KDP filing — read by section

Item 2. Management’s Discussion and Analysis

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 Annual Report , as filed on February 27, 2020. 
 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 Exchange Act , including, in particular, statements about anticipated benefits and expenses of the DPS Merger and other transactions, including estimated synergies, deleveraging and associated cash management, and cost savings, the impact of COVID-19, 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 and in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as our subsequent filings with the SEC . 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. 
 
 OVERVIEW 
 KDP is a leading beverage company in North America, with a diverse portfolio of flavored (non-cola) CSD s, NCB s, including water (enhanced and flavored), ready-to-drink tea and coffee, juice, juice drinks, 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. Sales of brewing systems and related accessories are generally higher during the second half of the year due to the holiday shopping season. 
 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. Our brewing systems are 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, brewer accessories and other coffee-related equipment. In addition to coffee, we produce and sell a variety of other specialty beverages in K-Cup pod s (including hot and iced teas, hot cocoa and other beverages) for use with Keurig brewing systems. We also offer traditional whole bean and ground coffee in other package types, including bags, fractional packages and cans. 
 
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 Our Coffee Systems segment manufactures over 75% of the pods in the single serve K-Cup pod format in the U.S. We manufacture and sell 100% of the K-Cup pod s of our own brands, such as Green Mountain Coffee Roasters, The Original Donut Shop, Laughing Man, REVV, and Van Houtte. We have licensing and manufacturing agreements with our partner brands, including brands such as Starbucks, Dunkin' Donuts, Folgers, Newman’s Own Organics, McCafé, Peet's Coffee, Caribou Coffee, Eight O’Clock, Maxwell House, and Tim Hortons, and private label arrangements. Our Coffee Systems segment also has agreements for manufacturing, distributing, and selling K-Cup pod s for tea under brands such as Celestial Seasonings, Lipton and Tazo in addition to K-Cup pod s of our own brand, Snapple. We also produce and sell K-Cup pod s for cocoa, including through a licensing agreement for the Swiss Miss brand, and hot apple cider. 
 Our Coffee Systems segment manufactures its K-Cup pod s in facilities in North America that include specialty designed proprietary high-speed packaging lines using freshly roasted and ground coffee as well as tea, cocoa and other products. We offer high-quality coffee including certified 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 most 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, retail partners and through e-commerce, including our website at www.keurig.com. 
 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 partner brands and manufacture packaged beverages for other third parties in the U.S. and Canada. 
 Our larger NCB brands in this segment include Snapple, Mott's, Bai, Clamato, Hawaiian Punch, Core, Yoo-Hoo, ReaLemon, Vita Coco coconut water, evian water, Mr and Mrs T mixers, and Forto Coffee. Our larger CSD brands in this segment include Dr Pepper, Canada Dry, 7UP, A&W, Sunkist soda, Squirt, Big Red, RC Cola, Vernors and A Shoc . 
 Approximately 95% of our 2019 Packaged Beverages net sales came from the manufacturing and distribution of our own brands and the contract manufacturing of certain private label and emerging brand 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, evian water, Neuro drinks, High Brew RTD Coffee, Forto Coffee shots, A Shoc energy drinks, Peet's RTD Coffee and Runa energy drinks. We provide a route-to-market for 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. 
 We sell our Packaged Beverages products through our DSD and our WD systems, both of which include sales to all major retail channels, including supermarkets, fountains, mass merchandisers, club stores, e-commerce, vending machines, convenience stores, gas stations, small groceries, drug chains and dollar stores. 
 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, Sun Drop, Sunkist soda, A&W, 7UP, Squirt, Big Red, RC Cola and 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 aluminum cans, PET containers and glass bottles, 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. 
 LATIN AMERICA BEVERAGES 
 Our Latin America Beverages segment is a brand ownership, manufacturing and distribution business, with operations in Mexico representing approximately 90% of the segment's 2019 net sales. This segment participates mainly in carbonated mineral water, flavored CSD , bottled water and vegetable juice, with particular strength in carbonated mineral water, vegetable juice categories and grapefruit flavored CSD s. The largest brands include Peñafiel, Squirt, Clamato, Aguafiel and Crush. 
 
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 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, K-Cup pod s 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. 
 Coffee Systems K-Cup Pod and Appliance Sales Volume 
 In our Coffee Systems segments, we measure our sales volume as the number of appliances and the number of individual K-Cup pod s sold to our customers. 
 COMPARABLE RESULTS OF OPERATIONS 
 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 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 Management's Discussion and Analysis discussion as Adjusted income from operations, Adjusted interest expense, Adjusted provision for income taxes, Adjusted net income and Adjusted diluted EPS. 
 
 EXECUTIVE SUMMARY 
 
 Impact of COVID-19 on our Financial Statements 
 The impact of COVID-19 on our second quarter net sales performance presented both headwinds and tailwinds across the business and within the segments, requiring strong portfolio and channel mix management to optimize overall performance. The diversity of the Company’s broad portfolio and extensive route to market network enabled it to successfully navigate these mix impacts posed by the pandemic to optimize overall performance and deliver a strong second quarter. 
 
 • 
 Coffee Systems experienced significant growth in brewers and K-Cup coffee pods for at-home consumption, which more than offset a significant drop-off in the office coffee and hospitality businesses. E-commerce demonstrated particular strength during the quarter, reflecting an acceleration of consumers shifting some of their purchases to the on-line channel, including at the Keurig.com retail site. 
 
 • 
 Packaged Beverages experienced a net benefit from strong in-market execution, leading to share growth in the majority of our cold beverage segments, more than offset the decline in convenience and gas channels due to reduced consumer mobility. 
 
 • 
 Beverage Concentrates experienced a decline due to the fountain foodservice component of the business, which services restaurants and hospitality, reflecting changes in consumer behavior. 
 
 • 
 Latin America Beverages experienced a modest negative impact due to limited consumer mobility in Mexico. 
 
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 In addition to strong portfolio and channel mix management to optimize overall net sales performance, we instituted strong cost discipline to protect our profitability for the benefit of all of our stakeholders. For example, as certain parts of our business experienced positive net benefits in the net sales performance, we have increased our operating costs. For other parts of the business where negative impacts have occurred in the net sales performance, those impacts will materialize through to net income. In order to offset these impacts, we focused on cost discipline to manage these impacts and did the following: 
 
 • 
 Reduced our marketing expense, partially because in the current COVID-19 landscape, we are not obtaining the same return on investment previously achieved; and 
 
 • 
 Paused substantially all other discretionary costs, such as travel and entertainment expenses, within the business. 
 
 As a result of these items, COVID-19 is impacting our results, both positively and negatively, and should be taken into account when reviewing Management's Discussion and Analysis. Refer to the section COVID-19 Pandemic Disclosures below for further information. 
 
 The following table sets forth our reconciliation of significant COVID-19-related expenses. However, employee compensation expense and employee protection costs, which impact our SG&A expenses and cost of sales, are included as the COVID-19 item affecting comparability and is excluded in our Adjusted financial measures. In addition, reported amounts under U.S. GAAP also include additional costs, not included as the COVID-19 item affecting comparability, as presented in tables below. 
 
 Items Affecting Comparability (1) 
 
 (in millions) 
 Employee Compensation Expense (2) 
 
 Employee Protection Costs (3) 
 
 Allowances for Expected Credit Losses (4) 
 
 Inventory Write-Downs (5) 
 
 Total 
 
 For the second quarter of 2020: 
 
 Coffee Systems 
 $ 
 7 
 
 $ 
 2 
 
 $ 
 — 
 
 $ 
 8 
 
 $ 
 17 
 
 Packaged Beverages 
 38 
 
 16 
 
 — 
 
 — 
 
 54 
 
 Beverage Concentrates 
 — 
 
 — 
 
 4 
 
 — 
 
 4 
 
 Latin America Beverages 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Unallocated corporate costs 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Total 
 $ 
 45 
 
 $ 
 18 
 
 $ 
 4 
 
 $ 
 8 
 
 $ 
 75 
 
 For the first six months of 2020: 
 
 Coffee Systems 
 $ 
 7 
 
 $ 
 2 
 
 $ 
 2 
 
 $ 
 8 
 
 $ 
 19 
 
 Packaged Beverages 
 41 
 
 18 
 
 8 
 
 — 
 
 67 
 
 Beverage Concentrates 
 — 
 
 — 
 
 4 
 
 — 
 
 4 
 
 Latin America Beverages 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Unallocated corporate costs 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Total 
 $ 
 48 
 
 $ 
 20 
 
 $ 
 14 
 
 $ 
 8 
 
 $ 
 90 
 
 (1) 
 Employee compensation expense and employee protection costs are both included as the COVID-19 items affecting comparability in the reconciliation of our Adjusted Non-GAAP financial measures. 
 
 (2) 
 Reflects temporary incremental frontline incentive pay and the associated taxes in order to maintain essential operations during the COVID-19 pandemic. Impacts both cost of sales and SG&A expenses. 
 
 (3) 
 Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses. 
 
 (4) 
 Allowances reflect the expected impact of the economic uncertainty caused by COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers. Impacts SG&A expenses. 
 
 (5) 
 Inventory write-downs include obsolescence charges of $8 million for both the second quarter and first six months of 2020 . Impacts cost of sales. 
 
