of all Inventions during the term of Employee’s employment with the Company. Such records will be in the form of notes, sketches, drawings and any other format that may be specified by the Company. The records will be available to and remain the Company’s sole property at all times.
5.Registrations. Employee agrees to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in any Inventions and Intellectual Property Rights relating thereto in any and all countries, including but not limited to the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, and all other instruments that the Company deems necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive right, title and interest in and to such Inventions and Intellectual Property Rights relating thereto. Employee further agrees that Employee’s obligation to execute or cause to be executed, when it is in Employee’s power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of Employee’s mental or physical incapacity or for any other reason to secure Employee’s signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering any Inventions or original works of authorship assigned to the Company as above, then Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Employee’s agent and attorney in fact, to act for and on Employee’s behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by Employee.
6.Exceptions to Assignments. To the extent state law where Employee resides requires it (such as under Cal. Lab. Code, § 2870; Del. Code Title 19 § 805; Illinois 765 ILCS 1060/1-3; Kan. Stat. Section 44-130; Minn. Statutes, 13A, Section 181.78; N. Car. General Statutes, Art. 10A, Chapter 66, Commerce and Business, § 66-57.1; Utah Code § 34-39-1 through 34-39-3; Wash. Rev. Code, Title 49 RCW: Labor Regulations, Chapter 49.44.140), Employee is notified that no provision in this Agreement requires Employee to assign any of his or her rights to an invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on Employee’s own time, unless (a) the invention relates at the time of conception or reduction to practice of the invention, (i) to the business of the Company, or (ii) to the Company’s actual or demonstrably anticipated research or development, or (b) the invention results from any work

16


performed by Employee for the Company. Inventions excluded by the foregoing are referred to herein as “Other Inventions.” Employee will advise the Company promptly in writing of any Invention that Employee believes constitutes an Other Invention and was not previously identified to the Company. Employee will not use or incorporate, or permit to be used or incorporated, any Other Invention owned by Employee or in which Employee has an interest with or into a Company product, process or service without the Company’s prior written consent. Notwithstanding the foregoing sentence, if, in the course of Employee’s employment with the Company, Employee uses with or incorporates into a Company product, process or service an Other Invention owned by Employee or in which Employee has an interest, Employee hereby grants to the Company a nonexclusive, royalty-free, fully paid-up, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Other Invention as part of or in connection with such product, process or service, and to practice any method related thereto.
I.Absence of Restrictions. Employee represents and warrants that Employee knows of no reason that Employee cannot legally enter into this Agreement and perform the personal services contemplated by this Agreement. Specifically, Employee represents and warrants that Employee is not a party to any agreement with a former employer containing any post-employment restrictions, noncompetition provisions or any other restrictive covenants with respect to (i) the rendition of any personal services that Employee is expected to perform or conduct, (ii) the disclosure or use of any information which, directly or indirectly, relates to the business of the Company or the services to be rendered by Employee, or (iii) any other obligation which would impact or restrict Employee’s employment by the Company or the performance of Employee’s duties.
J.Other Party’s Confidential Information. The Company prohibits Employee from engaging in any unfair competition or otherwise misusing confidential information of any other party, including former employers. Accordingly, Employee represents and warrants that Employee (a) will hold and safeguard the confidential information and trade secrets of any other party and will not misappropriate, use, disclose or make available to anyone at the Company any such information; (b) will comply with any lawful non-solicitation agreement applicable to any former employer’s employees, clients or customers; (c) has not wrongfully retained or removed any files, books, correspondence, reports, proposals, records or other documents concerning another party’s business, whether prepared by Employee or not; and (d) will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such other party unless consented to in writing by such other party and the Company.
K.Attorneys’ Fees. Employee agrees and understands that Employee will pay the reasonable attorney’s fees and court costs incurred by the Company if the Company prevails in any lawsuit brought by the Company to enforce the terms of this Agreement. Provided, however, that if Employee resides in and is subject to the law of a state that would convert this recovery of attorney’s fees provision to a reciprocal obligation or an obligation where the prevailing party would recover fees and costs, then such recovery of attorneys’ fees and costs provision shall not apply and each party will bear its own attorneys’ fees and costs.

