2018 ACQUISITIONS

Acquisition of Dr Pepper Snapple Group, Inc.

Overview and Total Consideration Exchanged

As discussed in Note 1, Business and Basis of Presentation, Maple merged with DPS on July 9, 2018. DPS is a leading integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico with a diverse portfolio of flavored (non-cola) CSDs and NCBs, including ready-to-drink teas, juices, juice drinks, water and mixers.

The DPS Merger was accounted for as a reverse merger under the acquisition method of accounting for business combinations. Maple was considered to be the accounting acquirer, and DPS was considered the legal acquirer. Under the acquisition method of accounting, total consideration exchanged was:



(in millions)
Aggregate fair value of DPS common stock	$	3,611
$103.75 per share special cash dividend⁽¹⁾	18,818
Fair value of replacement equity awards⁽²⁾	53
Total consideration exchanged	$	22,482

(1)

As a result of the DPS Merger, all DPS unvested stock option awards, RSUs and preferred share units ("PSUs") (the "Legacy Stock Awards") vested immediately as a result of the Change in Control (as defined in the terms of each individual award agreement). All Legacy Stock Awards, except for the stock option awards and certain RSUs not yet released to the employee, received the special cash dividend of $103.75 per share, subject to any withholding of taxes required by law. These amounts were included within the special cash dividend.

(2)

The fair value of replacement equity awards includes the Company issued replacement stock option awards for DPS stock option awards that were fully vested as of July 9, 2018 but not yet exercised by the employee, the DPS stock option awards that were fully vested as of July 9, 2018 and converted to cash by the employee and certain RSUs not yet released to the employee as a result of certain Internal Revenue Code requirements.

The total consideration exchanged in the DPS Merger was funded by the following sources of funds:


•	A $9,000 million equity investment from JAB.


•	The issuance by the Company of $8,000 million of senior unsecured notes under a private offering Rule 144A. Refer to Note 8 for additional information.


•	Proceeds of $2,700 million borrowed under the term loan agreement and proceeds of $1,900 million borrowed under the revolving credit facility. Refer to Note 8 for additional information.


•	Proceeds of $124 million from the Company's structured payables.


•	The remainder of the total consideration exchanged in the DPS Merger was funded by cash on hand.

Allocation of Consideration Exchanged

The Company's preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the DPS Merger is based on estimated fair values as of the Merger Date.

The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the DPS Merger as of December 31, 2018:



(in millions)	Initial Allocation of Consideration			Measurement Period Adjustments			December 31, 2018
Cash and cash equivalents	$	147		$	—		$	147
Investments in unconsolidated subsidiaries⁽¹⁾	90			—			90
Property, plant and equipment⁽²⁾	1,549			(39		)	1,510
Other intangible assets	20,404			(536		)	19,868
Long-term obligations⁽³⁾	(4,049		)	—			(4,049		)
Capital lease and financing obligations	(214		)	9			(205		)
Acquired assets, net of assumed liabilities⁽⁴⁾	107			(25		)	82
Deferred tax liabilities, net of deferred tax assets⁽⁵⁾	(4,959		)	(18		)	(4,977		)
Goodwill	9,407			609			10,016
Total consideration exchanged	22,482			—			22,482
Fair value of stock and replacement equity awards not converted to cash⁽⁶⁾	3,643			—			3,643
Acquisition of business	$	18,839		$	—		$	18,839


(1)	The Company preliminarily valued investments in unconsolidated subsidiaries using a market approach, specifically the guideline public company method.

(2)

The Company preliminarily valued personal property using a combination of the market approach and the cost approach, which is based upon current replacement or reproduction cost of the asset as newly adjusted for any depreciation attributable to physical, functional and economic factors. The Company assigned personal property a useful life ranging from 1 year to 24 years. We preliminarily valued real property using the cost approach and land using the sales comparison approach. The Company assigned real property a useful life between 1 year and 41 years.


(3)	The fair value amounts of long-term obligations (current and long-term) were based on current market rates available to the Company.

(4)

The Company used existing carrying values to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as the Company determined that they represented the fair value of those items as of the Merger Date. The Company preliminarily valued work-in-process ("WIP") and finished goods inventory using a net realizable value approach resulting in a step-up of $131 million which was recognized in the cost of goods sold in 2018, as the related inventory was sold during the year. Raw materials were carried at net book value.

(5)

Net deferred tax liabilities represented the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases. The Company used a preliminary consolidated tax rate to determine the net deferred tax liabilities. The Company will record measurement period adjustments as the Company applies the appropriate tax rate for each legal entity within DPS.