 Financial Overview 
 
 • 
 Net sales increased $52 million , or 1.8% , to $2,864 million for the second quarter of 2020 compared with $2,812 million in the prior year period. This performance reflected higher volume/mix of 4.3% , reflecting the impact of COVID-19, partially offset by lower net price realization of 1.4% and unfavorable FX translation of 1.1% , primarily in our Latin America Beverages segment. 
 
 • 
 Net income decreased $16 million to $298 million for the second quarter of 2020 as compared to $314 million in the prior year period, driven primarily by $75 million of additional pre-tax expenses associated with COVID-19 and lower net price realization, partially offset by the reduction of our marketing expense and the benefit of lower indebtedness due to continued deleveraging. 
 
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 • 
 Adjusted net income increased 10.9% to $469 million for the second quarter of 2020 as compared to Adjusted net income of $423 million in the prior year period, driven primarily by the reduction of our marketing expense, productivity and merger synergies, and volume/mix growth, which were partially offset by lower net price realization, $12 million of additional pre-tax expenses associated with COVID-19 and higher operating costs associated with increased consumer retail demand for our products. 
 
 • 
 Diluted EPS decreased 4.5% to $0.21 per diluted share as compared to $0.22 in the prior year period. 
 
 • 
 Adjusted diluted EPS increased 10.0% to $0.33 per diluted share as compared to Adjusted diluted EPS of $0.30 per diluted share in the prior year period. 
 
 • 
 During the first six months of 2020 , we made net repayments of $316 million related to our commercial paper notes, KDP Revolver , 2019 KDP Term Loan and our Notes. Additionally, we repaid $227 million and added $86 million of structured payables during the first six months of 2020 . 
 
 • 
 In April 2020, we completed a strategic refinancing that extended our debt maturities and enhanced our liquidity profile, including a $1.5 billion senior unsecured notes issuance and the refinancing and upsizing of our 2019 364-Day Credit Agreement . The proactive refinancing, which did not change our total debt balance or deleveraging commitments, increased our liquidity to a level that we believe will exceed our near-term liquidity needs, even in the event of a protracted downturn. 
 
 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". See COVID-19 Pandemic Disclosures for more information about the specific costs related to COVID-19. 
 
 Second Quarter of 2020 Compared to Second Quarter of 2019 
 Consolidated Operations 
 The following table sets forth our unaudited condensed consolidated results of operations for the second quarter of 2020 and 2019 : 
 
 Second Quarter 
 
 Dollar 
 
 Percentage 
 
 ($ in millions, except per share amounts) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 2,864 
 
 $ 
 2,812 
 
 $ 
 52 
 
 1.8 
 % 
 
 Cost of sales 
 1,302 
 
 1,186 
 
 116 
 
 9.8 
 
 Gross profit 
 1,562 
 
 1,626 
 
 (64 
 ) 
 
 (3.9 
 ) 
 
 Selling, general and administrative expenses 
 1,001 
 
 1,028 
 
 (27 
 ) 
 
 (2.6 
 ) 
 
 Other operating (income) expense, net 
 — 
 
 11 
 
 (11 
 ) 
 
 NM 
 
 Income from operations 
 561 
 
 587 
 
 (26 
 ) 
 
 (4.4 
 ) 
 
 Interest expense 
 157 
 
 170 
 
 (13 
 ) 
 
 (7.6 
 ) 
 
 Loss on early extinguishment of debt 
 2 
 
 — 
 
 2 
 
 NM 
 
 Other (income) expense, net 
 (4 
 ) 
 
 1 
 
 (5 
 ) 
 
 NM 
 
 Income before provision for income taxes 
 406 
 
 416 
 
 (10 
 ) 
 
 (2.4 
 ) 
 
 Provision for income taxes 
 108 
 
 102 
 
 6 
 
 5.9 
 
 Net income 
 $ 
 298 
 
 $ 
 314 
 
 (16 
 ) 
 
 (5.1 
 ) 
 
 Earnings per common share: 
 
 Basic 
 $ 
 0.21 
 
 $ 
 0.22 
 
 $ 
 (0.01 
 ) 
 
 (4.5 
 )% 
 
 Diluted 
 0.21 
 
 0.22 
 
 (0.01 
 ) 
 
 (4.5 
 ) 
 
 Gross margin 
 54.5 
 % 
 
 57.8 
 % 
 
 (330 bps) 
 
 Operating margin 
 19.6 
 % 
 
 20.9 
 % 
 
 (130 bps) 
 
 Effective tax rate 
 26.6 
 % 
 
 24.5 
 % 
 
 210 bps 
 
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 Sales volume. The following table sets forth changes in sales volume for the second quarter of 2020 compared to the prior year period: 
 
 Increase / (Decrease) 
 
 K-Cup pod volume 
 
 9.5 
 % 
 
 Brewer volume 
 
 11.6 
 
 CSD sales volume 
 
 (1.7 
 ) 
 
 NCB sales volume 
 
 0.6 
 
 Net Sales. Net sales increased $52 million , or 1.8% , to $2,864 million for the second quarter of 2020 compared with $2,812 million in the prior year period. This performance reflected higher volume/mix of 4.3% , reflecting the impact of COVID-19, partially offset by lower net price realization of 1.4% and unfavorable FX translation of 1.1% , primarily in our Latin America Beverages segment. 
 Gross Profit. Gross profit decreased $64 million for the second quarter of 2020 compared with the prior year period. This performance primarily reflected the unfavorable change in commodity mark-to-market impacts, unfavorable net price realization, $26 million in COVID-19 charges, unfavorable net price realization, unfavorable FX translation and an increase in other manufacturing costs. These decreases were partially offset by productivity and merger synergies and the impact of higher volume/mix. Gross margin decreased 330 bps versus the year ago period to 54.5% 
 Selling, General and Administrative Expenses. SG&A expenses decreased $27 million , or 2.6% , to $1,001 million for the second quarter of 2020 compared with $1,028 million for the second quarter of 2019 . The decrease was driven by the reduction in marketing expense, productivity and merger synergies and the favorable change in commodity mark-to-market impacts, which were partially offset by $49 million in COVID-19 charges, an increase in our litigation reserve, expenses associated with productivity and integration projects and higher operating costs, such as logistics and labor, associated with the strong consumer demand. See Note 14 of the Notes to our Unaudited Condensed Consolidated Financial Statements for more information related to the antitrust litigation. 
 Other operating (income) expense, net . Other operating (income) expense, net had a favorable change of $11 million for the second quarter of 2020 compared with the second quarter of 2019 , primarily due to a charge related to the renegotiation of a distribution contract in the prior year period. 
 Income from Operations. Income from operations decreased $26 million to $561 million for the second quarter of 2020 compared to $587 million in the prior year period due to the decrease in gross profit, partially offset by lower SG&A expenses and the favorable change in other operating (income) expense, net. Operating margin declined 130 bps versus the year ago period to 19.6% . 
 Interest Expense. Interest expense decreased $13 million , or 7.6% , to $157 million for the second quarter of 2020 compared with $170 million in the prior year period. This change was primarily the result of the benefit of lower indebtedness due to continued deleveraging. 
 Other (income) expense, net . Other (income) expense, net had a favorable change of $5 million for the second quarter of 2020 compared with the prior year period, primarily driven by reduced losses from equity-method investees. Beginning in the second quarter of 2020, we discontinued recognizing our share of losses related to Bedford as the investment's carrying value is zero. 
 Effective Tax Rate. The effective tax rates for the second quarter of 2020 and 2019 were 26.6% and 24.5% , respectively. For the second quarter of 2020 , the provision for income taxes was higher than the second quarter of 2019 primarily due to the benefits recognized in the second quarter of 2019 related to a decrease in the valuation of our deferred tax liabilities and the decrease of income tax reserves. 
 
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 Adjusted Results of Operations 
 The following table sets forth certain unaudited condensed consolidated adjusted results of operations for the second quarter of 2020 and 2019 : 
 
 Second Quarter 
 
 Dollar 
 
 Percent 
 
 (in millions, except per share amounts) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Adjusted income from operations 
 $ 
 775 
 
 $ 
 702 
 
 $ 
 73 
 
 10.4 
 % 
 
 Adjusted interest expense 
 145 
 
 138 
 
 7 
 
 5.1 
 
 Adjusted provision for income taxes 
 165 
 
 142 
 
 23 
 
 16.2 
 
 Adjusted net income 
 469 
 
 423 
 
 46 
 
 10.9 
 
 Adjusted diluted EPS 
 0.33 
 
 0.30 
 
 0.03 
 
 10.0 
 
 Adjusted operating margin 
 27.1 
 % 
 
 25.0 
 % 
 
 210 bps 
 
 Adjusted effective tax rate 
 26.0 
 % 
 
 25.1 
 % 
 
 90 bps 
 
 Adjusted Income from Operations. Adjusted income from operations increased $73 million , or 10.4% , to $775 million for the second quarter of 2020 as compared to Adjusted income from operations of $702 million in the prior year period. Driving this performance in the quarter were the reduction of our marketing expense, productivity and merger synergies, and volume/mix growth. These increases were partially offset by lower net price realization, $12 million of COVID-19 charges and higher operating costs associated with increased consumer retail demand for our products. Adjusted operating margin grew 210 bps versus the year ago period to 27.1% . 
 Adjusted Interest Expense. Adjusted interest expense increased $7 million , or 5.1% , to $145 million for the second quarter of 2020 compared to Adjusted interest expense of $138 million in the prior year period. This change was primarily the result of a $13 million benefit from unwinding interest rate swap contracts in the prior year period and amortization of deferred financing costs associated with the bond issuance in April 2020, partially offset by the benefit of lower indebtedness due to continued deleveraging. 
 Adjusted Effective Tax Rate. The Adjusted effective tax rate increased 90 bps to 26.0% for the second quarter of 2020 , compared to Adjusted effective tax rate of 25.1% in the prior year. This increase in our Adjusted effective tax rate was primarily due to the decrease in benefit received from the revaluation of our deferred tax liabilities and the decrease of income tax reserves in the second quarter of 2019 . 
 Adjusted Net Income. Adjusted net income increased 10.9% to $469 million for the second quarter of 2020 as compared to Adjusted net income of $423 million in the prior year period. This performance was primarily driven by strong growth in Adjusted income from operations partially offset by a higher Adjusted effective tax rate and higher Adjusted interest expense. 
 Adjusted Diluted EPS. Adjusted diluted EPS increased 10.0% to $0.33 per diluted share for the second quarter of 2020 as compared to Adjusted diluted EPS of $0.30 per diluted share in the prior year period. 
 