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L.Severability. The validity or unenforceability of any provision herein shall in no way affect the validity or enforceability of any other provision of this Agreement. It is the intention of the parties that if any provision of the Agreement is determined by a court of competent jurisdiction to be void, illegal or unenforceable, in whole or in part, despite the power of the Court to judicially modify this Agreement (as provided by Section E), all other provisions will remain in full force and effect, as if the void, illegal, or unenforceable provision is not part of the Agreement.
M.Governing Law; Venue. This Agreement shall be governed by the laws of the State of Texas without regard to the choice of law provisions thereof. Venue for the enforcement of this Agreement shall be exclusively in an arbitrator or court of competent jurisdiction in Collin County, Texas (as further set forth in Section P below), and the parties to this Agreement hereby consent to personal jurisdiction therein. This Agreement does not alter, reduce or modify any obligations Employee owes to the Company under any other applicable statute or the common law.
N.Assignability. By reason of the special and unique nature of the services hereunder, it is agreed that neither party hereto may assign any interest, rights or duties which it or they may have in this Agreement without the written consent of the other, provided, however, that the Company may, without the written consent of Employee, assign this Agreement to (a) any entity into which the Company is merged or to which the Company transfers all or substantially all of its assets or (b) any entity controlling, under common control with, or controlled by the Company, and Employee agrees that any one or more of these assignees may enforce this Agreement without the need for further consent by Employee.
O.At-Will Employment. This Agreement does not and is not intended to alter or modify in any way the employment-at-will status of the Employee. Employee acknowledges that employment with the Company is not for any specific time and may be terminated at will, with or without cause and without prior notice, by the Company, or Employee may resign for any reason at any time. Employee understands that no supervisor, manager, or representative other than the Company’s President, General Counsel or Executive Vice President of Human Resources has any authority to enter into any agreements with Employee for employment for any specified time period or to make any oral or written promises or agreements contrary to this policy. Further, any agreement limiting the at-will nature of Employee’s employment with the Company entered into by the designated officers shall not be enforceable unless it is in writing.
P.Employee Acknowledgment. Employee acknowledges that he or she has been given an adequate opportunity to seek legal counsel. Employee agrees that he or she has either relied upon the advice of Employee’s attorney or Employee has knowingly and willingly not sought the advice of such attorney. Employee hereby understands and acknowledges the significance and consequence of this Agreement and represents that Employee fully understands and voluntarily accepts the terms of this Agreement.
Q.Binding Arbitration. If Employee has executed Company’s Mutual Arbitration Agreement and Class Action Waiver, then the terms of that Agreement will apply to any controversy, claim or dispute with respect to this Agreement. Otherwise any controversy, claim or dispute arising out of or relating to this Agreement or the breach, termination or invalidity

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thereof, shall be submitted to, and determined exclusively by, binding arbitration in accordance with the then current Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association (the “AAA Rules”), to the extent such rules do not conflict with the provisions of this Agreement. The arbitrator shall have the exclusive authority to determine the arbitrability of any dispute asserted by and between the parties. Notwithstanding the foregoing, this Paragraph shall not prevent the Company from seeking a temporary restraining order or temporary injunctive relief from a court of competent jurisdiction in order to protect its rights under this Agreement, provided, however, that such litigation shall be stayed following entry of the temporary restraining order or temporary injunction and the matter shall be compelled to arbitration so that the adjudication of any underlying claim(s) upon which the request for injunctive relief may be based must be pursued through final and binding arbitration, the award from which may serve as the basis for permanent injunctive relief by the arbitrator and, if necessary for entry of same, an appropriate court. Mandatory venue for the arbitration hearing shall be in Collin County, Texas. Employee and the Company agree that upon application of either party to the United States District Court for the Eastern District of Texas, the Court shall enter judgment confirming, modifying or vacating the award made pursuant to the arbitration as provided by the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 1 et seq. and that either party may also pursue such remedy or relief to which it may be entitled pursuant to the FAA in any proceeding as to which this agreement to arbitrate may apply.
R.Protected Conduct. Nothing in this Agreement, including without limitation Sections C and F, prevents Employee from communicating with the Equal Employment Opportunity Commission, the Securities and Exchange Commission, the Department of Labor, or any other governmental authority, making a report in good faith and with a reasonable belief of any violations of law or regulation to a governmental authority, or cooperating with or participating in a legal proceeding relating to such violations; provided, however, that to the extent allowed by law, Employee will give the Company as much written notice as possible under the circumstances and will cooperate with the Company in any legal action undertaken to protect the confidentiality of the information; however, nothing herein shall be construed to prohibit Employee from reporting what Employee reasonably believes, in good faith is a violation of the law to an appropriate law enforcement agency, with or without advance notice to the Company.
Employee must sign where indicated below unless this Agreement is being adopted in connection with an award of Restricted Stock Units, Performance Share Units, Stock Options, or other similar awards (“Awards”). In that event, Employee will indicate acceptance of the terms of this Agreement by following the electronic signature procedures on the Global Shares on-line portal, or any other future site to which Employee is directed by the Company for that purpose. By accepting the Awards, Employee accepts and agrees to this Employee Confidentiality and Non-Competition Agreement.