(6)	A portion of DPS' vested options were treated as replacement equity awards for purposes of valuation but were converted to cash as of the Merger Date. As a result, in order to determine the cash paid for the DPS Merger, the Company reduced the fair value of the related replacement equity awards originally presented in the total consideration exchanged table above by $21 million.

The DPS Merger preliminarily resulted in $10,016 million of goodwill. The preliminary goodwill recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, direct procurement savings on overlapping materials, purchasing scale on indirect spend categories and optimization of duplicate positions and processes. The Company may also recognize revenue synergies, driven by a strong portfolio of brands with exposure to higher growth segments and the ability to leverage the Company's collective distribution strength. The goodwill created in the DPS Merger is not deductible for tax purposes.

The preliminary allocation of consideration exchanged to other intangible assets acquired is as follows:



(in millions)	Fair Value		Estimated Life (in years)
Brands⁽¹⁾	$	19,357	n/a
Contractual arrangements⁽²⁾	120		n/a
Customer relationships⁽³⁾	386		10-40
Favorable leases⁽⁴⁾	5		5-12
Total other intangible assets	$	19,868


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


(2)	The Company preliminarily valued contractual arrangements with bottlers and distributors utilizing the distributor method, a form of the income approach.


(3)	The Company identified two types of customer relationships, retail and food service. We preliminarily valued retail and food service customer relationships utilizing the distributor method, a form of the income approach.


(4)	The Company preliminarily valued favorable leases utilizing the income approach.

Pro Forma Information

Assuming DPS had been acquired as of December 31, 2016, and the results of DPS had been included in operations beginning on January 1, 2017, the following tables provide estimated unaudited pro forma results of operations for the years ended December 31, 2018 and 2017 under U.S. GAAP and reflect the change in fiscal year-end described in Note 1.

The estimated pro forma net income includes the alignment of accounting policies, the effect of fair value adjustments related to the DPS Merger, the associated tax effects and the impact of the additional debt to finance the DPS Merger.



	For the Year Ended December 31,
(Unaudited, in millions)	2018		2017
Net sales	$	11,020	$	10,775
Net income	1,108		1,447

Estimated unaudited pro forma information is not necessarily indicative of the results that actually would have occurred had the DPS Merger been completed on the date indicated or the future operating results.

Actual Results of DPS

For the periods subsequent to the Merger Date that are included in 2018, DPS had net sales of $3,328 million and net income of $198 million.

Acquisition of Big Red

Overview and Purchase Price

On July 9, 2018, KDP entered into an Agreement and Plan of Merger (the "Big Red Acquisition Agreement") with Big Red Group Holdings, LLC ("Big Red"), pursuant to which we agreed to acquire Big Red for a cash purchase price of $300 million, subject to certain adjustments outlined in the Big Red Acquisition Agreement (the "Big Red Acquisition"). Big Red is a brand owner with a portfolio of CSDs and NCBs.

On August 31, 2018 (the "Big Red Acquisition Date"), the Company funded the Big Red Acquisition with proceeds from structured payables. In order to complete the Big Red Acquisition, the Company paid $282 million, net of the Company's previous ownership interest, in exchange for the remaining ownership interests and seller transaction costs. Additionally, $15 million was held back and placed in escrow.

As a result of the Big Red Acquisition, the Company's existing 14.36% equity interest in Big Red, which was previously earned based on the Company's distribution of Big Red's products and preliminarily valued at $16 million during the DPS Merger purchase price allocation, was remeasured to fair value of $22 million. The gain of $6 million was recorded in Other operating (income) expense, net during 2018.

Allocation of Consideration Exchanged

The Company's preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Big Red Acquisition is based on estimated fair values as of the Big Red Acquisition Date.

The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the Big Red Acquisition as of December 31, 2018:



(in millions)	Initial Allocation of Consideration			Measurement Period Adjustments		December 31, 2018
Cash and cash equivalents	$	3		$	—	$	3
Other intangible assets	240			—		240
Assumed liabilities, net of acquired assets⁽¹⁾	(28		)	2		(26		)
Goodwill	89			—		89
Total consideration exchanged⁽²⁾	304			2		306
Less: Company's previous ownership interest	22			—		22
Less: Holdback placed in Escrow	15			—		15
Acquisition of business	$	267		$	2	$	269


(1)	The Company preliminarily valued WIP and finished goods inventory using a net realizable value approach resulting in a step-up of $2 million which was recognized in the cost of goods sold for the year ended December 31, 2018 as the related inventory was sold during that period. Raw materials were carried at net book value.


(2)	The Company paid $2 million in additional consideration during the fourth quarter of 2018 as a result of working capital adjustments determined pursuant to the terms of the Big Red Acquisition Agreement.