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 Results of Operations by Segment 
 The following tables set forth net sales and income from operations for our segments for the second quarter of 2020 and 2019 , 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) 
 2020 
 
 2019 
 
 Segment Results — Net sales 
 
 Coffee Systems 
 $ 
 1,043 
 
 $ 
 990 
 
 Packaged Beverages 
 1,392 
 
 1,311 
 
 Beverage Concentrates 
 309 
 
 370 
 
 Latin America Beverages 
 120 
 
 141 
 
 Net sales 
 $ 
 2,864 
 
 $ 
 2,812 
 
 Second Quarter 
 
 (in millions) 
 2020 
 
 2019 
 
 Segment Results — Income from Operations 
 
 Coffee Systems 
 $ 
 290 
 
 $ 
 287 
 
 Packaged Beverages 
 208 
 
 186 
 
 Beverage Concentrates 
 220 
 
 244 
 
 Latin America Beverages 
 21 
 
 26 
 
 Unallocated corporate costs 
 (178 
 ) 
 
 (156 
 ) 
 
 Income from operations 
 $ 
 561 
 
 $ 
 587 
 
 COFFEE SYSTEMS 
 The following table provides selected information about our Coffee Systems segment's results: 
 
 Second Quarter 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 1,043 
 
 $ 
 990 
 
 $ 
 53 
 
 5.4 
 % 
 
 Income from operations 
 290 
 
 287 
 
 3 
 
 1.0 
 
 Operating margin 
 27.8 
 % 
 
 29.0 
 % 
 
 (120 bps) 
 
 Adjusted income from operations 
 $ 
 363 
 
 $ 
 331 
 
 $ 
 32 
 
 9.7 
 % 
 
 Adjusted operating margin 
 34.8 
 % 
 
 33.4 
 % 
 
 140 bps 
 
 Sales Volume. Volume growth for the Coffee Systems segment reflected strong K-Cup pod volume growth of 9.5% reflecting the impact of COVID-19. Brewer volume increased 11.6% in the quarter, despite a comparison to 19.4% growth in the year-ago period, reflecting successful innovation introduced over the past 12 months and investments to drive household penetration. Also benefitting the brewer comparison was the expected shift of shipments into the second quarter, due to COVID-19-related pressure on brewer supply from Asia. 
 Net Sales. Net sales increased 5.4% to $1,043 million for the second quarter of 2020 compared to net sales of $990 million in the prior year period, driven by strong volume/mix growth of 8.3% , which was driven by sales volume growth. This growth was partially offset by lower net price realization of 2.5% , resulting from strategic price investments. Unfavorable FX translation also impacted the period by 0.4% . 
 Income from Operations. Income from operations increased $3 million , or 1.0% , to $290 million for the second quarter of 2020 , compared to $287 million for the prior year period, driven by strong volume/mix growth, productivity and merger synergies, which impacted both cost of sales and SG&A, a reduction in expenses associated with productivity projects and a decrease in other operating costs. These impacts were partially offset by strategic pricing, an increase in our litigation reserve and $17 million in COVID-19 charges. Operating margin declined 120 bps versus the year ago period to 27.8% . 
 
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 Adjusted Income from Operations. Adjusted income from operations increased $32 million , or 9.7% , to $363 million for the second quarter of 2020 , compared with Adjusted income from operations of $331 million for the prior year period, driven by strong volume/mix growth, continued productivity and merger synergies, which impacted both SG&A and cost of sales, partially offset by strategic pricing and $8 million in COVID-19 charges. Adjusted operating margin increased 140 bps versus the year ago period to 34.8% . 
 
 PACKAGED BEVERAGES 
 The following table provides selected information about our Packaged Beverages segment's results: 
 
 Second Quarter 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 1,392 
 
 $ 
 1,311 
 
 $ 
 81 
 
 6.2 
 % 
 
 Income from operations 
 208 
 
 186 
 
 22 
 
 11.8 
 % 
 
 Operating margin 
 14.9 
 % 
 
 14.2 
 % 
 
 70 bps 
 
 Adjusted income from operations 
 $ 
 269 
 
 $ 
 190 
 
 $ 
 79 
 
 41.6 
 % 
 
 Adjusted operating margin 
 19.3 
 % 
 
 14.5 
 % 
 
 480 bps 
 
 Sales Volume. Sales volume for the second quarter of 2020 increased 8.2% due primarily to the net benefits of COVID-19, as strength in CSDs, juice and juice drinks and apple sauce were partially offset by lower volume in water (enhanced and premium) and teas. Contract manufacturing also contributed to the increase during the quarter. 
 Net Sales. Net sales increased 6.2% to $1,392 million for the second quarter of 2020 , compared with net sales of $1,311 million in the prior year period, driven by higher volume/mix of 6.6% , reflecting the impact of COVID-19, and lower net price realization of 0.3% . Unfavorable FX translation also impacted the period by 0.1% . 
 Income from Operations. Income from operations increased $22 million , or 11.8% , to $208 million for the second quarter of 2020 , compared with $186 million for the prior year period, reflecting higher volume/mix, continued productivity and merger synergies and a reduction in our marketing expense. These growth drivers were partially offset by $54 million in COVID-19 charges and higher manufacturing and operating costs, such as logistics and labor, associated with the strong consumer demand. Operating margin grew 70 bps versus the year ago period to 14.9% 
 Adjusted Income from Operations. Adjusted income from operations increased $79 million , or 41.6% , to $269 million for the second quarter of 2020 , compared with Adjusted income from operations of $190 million for the prior year period, largely driven by strong volume/mix, a reduction in our marketing expense and continued productivity and merger synergies. These growth drivers were partially offset by inflation in input costs and logistics and an increase in other manufacturing costs. Adjusted operating margin grew 480 bps versus the year ago period to 19.3% . 
 
 BEVERAGE CONCENTRATES 
 The following table provides selected information about our Beverage Concentrates segment's results: 
 
 Second Quarter 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 309 
 
 $ 
 370 
 
 $ 
 (61 
 ) 
 
 (16.5 
 )% 
 
 Income from operations 
 220 
 
 244 
 
 (24 
 ) 
 
 (9.8 
 ) 
 
 Operating margin 
 71.2 
 % 
 
 65.9 
 % 
 
 530 bps 
 
 Adjusted income from operations 
 $ 
 222 
 
 $ 
 246 
 
 $ 
 (24 
 ) 
 
 (9.8 
 )% 
 
 Adjusted operating margin 
 71.8 
 % 
 
 66.5 
 % 
 
 530 bps 
 
 Sales volume. Sales volume for the second quarter of 2020 decreased 10.5% , primarily reflecting the impact of COVID-19. 
 Net Sales. Net sales decreased 16.5% to $309 million for the second quarter of 2020 compared to $370 million for the prior year period, driven by unfavorable volume/mix of 11.4% primarily reflecting a significant impact on our fountain foodservice business, as demand was significantly impacted in the quarter due to COVID-19 and shelter in place guidelines. Lower net price realization of 4.8% , primarily driven by the annual true-ups of our prior year estimated customer incentive liability, and unfavorable foreign currency translation of 0.3% also drove the decrease in net sales. 
 Income from Operations. Income from operations decreased $24 million , or 9.8% , to $220 million for the second quarter of 2020 compared to $244 million for the prior year period. This performance reflected the net sales decline partially offset by a reduction in marketing expense. Operating margin grew 530 bps from versus the year ago period to 71.2% . 
 
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 Adjusted Income from Operations. Adjusted income from operations decreased $24 million , or 9.8% , to $222 million for the second quarter of 2020 compared with Adjusted income from operations of $246 million for the prior year period. This performance reflected the net sales decline partially offset by a reduction in marketing expense. Adjusted operating margin grew 530 bps versus the year ago period to 71.8% . 
 