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EMPLOYEE:
 
KEURIG DR PEPPER INC.:
 
 
 
 
 
By:
 
 
 
Print Name:
 
 
Print Name:
 
 
 
 
Title:
 
Date:
 
 
Date:
________________
 






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Appendix A
STATE SPECIFIC MODIFICATIONS
1.    If Employee resides in California or North Dakota: Section D(1) shall not apply; Section D(2) is limited to situations where Employee is aided in his or her conduct by the use or disclosure of the Company’s trade secrets; Section D(3) is limited to solicitation of a Protected Employee to terminate his or her relationship with the Company; the Collin County, Texas, mandatory venue in Section P shall not apply; and no provision or requirement of the Agreement will be construed or interpreted in a manner contrary to the public policy of the State of California or North Dakota.
2.    If Employee resides in Louisiana, for so long as Employee resides in Louisiana and is subject to its laws: the enforcement of the restrictions in Sections D(1) and D(2) will be limited within Louisiana to the parishes and outside of Louisiana to those counties in which Employee assisted the Company in providing its products and services during the Look-Back Period, as are indicated below; provided, however, that nothing in Agreement may be construed to prohibit the enforcement of Sections D(1) and D(2) in accordance with their terms in states outside of Louisiana:
The Restricted Area shall specifically include the following Louisiana parishes: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Calcasieu, Caldwell, Cameron, Catahoula, Claiborne, De Soto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant, Iberia, Iberville, Jackson, Jefferson, Jefferson Davis, Lafayette, Lafourche, La Salle, General, Livingston, Madison, Morehouse, Natchitoches, Orleans, Ouachita, Plaquemines, Pointe Coupee, Rapides, Red River, Richland, Sabine, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, St. Tammany, Tangipahoa, Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana, and Winn.
The Restricted Area shall also specifically include the following Texas counties: Cass, Marion, Harrison, Panola, Shelby, Sabine, Newton, Orange, and Jefferson.
The Restricted Area shall also specifically include the following Arkansas counties: Miller, Lafayette, Columbia, Union, Ashley and Chicot.
The Restricted Area shall also include the following Mississippi counties: Issaquena, Warren, Claiborne, Jefferson, Adams, Wilkinson, Amite, Pike, Walthall, Marion, Pearl River and Hancock.
3.    If Employee resides in Wisconsin or Georgia, for so long as Employee resides in Wisconsin or Georgia and is subject to its laws, the tolling provision in Section D(8) shall not apply.
4.    If Employee resides in Virginia, for so long as Employee resides in Virginia and is subject to its laws, the definition of “Competitive Services” in Section D(1) shall be replaced with “services that are the same or similar in function or purpose to those Employee provided to the Company during the Look-Back Period.”
6.    In Employee resides in Nebraska, for so long as Employee resides in Nebraska and is subject to its laws, the customer restriction in Section D(2) is limited to customers with which Employee had contact and the “or received Confidential Information about” language shall not apply.