The Big Red Acquisition preliminarily resulted in $89 million of goodwill. The preliminary goodwill to be recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes. The goodwill created in the Big Red Acquisition is not deductible for tax purposes.

The preliminary allocation of consideration exchanged to other intangible assets acquired is as follows:



(in millions)	Fair Value		Estimated Life (in years)
Brands⁽¹⁾	$	220	n/a
Brands⁽¹⁾	9		5
Customer relationships⁽²⁾	4		8-40
Contractual arrangements⁽³⁾	7		12
Total other intangible assets	$	240


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


(2)	The Company have identified two types of customer relationships, retail and industrial. We preliminarily valued retail and industrial customer relationships utilizing the distributor method, a form of the income approach.


(3)	The Company preliminarily valued contractual arrangements with bottlers and distributors utilizing the distributor method, a form of the income approach.

Pro Forma Information and Actual Results of Big Red

The Company has not presented estimated unaudited pro forma results of operations for the Big Red Acquisition or the actual results of Big Red because it is not material to the Company's consolidated financial statements for 2018.

Acquisition of Core Nutrition, LLC

Overview and Purchase Price

On September 27, 2018, KDP entered into a definitive agreement (the "Core Acquisition Agreement") with Core Nutrition, LLC ("Core"), pursuant to which we agreed to acquire Core for merger consideration, which represented an enterprise value of $525 million (subject to customary post-closing working capital and other adjustments), comprised substantially of shares of common stock of KDP, subject to certain adjustments paid in cash (the "Core Acquisition"). Core is a brand owner with a portfolio of NCBs in the water category.

On November 30, 2018 (the "Core Acquisition Date"), the Company funded the Core Acquisition with the issuance of KDP shares from the open market and approximately $6 million in cash. Approximately $27 million of cash was held back and placed in escrow. The number of shares of KDP common stock issued was based on the final merger consideration and the volume weighted average of the closing prices of KDP common stock for the five consecutive trading days ending on, and including, the second trading day prior to the closing.

As a result of the Core Acquisition, the Company's 5.1% equity interest of Core's common units was remeasured to fair value of $26 million. The gain of approximately $12 million was recorded in Other (income) expense, net during 2018.

Additionally, the Core Acquisition Agreement settled a pre-existing relationship with KDP related to its distribution agreement with Core, where KDP purchased finished goods from Core. As a result, on September 27, 2018, Core awarded an additional 0.9% equity interest of Core's common units, which was recognized as a $5 million reduction of cost of sales during 2018.

Allocation of Consideration Exchanged

The Company's preliminary allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Core Acquisition is based on estimated fair values as of the Core Acquisition Date. As a result of the short period of time between the Core Acquisition Date and December 31, 2018, the allocation of consideration exchanged, as set forth in the table below, reflects various preliminary fair value estimates and analyses, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The primary areas of the preliminary allocation of consideration exchanged that are not yet finalized relate to the fair values of certain tangible assets, the valuation of intangible assets acquired, assumed liabilities and residual goodwill.

The following is a summary of the preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the Core Acquisition as of December 31, 2018:



(in millions)	Fair Value
Cash and cash equivalents	$	10
Other intangible assets	273
Assumed liabilities, net of acquired assets⁽¹⁾	(12		)
Goodwill	236
Total consideration exchanged	507
Company's previous ownership interest	31
Less: Holdback placed in Escrow	27
Acquisition of business	$	449


(1)	The Company preliminarily valued WIP and finished goods inventory using a net realizable value approach resulting in a step-up of $4 million, of which $1 million was recognized in cost of goods sold in 2018, as the related inventory was sold during the year. Raw materials were carried at net book value.

The Core Acquisition preliminarily resulted in $236 million of goodwill. The preliminary goodwill to be recognized is attributable to operational and general and administrative cost synergies resulting from the warehouse and transportation integration, purchasing scale on various spend categories and optimization of duplicate positions and processes. The goodwill created in the Core Acquisition is expected to be deductible for tax purposes.

The preliminary allocation of consideration exchanged to other intangible assets acquired is as follows:


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


(2)	The Company preliminarily valued contractual arrangements utilizing the distributor method, a form of the income approach.

Pro Forma Information and Actual Results of Core

The Company has not presented estimated unaudited pro forma results of operations for the Core Acquisition or the actual results of Core because it is not material to the Company's consolidated financial statements for 2018.

2016 ACQUISITION

Acquisition by JAB Holding Company

On March 3, 2016, Maple indirectly acquired all of the outstanding equity of Keurig for $13,925 million (the "Keurig Acquisition"). As a result of the transaction, Keurig became an indirect wholly-owned subsidiary of Maple.