 LATIN AMERICA BEVERAGES 
 The following table provides selected information about our Latin America Beverages segment's results: 
 
 Second Quarter 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 120 
 
 $ 
 141 
 
 $ 
 (21 
 ) 
 
 (14.9 
 )% 
 
 Income from operations 
 21 
 
 26 
 
 (5 
 ) 
 
 (19.2 
 )% 
 
 Operating margin 
 17.5 
 % 
 
 18.4 
 % 
 
 (90 bps) 
 
 Adjusted income from operations 
 $ 
 23 
 
 $ 
 20 
 
 $ 
 3 
 
 15.0 
 % 
 
 Adjusted operating margin 
 19.2 
 % 
 
 14.2 
 % 
 
 500 bps 
 
 Sales Volume. Sales volume for the second quarter of 2020 increased 5.8% compared to the prior year period, reflecting the impact of COVID-19. 
 Net Sales. Net sales decreased 14.9% to $120 million for the second quarter of 2020 compared to $141 million for the prior year period, driven completely by unfavorable FX translation of 16.3% . Excluding the unfavorable impact of FX translation, net sales increased as a result of higher net price realization of 6.1% partially offset by unfavorable volume/mix of 4.7% . 
 Income from Operations . Income from operations decreased 19.2% to $21 million for the second quarter of 2020 compared to $26 million for the prior year period, driven by unfavorable FX effects (FX transaction and translation), the comparison to a real estate gain in the prior year and unfavorable volume/mix, partially offset by higher net price realization, continued productivity and a reduction in our marketing expense. Operating margin decreased 90 bps versus the year ago period to 17.5% . 
 Adjusted Income from Operations. Adjusted income from operations increased $3 million , or 15.0% , to $23 million for the second quarter of 2020 , compared with Adjusted income from operations of $20 million in the prior year period. This performance reflected higher net price realization, continued productivity and a reduction in our marketing expense, partially offset by unfavorable FX transaction impact and unfavorable volume/mix. Adjusted operating margin increased 500 bps versus the year ago period to 19.2% . 
 
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 First Six Months of 2020 Compared to First Six Months of 2019 
 Consolidated Operations 
 The following table sets forth our unaudited condensed consolidated results of operations for the first six months of 2020 and 2019 : 
 
 First Six Months 
 
 Dollar 
 
 Percentage 
 
 ($ in millions, except per share amounts) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 5,477 
 
 $ 
 5,316 
 
 $ 
 161 
 
 3.0 
 % 
 
 Cost of sales 
 2,463 
 
 2,292 
 
 171 
 
 7.5 
 
 Gross profit 
 3,014 
 
 3,024 
 
 (10 
 ) 
 
 (0.3 
 ) 
 
 Selling, general and administrative expenses 
 2,029 
 
 1,939 
 
 90 
 
 4.6 
 
 Other operating (income) expense, net 
 (42 
 ) 
 
 — 
 
 (42 
 ) 
 
 NM 
 
 Income from operations 
 1,027 
 
 1,085 
 
 (58 
 ) 
 
 (5.3 
 ) 
 
 Interest expense 
 310 
 
 339 
 
 (29 
 ) 
 
 (8.6 
 ) 
 
 Loss on early extinguishment of debt 
 4 
 
 9 
 
 (5 
 ) 
 
 (55.6 
 ) 
 
 Impairment on investment and note receivable 
 86 
 
 — 
 
 86 
 
 NM 
 
 Other (income) expense, net 
 16 
 
 6 
 
 10 
 
 NM 
 
 Income before provision for income taxes 
 611 
 
 731 
 
 (120 
 ) 
 
 (16.4 
 ) 
 
 Provision for income taxes 
 157 
 
 187 
 
 (30 
 ) 
 
 (16.0 
 ) 
 
 Net income 
 $ 
 454 
 
 $ 
 544 
 
 (90 
 ) 
 
 (16.5 
 ) 
 
 Earnings per common share: 
 
 Basic 
 $ 
 0.32 
 
 $ 
 0.39 
 
 $ 
 (0.07 
 ) 
 
 (17.9 
 )% 
 
 Diluted 
 0.32 
 
 0.38 
 
 (0.06 
 ) 
 
 (15.8 
 ) 
 
 Gross margin 
 55.0 
 % 
 
 56.9 
 % 
 
 (190 bps) 
 
 Operating margin 
 18.8 
 % 
 
 20.4 
 % 
 
 (160 bps) 
 
 Effective tax rate 
 25.7 
 % 
 
 25.6 
 % 
 
 10 bps 
 
 Sales volume. The following table sets forth changes in sales volume for the first six months of 2020 compared to the prior year period: 
 
 Increase / (Decrease) 
 
 K-Cup pod volume 
 
 7.6 
 % 
 
 Brewer volume 
 
 5.8 
 
 CSD sales volume 
 
 (0.8 
 ) 
 
 NCB sales volume 
 
 3.1 
 
 Net Sales. Net sales increased $161 million , or 3.0% , to $5,477 million for the first six months of 2020 compared to $5,316 million in the prior year period. This performance reflected higher volume/mix of 4.7% , reflecting the impact of COVID-19, partially offset by lower net price realization of 1.0% and unfavorable foreign currency translation of 0.7% , primarily in our Latin America Beverages segment. 
 Gross Profit. Gross profit decreased $10 million , or 0.3% , to $3,014 million for the first six months of 2020 compared to $3,024 million in the prior year period. This performance primarily reflected unfavorable net price realization, an unfavorable change in commodity mark-to-market impacts, $27 million in COVID-19 charges, tariffs and an increase in other manufacturing costs. These decreases were partially offset by the impact of higher volume/mix and productivity and merger synergies. Gross margin decreased 190 bps versus the year ago period to 55.0% . 
 Selling, General and Administrative Expenses. SG&A expenses increased $90 million , or 4.6% , to $2,029 million for the first six months of 2020 compared to $1,939 million in the prior year period. The increase was driven by $63 million in COVID-19 charges, the unfavorable change in commodity mark-to-market impacts, expenses associated with productivity and integration projects, an increase in our litigation reserve for the antitrust litigation and higher operating costs, such as logistics and labor, associated with the strong consumer demand. These increases were partially offset by strong productivity and merger synergies and a reduction in our marketing expense. See Note 14 of the Notes to our Unaudited Condensed Consolidated Financial Statements for more information related to the antiitrust litigation. 
 
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 Other Operating (Income) Expense, net. Other operating income, net had a favorable change of $42 million for the first six months of 2020 compared to the prior year period due to the network optimization program gain of $42 million on the asset sale-leaseback of four facilities in the current year. 
 Income from Operations. Income from operations decreased $58 million , or 5.3% , to $1,027 million for the first six months of 2020 compared to $1,085 million in the prior year period due to the increase in SG&A expenses partially offset by a favorable change in other operating (income) expense, net. Operating margin declined 160 bps versus the year ago period to 18.8% . 
 Interest Expense. Interest expense decreased $29 million , or 8.6% , to $310 million for the first six months of 2020 compared to $339 million for the prior year period. This change was primarily the result of the benefit of lower indebtedness due to continued deleveraging. 
 Impairment on Investment and Note Receivable. Impairment on investment and note receivable reflected a non-cash impairment charge of $86 million for the first six months of 2020 associated with our Bedford investment. Refer to Note 4 for additional information regarding the impairment charge. 
 Other (Income) Expense, net. Other (income) expense, net had an unfavorable change of $10 million for the first six months of 2020 compared to the prior year period primarily driven by the activity related to our deferred compensation plan in the current year as gains recorded in the prior year period were higher than in the current year period. The deferred compensation plan activity is fully offset by the same amount in SG&A expenses. 
 Effective Tax Rate. The effective tax rates for the first six months of 2020 and 2019 were 25.7% and 25.6% , respectively. Refer to Note 6 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information. 
 Net Income. Net income decreased $90 million to $454 million for the first six months of 2020 as compared to $544 million in the prior year period. This performance was primarily driven by a non-cash impairment charge during the first six months of 2020 of $86 million associated with our Bedford investment. 
 Diluted EPS. Diluted EPS decreased 15.8% to $0.32 per diluted share as compared to $0.38 in the prior year period. 
 Adjusted Results of Operations 
 The following table sets forth certain unaudited condensed consolidated adjusted results of operations for the first six months of 2020 and 2019 : 
 
 First Six Months 
 
 Dollar 
 
 Percent 
 
 (in millions, except per share amounts) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Adjusted income from operations 
 $ 
 1,459 
 
 $ 
 1,323 
 
 $ 
 136 
 
 10.3 
 
 Adjusted interest expense 
 265 
 
 262 
 
 3 
 
 1.1 
 
 Adjusted provision for income taxes 
 301 
 
 270 
 
 31 
 
 11.5 
 
 Adjusted net income 
 877 
 
 785 
 
 92 
 
 11.7 
 
 Adjusted diluted EPS 
 0.62 
 
 0.55 
 
 0.07 
 
 12.7 
 
 Adjusted operating margin 
 26.6 
 % 
 
 24.9 
 % 
 
 170 bps 
 
 Adjusted effective tax rate 
 25.6 
 % 
 
 25.6 
 % 
 
 — 
 
 Adjusted Income from Operations. Adjusted income from operations increased $136 million , or 10.3% , to $1,459 million for the first six months of 2020 compared to Adjusted income from operations of $1,323 million in the prior year period. Driving this performance in the current period were productivity and merger synergies, which impacted both SG&A and cost of sales, higher volume/mix, a reduction in our marketing expense and a network optimization program gain of $42 million on the asset-sale leaseback of four facilities. Partially offsetting these positive drivers were $22 million of additional COVID-19 charges, tariffs and higher manufacturing and operating costs, such as logistics and labor, associated with the strong consumer demand. Adjusted operating margin grew 170 bps versus the year ago period to 26.6% . 
 Adjusted Interest Expense. Adjusted interest expense increased $3 million , or 1.1% , to $265 million for the first six months of 2020 compared to Adjusted interest expense of $262 million in the prior year period. This change was the result of a $27 million unfavorable comparison between the gains recorded in each year for unwinding several interest rate swap contracts and amortization of deferred financing costs associated with the bond issuance in April 2020, partially offset by the benefit of lower indebtedness resulting from continued deleveraging. 
 Adjusted Effective Tax Rate. The Adjusted effective tax rate remained constant at 25.6% for the first six months of 2020 to the first six months of 2019. 
 