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7.     If Employee resides in Oklahoma, for so long as Employee resides in Oklahoma and is subject to its laws, the customer restriction in Section D(2)and (3) shall be limited as follows: Employee covenants and agrees that for a period of twelve (12) months after employment with Company ends (for any reason), Employee will not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the Company. Section D(1) shall not apply. A customer will be presumed to be established where actual sales and/or services have occurred or been performed in the preceding year and/or where there is an active proposal for sales or services pending or being negotiated as of the date Employee’s employment with the Company ends.
8.    If Employee resides or works in Massachusetts and is subject to its laws, then Sections D(1) and L are amended as follows:
D.    Non-Competition and Non-Solicitation
1. Non-Competition.
Employee and Company acknowledge and agree that the _________ Award made to Employee under the Keurig Dr Pepper Inc. Omnibus Incentive Plan of 2019 (as amended), as well as Employee’s continued access to the Company’s Confidential Information, satisfy the “mutually-agreed upon consideration between the employer and employee” required by the Massachusetts Non-Competition Agreement Act, MGL c.149, § 24L (the “Act”). However, in the event a court of competent jurisdiction determines further consideration is required by the Act, and unless the Company decides to waive the non-competition period, Company will pay the continuation payments described in the Act.
The Restraint Period shall be extended to twenty-four (24) months if Employee (i) breached Employee’s fiduciary duty(ies) to Company, or (ii) unlawfully took, physically or electronically, property belonging to Company (the “Extended Restraint Period”). Employee shall not be entitled to receive any payments from the Company during the Extended Restraint Period.
Employee acknowledges that the Employee Confidentiality and Non-Competition Agreement, including this Massachusetts Addendum, was delivered to Employee at least ten (10) business days before the date that both the Agreement and this Addendum were executed by both of the Parties (the “Effective Date”).
Employee acknowledges that he or she has been advised of his or her right to consult with counsel of his or her own choosing prior to signing the Restrictive Covenants Agreement and this Massachusetts Addendum.
Employee acknowledges (i) that the Non-Competition covenant contained in this Section D(1) is no broader than necessary to protect Company’s trade secrets, Confidential Information, and good will, and (ii) that the those business interests, and the business interests identified in the Agreement, cannot be adequately protected through restrictive covenants other than the Non-Competition covenant contained in this section, as well as the non-solicitation,

22


non-interference, non-disclosure, and other restrictions set forth in Section D of the Agreement.
L.    Governing Law, Venue.
The interpretation, validity, and enforcement of the Non-Competition provision set forth in Section D(1) of this Agreement will be governed by the laws of the Commonwealth of Massachusetts, without regard to any conflicts of laws principles that would require the application of the law of another jurisdiction. Subject to the binding arbitration provisions of Section P Employee agrees that any action relating to or arising out of the Non-Competition provision shall be brought in (i) the United States District Court for the District of Massachusetts, Eastern Division, if that Court has subject matter jurisdiction over the dispute; or, if it does not, in (ii) the Business Litigation Session of the Suffolk County Superior Court, or, if the Business Litigation Session does not accept the case for whatever reason whatsoever, the Suffolk County Superior Court.
The interpretation, validity, and enforcement of the provisions of this Agreement other than the Non-Competition provision set forth in Section D(1) of this Addendum shall be governed by the laws of the State of Texas without regard to the choice of law provisions thereof and venue for the enforcement of those provisions shall be exclusively in an arbitrator or court of competent jurisdiction in Collin County, Texas (as further set forth in Section P of the Agreement), and the parties to this Agreement hereby consent to personal jurisdiction therein.



        



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Exhibit 31.1
Principal Executive Officer's Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert J. Gamgort, certify that:
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/ Robert J. Gamgort
 
Date: August 8, 2019
Robert J. Gamgort
 
 
Chief Executive Officer and President of
Keurig Dr Pepper Inc. 
 





Exhibit 31.2

Principal Financial Officer's Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ozan Dokmecioglu, certify that:
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, 2019
Ozan Dokmecioglu
 
 
Chief Financial Officer of Keurig Dr Pepper Inc. 
 
 





Exhibit 32.1

Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
I, Robert J Gamgort, Chief Executive Officer and President of Keurig Dr Pepper Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
the Quarterly Report on Form 10-Q of the Company for the second quarterly period ended June 30, 2019, 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, 2019
Robert J. Gamgort
 
 
Chief Executive Officer and President of
Keurig Dr Pepper Inc. 
 





Exhibit 32.2

Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
I, Ozan Dokmecioglu, Chief Financial Officer of Keurig Dr Pepper Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
the Quarterly Report on Form 10-Q of the Company for the second quarterly period ended June 30, 2019, 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, 2019
Ozan Dokmecioglu
 
 
Chief Financial Officer of Keurig Dr Pepper Inc.