Keurig entered into a definitive merger agreement under which a JAB-led investor group would acquire Keurig for $92.00 per share in cash, representing a total equity value of $13,925 million. On February 24, 2016, the transaction was approved by Keurig's stockholders. As a result of the completion of the acquisition, Keurig's common stock ceased trading on the NASDAQ Global Select Market before the opening of market on March 3, 2016. Under the terms of the transaction, Keurig stockholders received $92.00 per share in cash for each share they owned.

Allocation of Consideration Exchanged

The following is a summary of the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed in the Keurig Acquisition:



(in millions)	Fair Value
Cash and cash equivalents	$	215
Plant, property and equipment⁽¹⁾	991
Other intangible assets	4,102
Goodwill	9,946
Deferred tax liabilities	(1,555		)
Assets acquired, net of liabilities assumed	226
Acquisition of business	$	13,925

(1)

The Company primarily valued personal property using the cost approach and applying the reproduction or replacement cost method. The Company assigned personal property a useful life ranging from 3 years to 11 years. The Company primarily valued real property using the cost approach, which was supported by the market approach or income approach as appropriate. The Company assigned real property a useful life between 3 years and 48 years.

The Keurig Acquisition resulted in $9,946 million of goodwill. The goodwill to be recognized is attributable to consisted largely of Keurig's commercial potential and the value of Keurig's assembled workforce. The goodwill created in the Keurig Acquisition is not deductible for tax purposes.

The allocation of consideration exchanged to other intangible assets acquired is as follows:



(in millions)	Fair Value		Estimated Life (in years)
Acquired technology⁽¹⁾	$	1,246	20
Customer relationships⁽²⁾	243		10-12
Favorable leases⁽³⁾	8		5-10
Trade names (definite-lived)⁽⁴⁾	126		10
Trade names (indefinite-lived)⁽⁴⁾	2,479		n/a
Total other intangible assets	$	4,102


(1)	The Company valued acquired technology using the relief-from-royalty method, a form of the income approach.


(2)	The Company valued retail relationships using the distributor method, a form of the income approach. The Company valued digital and other customer relationships using the excess earnings method, a form of the income approach.


(3)	The Company valued leases using the discounted cash flow method, a form of the income approach.


(4)	The Company valued definite-lived and indefinite-lived trade names using the relief-from-royalty method, a form of the income approach.

TRANSACTION EXPENSES

The following table provides information about the Company's transaction expenses incurred during the Periods:



	Successor								Predecessor
(in millions)	2018		Transition 2017		Fiscal 2017		Successor 2016		Predecessor 2016
DPS Merger	$	158	$	—	$	—	$	—	$	—
Keurig Acquisition	—		—		—		102		187
Other transaction expenses	4		—		—		—		—
Total transaction expenses incurred	$	162	$	—	$	—	$	102	$	187

INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

The following table summarizes the equity method investments held by the Company as of December 31, 2018 and 2017:



			December 31,
(in millions)	Ownership Interest		2018		2017
BA Sports Nutrition, LLC ("BODYARMOR")⁽¹⁾⁽²⁾	15.5	%	$	62	$	—
Bedford Systems, LLC ("Bedford")⁽³⁾	30.0	%	79		95
Dyla LLC	12.6	%	15		—
Force Holdings LLC	33.3	%	6		—
LifeFuels, Inc.	26.7	%	19		—
Other	(various)		5		2
Investments in unconsolidated subsidiaries			$	186	$	97


(1)	The investment in BODYARMOR was acquired as part of the DPS Merger on July 9, 2018. Refer to the purchase price allocation above.

(2)

On August 14, 2018, it was announced that The Coca-Cola Company ("Coca-Cola") took a minority interest in BODYARMOR and would obtain the Company's current distribution rights. On August 19, 2018, the Company received a distribution from BODYARMOR of approximately $35 million. This distribution reduced the Company's investment by approximately $11 million and resulted in a gain of approximately $24 million, which was recorded to Other (income) expense, net in the Consolidated Statements of Income. The Company continues to account for its interest in BODYARMOR as an equity method investment at the ownership level prior to the Coca-Cola announcement as an updated ownership interest percentage has not yet been provided to the Company.

(3)

The investment in Bedford represents a joint venture formed with Anheuser-Busch InBev ("ABI") on March 3, 2017 to develop and launch an in-home alcoholic beverage system. Under the terms of the transaction agreement, the Company contributed its existing Kold assets and liabilities along with all outstanding shares of MDS Holdings p.l.c. (Bevyz) with a net book value of $357 million to Bedford in exchange for a 30% interest. ABI contributed $250 million to the investment, which was immediately distributed to Maple, in exchange for a 70% interest.

(in millions)

Fair Value

Estimated Life (in years)

Contractual arrangements⁽²⁾

Total other intangible assets