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 Adjusted Net Income. Adjusted net income increased 11.7% to $877 million for the first six months of 2020 as compared to Adjusted net income of $785 million in the prior year period. This performance was driven primarily by strong growth in Adjusted income from operations. 
 Adjusted Diluted EPS. Adjusted diluted EPS increased 12.7% to $0.62 per diluted share as compared to Adjusted diluted EPS of $0.55 per diluted share in the prior year period. 
 
 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 2020 and 2019 , 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 
 2020 
 
 2019 
 
 Coffee Systems 
 $ 
 2,016 
 
 $ 
 1,958 
 
 Packaged Beverages 
 2,609 
 
 2,427 
 
 Beverage Concentrates 
 615 
 
 674 
 
 Latin America Beverages 
 237 
 
 257 
 
 Net sales 
 $ 
 5,477 
 
 $ 
 5,316 
 
 First Six Months 
 
 (in millions) 
 2020 
 
 2019 
 
 Segment Results — Income from Operations 
 
 Coffee Systems 
 $ 
 562 
 
 $ 
 580 
 
 Packaged Beverages 
 397 
 
 335 
 
 Beverage Concentrates 
 417 
 
 445 
 
 Latin America Beverages 
 48 
 
 37 
 
 Unallocated corporate costs 
 (397 
 ) 
 
 (312 
 ) 
 
 Income from operations 
 $ 
 1,027 
 
 $ 
 1,085 
 
 COFFEE SYSTEMS 
 The following table provides selected information about our Coffee Systems segment's results: 
 
 First Six Months 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 2,016 
 
 $ 
 1,958 
 
 $ 
 58 
 
 3.0 
 % 
 
 Income from operations 
 562 
 
 580 
 
 (18 
 ) 
 
 (3.1 
 ) 
 
 Operating margin 
 27.9 
 % 
 
 29.6 
 % 
 
 (170 bps) 
 
 Adjusted income from operations 
 710 
 
 666 
 
 44 
 
 6.6 
 
 Adjusted operating margin 
 35.2 
 % 
 
 34.0 
 % 
 
 120 bps 
 
 Sales Volume. The volume growth in the first six months of 2020 compared to the prior year period for the Coffee Systems segment reflected strong K-Cup pod volume growth of 7.6% reflecting the impact of COVID-19. Brewer volume increased 5.8% the first six months of 2020 , despite a comparison to 16.4% growth in the year-ago period, reflecting successful innovation introduced over the past 12 months and investments to drive household penetration. 
 Net Sales. Net sales increased $58 million , or 3.0% , to $2,016 million for the first six months of 2020 compared to $1,958 million for the prior year period due to volume/mix growth of 6.0% , which was driven by sales volume growth partially offset by lower net price realization of 2.9% . Unfavorable FX translation also impacted the period by 0.1% . 
 Income from Operations. Income from operations decreased $18 million , or 3.1% , to $562 million for the first six months of 2020 , compared to $580 million in the prior year period, driven by strategic pricing, expenses associated with productivity projects, $19 million in COVID-19 charges, tariffs and an increase in our litigation reserve. These impacts were partially offset by strong productivity and merger synergies, which impacted both cost of sales and SG&A, strong volume/mix growth and a network optimization program gain of $16 million on an asset sale-leaseback of a manufacturing facility. Operating margin declined 170 bps versus the year ago period to 27.9% . 
 
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 Adjusted Income from Operations. Adjusted income from operations increased $44 million , or 6.6% , to $710 million for the first six months of 2020 , compared to $666 million in the prior year period, driven by continued productivity and merger synergies, which impacted both cost of sales and SG&A, strong volume/mix and a network optimization program gain of $16 million on an asset sale-leaseback of a manufacturing facility. Partially offsetting these factors was strategic pricing and tariffs. Adjusted operating margin grew 120 bps versus the year ago period to 35.2% . 
 
 PACKAGED BEVERAGES 
 The following table provides selected information about our Packaged Beverages segment's results: 
 
 First Six Months 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 2,609 
 
 $ 
 2,427 
 
 $ 
 182 
 
 7.5 
 % 
 
 Income from operations 
 397 
 
 335 
 
 62 
 
 18.5 
 
 Operating margin 
 15.2 
 % 
 
 13.8 
 % 
 
 140 bps 
 
 Adjusted income from operations 
 472 
 
 350 
 
 122 
 
 34.9 
 
 Adjusted operating margin 
 18.1 
 % 
 
 14.4 
 % 
 
 370 bps 
 
 Sales Volume. Sales volume for the first six months of 2020 compared to the prior year period increased 16.4% , reflecting the impact of COVID-19 which displayed strength in CSDs, juice and juice drinks, premium water and apple sauce, driven by heightened consumer demand the first six months of 2020 . These increases were partially offset by lower volume in enhanced water and teas during the current period. Contract manufacturing also contributed to the increase during the current period. 
 Net Sales. Net sales increased $182 million , or 7.5% , to $2,609 million for the first six months of 2020 compared to $2,427 million for the prior year period, driven by higher volume/mix of 7.6% , reflecting the impact of COVID-19, partially offset by an unfavorable foreign currency translation of 0.1% . 
 Income from Operations. Income from operations increased $62 million , or 18.5% , to $397 million for the first six months of 2020 compared to $335 million for the prior year period, reflecting strong volume/mix, reflecting the impact of COVID-19. Other favorable drivers included continued productivity and merger synergies, a reduction in our marketing expense and a network optimization program gain of $26 million on the asset sale-leaseback of three facilities. These growth drivers were partially offset by $67 million in COVID-19 charges, higher manufacturing and operating costs, such as logistics and labor, associated with the strong consumer demand and the unfavorable comparison to a $10 million net gain on a renegotiation of a manufacturing contract in the prior year period. Operating margin grew 140 bps versus the year ago period to 15.2% . 
 Adjusted Income from Operations. Adjusted income from operations increased $122 million , or 34.9% , to $472 million for the first six months of 2020 compared to $350 million for the prior year period, largely driven by strong volume/mix, reflecting the impact of COVID-19. Other favorable drivers included continued productivity and merger synergies, a reduction in our marketing expense and a network optimization program gain of $26 million on the asset sale-leaseback of three facilities. These drivers were partially offset by higher manufacturing and operating costs, such as logistics and labor, associated with the strong consumer demand and the unfavorable comparison to a $10 million net gain on a renegotiation of a manufacturing contract in the prior year period. Adjusted operating margin grew 370 bps versus the year ago period to 18.1% . 
 
 BEVERAGE CONCENTRATES 
 The following table provides selected information about our Beverage Concentrates segment's results: 
 
 First Six Months 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 615 
 
 $ 
 674 
 
 $ 
 (59 
 ) 
 
 (8.8 
 )% 
 
 Income from operations 
 417 
 
 445 
 
 (28 
 ) 
 
 (6.3 
 ) 
 
 Operating margin 
 67.8 
 % 
 
 66.0 
 % 
 
 180 bps 
 
 Adjusted income from operations 
 419 
 
 447 
 
 (28 
 ) 
 
 (6.3 
 ) 
 
 Adjusted operating margin 
 68.1 
 % 
 
 66.3 
 % 
 
 180 bps 
 
 Sales Volume. Sales volume for the first six months of 2020 as compared to the prior year period declined 14.8% reflecting the impact of COVID-19. 
 Net Sales. Net sales decreased $59 million , or 8.8% , to $615 million for the first six months of 2020 compared to $674 million in the prior year period, driven by unfavorable volume/mix of 7.0% reflecting the impact of COVID-19. Lower net price realization of 1.6% and unfavorable foreign currency translation of 0.2% also drove the decrease in net sales. 
 
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 Table of Contents 
 
 Income from Operations. Income from operations decreased $28 million , or 6.3% , to $417 million for the first six months of 2020 compared to $445 million in the prior year period. This performance reflected the net sales decline partially offset by a reduction in our marketing expense. Operating margin increased 180 bps versus the year ago period to 67.8% . 
 Adjusted Income from Operations. Adjusted income from operations decreased $28 million , or 6.3% , to $419 million for the first six months of 2020 compared to $447 million in the prior year period. This performance reflected the net sales decline partially offset by a reduction in our marketing expense. Adjusted operating margin increased 180 bps versus the year ago period to 68.1% . 
 
 LATIN AMERICA BEVERAGES 
 The following table provides selected information about our Latin America Beverages segment's results: 
 
 First Six Months 
 
 Dollar 
 
 Percent 
 
 (in millions) 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Net sales 
 $ 
 237 
 
 $ 
 257 
 
 $ 
 (20 
 ) 
 
 (7.8 
 )% 
 
 Income from operations 
 48 
 
 37 
 
 11 
 
 29.7 
 
 Operating margin 
 20.3 
 % 
 
 14.4 
 % 
 
 590 bps 
 
 Adjusted income from operations 
 50 
 
 32 
 
 18 
 
 56.3 
 
 Adjusted operating margin 
 21.1 
 % 
 
 12.5 
 % 
 
 860 bps 
 
 Sales Volume. Sales volume for the first six months of 2020 as compared to the prior year period increased 3.9% , driven by Squirt. 
 Net Sales. Net sales decreased $20 million , or 7.8% , to $237 million for the first six months of 2020 compared to $257 million in the prior year period, driven completely by unfavorable FX translation of 10.9% . Excluding the unfavorable impact of FX translation, net sales increased as a result of higher net price realization of 6.0% , partially offset by unfavorable volume/mix of 2.9% . 
 Income from Operations . Income from operations increased $11 million , or 29.7% , to $48 million for the first six months of 2020 compared to $37 million in the prior year period, driven by higher net price realization, continued productivity and a reduction in our marketing expense, partially offset by unfavorable volume/mix, the comparison to a real estate gain in the prior year and unfavorable FX effects (FX translation and transaction). Operating margin increased 590 bps versus the year ago period to 20.3% . 
 Adjusted Income from Operations. Adjusted income from operations increased $18 million , or 56.3% , to $50 million in the first six months of 2020 compared to $32 million in the prior year period. This performance reflected higher net price realization, continued productivity and a reduction in our marketing expense, partially offset by unfavorable volume/mix and unfavorable FX effects (FX translation and transaction). Adjusted operating margin grew 860 bps versus the year ago period to 21.1% . 
 
 UNCERTAINTIES AND TRENDS AFFECTING OUR BUSINESS 
 We believe the North American beverage market is influenced by certain key trends and uncertainties. Some of these items, such as the ongoing outbreak of COVID-19, increased health consciousness and changes in consumer preferences and economic factors, have previously created and may continue in the future to create category headwinds for a number of our products. Refer to Item 1A, "Risk Factors", of our Annual Report and this Quarterly Report on Form 10-Q, combined with the Uncertainties and Trends Affecting Liquidity section below, for more information about risks and uncertainties facing us. 
 Given our diverse brand portfolio and extensive distribution network, which combined, has enabled us to successfully navigate the volatility caused by COVID-19 to date, we have confidence in our ability to deliver continued growth in the second half of the year. 
 Specifically, for the full-year 2020, we continue to expect constant currency net sales growth in the range of 3% to 4%. We also continue to expect full-year 2020 Adjusted diluted EPS growth in the range of 13% to 15%, or $1.38 to $1.40 per diluted share, given the significant visibility and control we maintain over our cost structure, including aggressive cost management, productivity programs and merger synergies. Finally, we continue to expect our management leverage ratio in the range of 3.5x to 3.8x at year end 2020 and our management leverage ratio to be below 3.0x within two to three years of the July 2018 merger closing. 
 
 COVID-19 Pandemic Disclosures 
 Our first priority, always, is to keep our employees safe and healthy. We’ve taken extraordinary precautions to do this and to provide the support our employees and their families may need during this unprecedented time. 
 We continue to deliver for our customers and consumers, working hard around the clock to fulfill strong demand. We are finding innovative ways to quickly adapt to changes in shopping behaviors, with more than half of North America impacted by stay-at-home, shelter-in-place and closure of non-essential business orders. 
 
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 Table of Contents 
 
 We are also focused on providing for our communities by supporting frontline healthcare workers who are fighting this crisis day in and day out head on. We don’t make masks or medical equipment at our Company, but we do make beverages and, through our Fueling The Frontline program, we are donating Keurig brewers, coffee and other beverages to hospitals in need, as our way to say thank you for the unwavering commitment and courage of the entire medical community. 
 As discussed in the Impact of COVID-19 on our Financial Statements , the pandemic is having offsetting impacts within our business. For example, we experienced a significant increase in demand and consumption of our products in our at-home business caused in part by changing consumer habits in response to COVID-19, contributing to increases in net sales. At the same time, we experienced declines in our away-from-home business due to office closures and the slowdown of hospitality and fountain foodservice as a result of shelter-in-place guidelines and restaurant capacity limits in the early stages of reopening. In the future, the economic effects of the pandemic, including higher levels of unemployment, lower wages or a recessionary environment, may cause reduced demand for our products. It could also lead to volatility in demand due to government actions, such as shelter-in-place notices, which impact consumers’ movements and access to our products. 
 While we believe that there will continue to be strong long-term demand for our products, the timing and extent of economic recovery, and the uncertainties in short-term demand trends, make it difficult to predict the overall effects of the pandemic on our business. We expect that there will be heightened volatility in net sales during and subsequent to the duration of the pandemic that may impact interim periods. 
 Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our critical frontline employees and our supply chain. As food and agriculture is deemed part of the critical infrastructure by the Department of Homeland Security, our frontline employees have been identified as critical workers in maintaining the U.S. food and beverage supply. As a result, we have strived to follow recommended actions of government and health authorities to protect our employees, with particular measures in place for those working in our manufacturing and distribution facilities, which also includes additional incentive pay programs and benefits. We intend to continue to work with government authorities and implement our employee safety measures; however, disruptions to our supply chain, measures taken to protect employees, increased absenteeism or other local effects of the pandemic could impact our operations. For our corporate employees, participating in a remote work environment is familiar to us as we work in a multi-location environment. As such, we do not believe that the remote work environment has had any significant impact on our internal controls over financial reporting. With the health and safety of our employees remaining our top priority, we are diligently working on plans to safely bring our employees back to office locations with enhanced safety and health protocols. We do not believe these plans will impact our near-term liquidity needs. 
 The pandemic has not materially impacted our liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets enabled by our debt ratings. Refer to Uncertainties and Trends Affecting Liquidity and Capital Resources for more information. 
 We do not believe our operating and intangible assets are impaired as a result of COVID-19. 
 For additional information on risk factors that could impact our results, please refer to Risk Factors in Part II, Item 1A of this Form 10-Q. 
 
 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 . 
 
 LIQUIDITY AND CAPITAL RESOURCES 
 Overview and Our Financing Arrangements 
 Our financial condition and liquidity remain strong. Net cash provided by operations was $1,062 million for the first six months of 2020 compared to $1,203 million for the prior year period. Although there is uncertainty related to the anticipated impact of the recent COVID-19 pandemic on our future results, we believe we are uniquely positioned, with our broad portfolio and unmatched distribution network, to successfully navigate through this pandemic and the recent steps we have taken to strengthen our balance sheet leave us well positioned to manage our business as the crisis continues to unfold. We continue to manage all aspects of our business, including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. 
 Our principal sources of liquidity are our existing cash and cash equivalents, as well as cash generated from operations and borrowing capacity currently available under our existing KDP Revolver and 2020 364-Day Credit Agreement . Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis. 
 
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 Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of these financing arrangements. 
 During March 2020, as a result of market stress and a dislocation in the commercial paper market driven by the COVID-19 pandemic, we chose to repay $1,000 million of commercial paper notes with an equivalent amount of borrowings under our KDP Revolver as the costs and ability to issue commercial paper became inefficient versus borrowings under our KDP Revolver . In April 2020, we took steps to further strengthen our balance sheet by increasing excess liquidity in order to better position us to navigate the uncertainty of the COVID-19 pandemic. On April 13, 2020, we issued $1,500 million of senior unsecured notes and used the net proceeds from these senior unsecured notes to repay our KDP Revolver , effectively refinancing short-term borrowings with efficient long-term bonds to free up excess short-term liquidity. On April 14, 2020, we terminated the 2019 364-Day Credit Agreement and replaced it with the new 2020 364-Day Credit Agreement and increased total commitments under the facility from $750 million to $1,500 million. As a result of these two actions, we have increased our liquidity to a level that we believe enables us to more than meet our commitments, even in a prolonged economic downturn, as we continue to exercise financial discipline to ensure our long-term financial health. Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of these new financing arrangements. 
 As of June 30, 2020 , we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants. 
 
 Cash Flows 
 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 2020 and 2019 : 
 
 First Six Months 
 
 (in millions) 
 2020 
 
 2019 
 
 Net cash provided by operating activities 
 $ 
 1,062 
 
 $ 
 1,203 
 
 Net cash used in investing activities 
 (92 
 ) 
 
 (114 
 ) 
 
 Net cash used in financing activities 
 (901 
 ) 
 
 (1,080 
 ) 
 
 NET CASH PROVIDED BY OPERATING ACTIVITIES 
 Net cash provided by operating activities decreased $141 million for the first six months of 2020 , as compared to the first six months of 2019 , driven by the decline in working capital, as extended payment terms have normalized across the Company's operations, offset by the slight increase in net income adjusted for non-cash items. 
 Cash Conversion Cycle 
 Our cash conversion cycle is defined as DIO and DSO less 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 19 days to approximately (52) days as of June 30, 2020 as compared to (33) days in the prior year period. The change was primarily driven by a increase of 17 days in our DPO as the DPS operations had significantly shorter terms than the legacy KGM business, which have been steadily increasing as we continue to focus on our accounts payable program. DIO and DSO were relatively consistent as compared to the prior year period. 
 
 June 30, 
 
 2020 
 
 2019 
 
 DIO 
 
 52 
 
 50 
 
 DSO 
 
 33 
 
 37 
 
 DPO 
 
 137 
 
 120 
 
 Cash conversion cycle 
 
 (52 
 ) 
 
 (33 
 ) 
 
 In future periods, DPO is expected to 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. 
 
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 Accounts payable program 
 As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. Excluding our suppliers who require cash at date of purchase or sale, our current payment terms with our suppliers generally range from 10 to 360 days. We also entered into an agreement with a third party administrator to allow participating suppliers to track payment obligations from us, and if voluntarily elected by the supplier, 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, 2020 and December 31, 2019 , $2,487 million and $2,097 million , respectively, of our outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions. The amounts settled through the program and paid to the financial institutions were $1,245 million and $723 million for the first six months of 2020 and 2019 , respectively. 
 
 NET CASH USED IN INVESTING ACTIVITIES 
 Cash used in investing activities for the first six months of 2020 consisted primarily of purchases of property, plant and equipment of $276 million , mostly offset by proceeds of $202 million from sales of property, plant and equipment, primarily driven by our asset sale-leaseback transactions. 
 Cash used in investing activities for the first six months of 2019 consisted primarily of purchases of property, plant and equipment of $118 million . 
 
 NET CASH USED IN FINANCING ACTIVITIES 
 Cash used in financing activities for the first six months of 2020 consisted primarily of the net repayment of $836 million for commercial paper notes, which was primarily a result of the decision to repay commercial paper notes with an equivalent amount of borrowings under our KDP Revolver as the costs and ability to issue commercial paper became inefficient versus borrowings under our KDP Revolver . The KDP Revolver was subsequently repaid through the issuance of our 2030 Notes and 2050 Notes. Additionally, we made voluntary and mandatory repayments on the term loan facility of $730 million , repayment of the 2020 Notes of $250 million , dividend payments of $423 million and net payments on structured payables of $141 million . We also received $22 million from controlling shareholder stock transactions, which related to the disgorgement of short-swing profits pursuant to Section 16(b) of the Exchange Act . 
 Net 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 notes of $381 million and net proceeds from structured payables of $69 million . 
 
 Uncertainties and Trends Affecting Liquidity 
 Disruptions in financial and credit markets, including those caused by the COVID-19 pandemic, 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. 
 Customer and consumer demand for our products may also be impacted by all risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report and in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as subsequent filings with the SEC , 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. 
 
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 We believe that the following events, trends and uncertainties may also impact liquidity: 
 
 • 
 Our ability to access our committed financing arrangements, including our KDP Revolver and our 2020 364-Day Credit Agreement , which have availability of $3,900 million as of July 30, 2020; 
 
 • 
 Our ability to issue unsecured uncommitted commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $2,400 million ; 
 
 • 
 Our intention to drive significant cash flow generation to enable rapid deleveraging within three years from the DPS Merger; 
 
 • 
 A significant downgrade in our credit ratings could limit a financial institution's willingness to participate in our accounts payable program and reduce the attractiveness of the accounts payable program to participating suppliers who may sell payment obligations from us to financial institutions, which could impact our accounts payable program; 
 
 • 
 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. 
 
 Debt Ratings 
 As of June 30, 2020 , 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 $276 million and $118 million for the first six months of 2020 and 2019 , respectively. 
 Capital expenditures for the first six months of 2020 primarily related to our continued investment in the build-out of our Spartanburg manufacturing facility, purchase of real estate in Ireland and build out of the facility and the build-out of our Allentown manufacturing facility. Capital expenditures included in accounts payable and accrued expenses were $180 million for the first six months of 2020 , which primarily related to these investments. 
 Capital expenditures for the first six months of 2019 primarily related to machinery and equipment, our continued investment in the build-out of our 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 Spartanburg facility. 
 
 Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents 
 Cash, cash equivalents, restricted cash and restricted cash equivalents increased $66 million from December 31, 2019 to June 30, 2020 as cash generated from our operations outpaced our voluntary repayments on our term loan facility and other financing transactions. 
 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 $104 million and $70 million as of June 30, 2020 and December 31, 2019 , respectively. We accrue tax costs for repatriation, as applicable, as cash is generated in those foreign jurisdictions. 
 
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 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, 2020 , that have significantly changed from the amounts disclosed in our Annual Report: 
 
 Payments Due in Year 
 
 (in millions) 
 Total 
 
 2020 
 
 2021 
 
 2022 
 
 2023 
 
 2024 
 
 Thereafter 
 
 Long-term obligations (1) 
 $ 
 13,875 
 
 $ 
 50 
 
 $ 
 2,350 
 
 $ 
 350 
 
 $ 
 2,900 
 
 $ 
 — 
 
 $ 
 8,225 
 
 Interest payments 
 5,540 
 
 271 
 
 505 
 
 459 
 
 406 
 
 349 
 
 3,550 
 
 Operating leases (2) 
 762 
 
 47 
 
 89 
 
 77 
 
 69 
 
 66 
 
 414 
 
 Purchase obligations (3) 
 1,407 
 
 744 
 
 255 
 
 122 
 
 103 
 
 97 
 
 86 
 
 (1) 
 Amounts represent payments for the senior unsecured notes issued by us and the term loan credit agreement. Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional information. 
 
 (2) 
 Amounts represent minimum rental commitments under our non-cancelable operating leases. Refer to Note 8 for additional information . 
 
 (3) 
 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, 2020 , 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, 2019 . 
 
 OFF-BALANCE SHEET ARRANGEMENTS 
 There are no material changes in off-balance sheet arrangements from those disclosed in our Annual Report . 
 
 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 . 
 
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 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION 
 The Notes are fully and unconditionally guaranteed by certain of our direct and indirect subsidiaries (the "Guarantors"), as defined in the indentures governing the Notes. The Guarantors are 100% owned either directly or indirectly by us and jointly and severally guarantee, subject to the release provisions described below, our obligations under the Notes. None of our 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 our other indebtedness, our exercise of the legal defeasance option with respect to the Notes and the discharge of our obligations under the applicable indenture. 
 The following schedules present the summarized financial information for the Parent and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from; amounts due to, and transactions with Non-Guarantors are disclosed separately. The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries. 
 
 The summarized financial information for the Parent and Guarantors were as follows: 
 
 (in millions) 
 For the First Six Months of 2020 
 
 Net sales 
 $ 
 3,213 
 
 Income from operations 
 237 
 
 Equity in earnings of subsidiaries, net of tax 
 174 
 
 Net income 
 454 
 
 (in millions) 
 June 30, 2020 
 
 December 31, 2019 
 
 Current assets (1) 
 $ 
 1,600 
 
 $ 
 1,404 
 
 Non-current assets 
 42,898 
 
 28,180 
 
 Current liabilities (2) 
 $ 
 4,811 
 
 $ 
 3,942 
 
 Non-current liabilities 
 16,764 
 
 17,707 
 
 (1) 
 Includes $313 million and $241 million of current intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of June 30, 2020 and December 31, 2019 , respectively. 
 
 (2) 
 Includes $24 million and $20 million of current intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of June 30, 2020 and December 31, 2019 , respectively. 
 
 NON-GAAP FINANCIAL MEASURES 
 To supplement the consolidated financial statements presented in accordance with U.S. GAAP , we have presented for the second quarter and first six months of 2020 and 2019 (i) Adjusted income from operations, (ii) Adjusted net income and (iii) Adjusted diluted EPS, which are considered non-GAAP financial measures. The 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 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 2020 and 2019 , we define our Adjusted non-GAAP financial measures as certain financial statement captions and metrics adjusted for certain items affecting comparability. The items affecting comparability are defined below. 
 Items affecting comparability : Defined as certain items that are excluded for comparison to prior year periods, adjusted for the tax impact as applicable. Tax impact is determined based upon an approximate rate for each item. For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S. GAAP and do not have an offsetting risk reflected within the financial results; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS Merger and 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 EOP , the 2009 Incentive Plan or the 2019 Incentive Plan ; and (vi) other certain items that are excluded for comparison purposes to prior year periods. 
 
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 For second quarter and first six months of 2020 , the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) transaction costs for significant business combinations (completed or abandoned) excluding the DPS Merger ; (iv) costs related to significant nonroutine legal matters; (v) the loss on early extinguishment of debt related to the redemption of debt; (vi) incremental temporary costs to our operations related to risks associated with the COVID-19 pandemic and (vii) impairment recognized on equity method investment with Bedford. 
 Incremental costs to our operations related to risks associated with the COVID-19 pandemic include incremental expenses incurred to either maintain the health and safety of our front-line employees or temporarily increase compensation to such employees to ensure essential operations continue during the pandemic. We believe removing these costs reflects how management views our business results on a consistent basis. See Impact of COVID-19 on our Financial Statements for further information. 
 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 significant business combinations; (ii) productivity expenses; (iii) transaction costs for significant business combinations (completed or abandoned) excluding the DPS Merger ; (iv) costs related to significant nonroutine legal matters; (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. 
 For the second quarter and first six months of 2020 and 2019 , the supplemental financial data set forth below includes reconciliations of 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. 
 
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 KEURIG DR PEPPER INC. 
 RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS 
 For the Second Quarter of 2020 
 (Unaudited, in millions, except per share data) 
 
 Cost of sales 
 
 Gross profit 
 
 Gross margin 
 
 Selling, general and administrative expenses 
 
 Income from operations 
 
 Operating margin 
 
 Reported 
 $ 
 1,302 
 
 $ 
 1,562 
 
 54.5 
 % 
 
 $ 
 1,001 
 
 $ 
 561 
 
 19.6 
 % 
 
 Items Affecting Comparability: 
 
 Mark to market 
 (29 
 ) 
 
 29 
 
 16 
 
 13 
 
 Amortization of intangibles 
 — 
 
 — 
 
 (33 
 ) 
 
 33 
 
 Stock compensation 
 — 
 
 — 
 
 (8 
 ) 
 
 8 
 
 Restructuring and integration costs 
 — 
 
 — 
 
 (52 
 ) 
 
 52 
 
 Productivity 
 (2 
 ) 
 
 2 
 
 (17 
 ) 
 
 19 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 (26 
 ) 
 
 26 
 
 COVID-19 
 (18 
 ) 
 
 18 
 
 (45 
 ) 
 
 63 
 
 Adjusted GAAP 
 $ 
 1,253 
 
 $ 
 1,611 
 
 56.3 
 % 
 
 $ 
 836 
 
 $ 
 775 
 
 27.1 
 % 
 
 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 
 $ 
 157 
 
 $ 
 2 
 
 $ 
 406 
 
 $ 
 108 
 
 26.6 
 % 
 
 $ 
 298 
 
 1,421.5 
 
 $ 
 0.21 
 
 Items Affecting Comparability: 
 
 Mark to market 
 (3 
 ) 
 
 — 
 
 16 
 
 5 
 
 11 
 
 0.01 
 
 Amortization of intangibles 
 — 
 
 — 
 
 33 
 
 9 
 
 24 
 
 0.02 
 
 Amortization of deferred financing costs 
 (3 
 ) 
 
 — 
 
 3 
 
 — 
 
 3 
 
 — 
 
 Amortization of fair value debt adjustment 
 (6 
 ) 
 
 — 
 
 6 
 
 1 
 
 5 
 
 — 
 
 Stock compensation 
 — 
 
 — 
 
 8 
 
 2 
 
 6 
 
 — 
 
 Restructuring and integration costs 
 — 
 
 — 
 
 52 
 
 12 
 
 40 
 
 0.03 
 
 Productivity 
 — 
 
 — 
 
 19 
 
 4 
 
 15 
 
 0.01 
 
 Loss on early extinguishment of debt 
 — 
 
 (2 
 ) 
 
 2 
 
 1 
 
 1 
 
 — 
 
 Investment Impairment 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 26 
 
 7 
 
 19 
 
 0.01 
 
 COVID-19 
 — 
 
 — 
 
 63 
 
 16 
 
 47 
 
 0.03 
 
 Adjusted GAAP 
 $ 
 145 
 
 $ 
 — 
 
 $ 
 634 
 
 $ 
 165 
 
 26.0 
 % 
 
 $ 
 469 
 
 1,421.5 
 
 $ 
 0.33 
 
 Diluted earnings per common share may not foot due to rounding. 
 
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 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 (income) 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 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 (8 
 ) 
 
 — 
 
 8 
 
 Malware Incident 
 — 
 
 — 
 
 (3 
 ) 
 
 — 
 
 3 
 
 Adjusted GAAP 
 $ 
 1,195 
 
 $ 
 1,617 
 
 57.5 
 % 
 
 $ 
 913 
 
 $ 
 2 
 
 $ 
 702 
 
 25.0 
 % 
 
 Interest expense 
 
 Other (income) expense, 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 
 
 1,419.2 
 
 $ 
 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 
 
 — 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 8 
 
 2 
 
 6 
 
 — 
 
 Malware Incident 
 — 
 
 — 
 
 3 
 
 1 
 
 2 
 
 — 
 
 Adjusted GAAP 
 $ 
 138 
 
 $ 
 (1 
 ) 
 
 $ 
 565 
 
 $ 
 142 
 
 25.1 
 % 
 
 $ 
 423 
 
 1,419.2 
 
 $ 
 0.30 
 
 Numbers may not foot due to rounding. 
 
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 KEURIG DR PEPPER INC. 
 RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS 
 For the First Six Months of 2020 
 (Unaudited, in millions, except per share data) 
 
 Cost of sales 
 
 Gross profit 
 
 Gross margin 
 
 Selling, general and administrative expenses 
 
 Income from operations 
 
 Operating margin 
 
 Reported 
 $ 
 2,463 
 
 $ 
 3,014 
 
 55.0 
 % 
 
 $ 
 2,029 
 
 $ 
 1,027 
 
 18.8 
 % 
 
 Items Affecting Comparability: 
 
 Mark to market 
 (44 
 ) 
 
 44 
 
 (27 
 ) 
 
 71 
 
 Amortization of intangibles 
 — 
 
 — 
 
 (66 
 ) 
 
 66 
 
 Stock compensation 
 — 
 
 — 
 
 (15 
 ) 
 
 15 
 
 Restructuring and integration costs 
 — 
 
 — 
 
 (104 
 ) 
 
 104 
 
 Productivity 
 (18 
 ) 
 
 18 
 
 (55 
 ) 
 
 73 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 (35 
 ) 
 
 35 
 
 COVID-19 
 (19 
 ) 
 
 19 
 
 (49 
 ) 
 
 68 
 
 Adjusted GAAP 
 $ 
 2,382 
 
 $ 
 3,095 
 
 56.5 
 % 
 
 $ 
 1,678 
 
 $ 
 1,459 
 
 26.6 
 % 
 
 Interest expense 
 
 Loss on early extinguishment of debt 
 
 Impairment on investment and note receivable 
 
 Income before provision for income taxes 
 
 Provision for income taxes 
 
 Effective tax rate 
 
 Net income 
 
 Weighted Average Diluted shares 
 
 Diluted earnings per share 
 
 Reported 
 $ 
 310 
 
 $ 
 4 
 
 $ 
 86 
 
 $ 
 611 
 
 $ 
 157 
 
 25.7 
 % 
 
 $ 
 454 
 
 1,420.8 
 
 $ 
 0.32 
 
 Items Affecting Comparability: 
 
 Mark to market 
 (27 
 ) 
 
 — 
 
 — 
 
 98 
 
 26 
 
 72 
 
 0.05 
 
 Amortization of intangibles 
 — 
 
 — 
 
 — 
 
 66 
 
 18 
 
 48 
 
 0.03 
 
 Amortization of deferred financing costs 
 (6 
 ) 
 
 — 
 
 — 
 
 6 
 
 1 
 
 5 
 
 — 
 
 Amortization of fair value debt adjustment 
 (12 
 ) 
 
 — 
 
 — 
 
 12 
 
 3 
 
 9 
 
 0.01 
 
 Stock compensation 
 — 
 
 — 
 
 — 
 
 15 
 
 3 
 
 12 
 
 0.01 
 
 Restructuring and integration costs 
 — 
 
 — 
 
 — 
 
 104 
 
 26 
 
 78 
 
 0.05 
 
 Productivity 
 — 
 
 — 
 
 — 
 
 73 
 
 19 
 
 54 
 
 0.04 
 
 Loss on early extinguishment of debt 
 — 
 
 (4 
 ) 
 
 — 
 
 4 
 
 1 
 
 3 
 
 — 
 
 Investment impairment 
 — 
 
 — 
 
 (86 
 ) 
 
 86 
 
 21 
 
 65 
 
 0.05 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 — 
 
 35 
 
 9 
 
 26 
 
 0.02 
 
 COVID-19 
 — 
 
 — 
 
 — 
 
 68 
 
 17 
 
 51 
 
 0.04 
 
 Adjusted GAAP 
 $ 
 265 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 1,178 
 
 $ 
 301 
 
 25.6 
 % 
 
 $ 
 877 
 
 1,420.8 
 
 $ 
 0.62 
 
 Diluted earnings per common share may not foot due to rounding. 
 
 51 

 Table of Contents 
 
 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 (income), 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 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 (15 
 ) 
 
 — 
 
 15 
 
 Inventory step-up 
 (3 
 ) 
 
 3 
 
 — 
 
 — 
 
 3 
 
 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 
 
 — 
 
 Nonroutine legal matters 
 — 
 
 — 
 
 15 
 
 4 
 
 11 
 
 0.01 
 
 Inventory step-up 
 — 
 
 — 
 
 3 
 
 1 
 
 2 
 
 — 
 
 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. 
 
 52 

 Table of Contents 
 
 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 second quarter of 2020: 
 
 Income from Operations 
 
 Coffee Systems 
 $ 
 290 
 
 $ 
 73 
 
 $ 
 363 
 
 Packaged Beverages 
 208 
 
 61 
 
 269 
 
 Beverage Concentrates 
 220 
 
 2 
 
 222 
 
 Latin America Beverages 
 21 
 
 2 
 
 23 
 
 Unallocated corporate costs 
 (178 
 ) 
 
 76 
 
 (102 
 ) 
 
 Total income from operations 
 $ 
 561 
 
 $ 
 214 
 
 $ 
 775 
 
 For the second quarter of 2019: 
 
 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 
 
 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 2020: 
 
 Income from Operations 
 
 Coffee Systems 
 $ 
 562 
 
 $ 
 148 
 
 $ 
 710 
 
 Packaged Beverages 
 397 
 
 75 
 
 472 
 
 Beverage Concentrates 
 417 
 
 2 
 
 419 
 
 Latin America Beverages 
 48 
 
 2 
 
 50 
 
 Unallocated corporate costs 
 (397 
 ) 
 
 205 
 
 (192 
 ) 
 
 Total income from operations 
 $ 
 1,027 
 
 $ 
 432 
 
 $ 
 1,459 
 
 For the first six months of 2019: 
 
 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 
 
 53 

 Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Keurig Dr Pepper Inc. 10-Q

Item 2. Management’s Discussion and Analysis
