Keurig Dr Pepper Inc. [KDP] Filings

10-Q 1 kdp-20220930.htm 10-Q kdp-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-33829

Keurig Dr Pepper Inc.

(Exact name of registrant as specified in its charter)


Delaware						98-0517725
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification number)

53 South Avenue

Burlington, Massachusetts

01803

(Address of principal executive offices)

(781) 418-7000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

KDP

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

As of October 25, 2022, there were 1,416,251,307 shares of the registrant's common stock, par value $0.01 per share, outstanding.

KEURIG DR PEPPER INC.

FORM 10-Q

TABLE OF CONTENTS


				Page
Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income		1
		Condensed Consolidated Statements of Comprehensive Income		2
		Condensed Consolidated Balance Sheets		3
		Condensed Consolidated Statements of Cash Flows		4
		Condensed Consolidated Statements of Changes in Stockholders' Equity		6
		Notes to Condensed Consolidated Financial Statements		8
		1	General	8
		2	Long-Term Obligations and Borrowing Arrangements	9
		3	Goodwill and Other Intangible Assets	12
		4	Derivatives	13
		5	Leases	17
		6	Segments	19
		7	Earnings Per Share	20
		8	Stock-Based Compensation	20
		9	Restructuring and Integration Costs	21
		10	Revenue Recognition	22
		11	Income Taxes	23
		12	Investments	24
		13	Accumulated Other Comprehensive Income (Loss)	25
		14	Other Financial Information	26
		15	Commitments and Contingencies	27
		16	Transactions with Variable Interest Entities	29


	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		30
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		57
	Item 4.	Controls and Procedures		58

Part II.	Other Information
	Item 1.	Legal Proceedings		58
	Item 1A.	Risk Factors		58
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58
	Item 6.	Exhibits		59

s-i

KEURIG DR PEPPER INC.

MASTER GLOSSARY


Term						Definition


2019 KDP Term Loan						$2 billion aggregate principal amount, with the ability to make voluntary and mandatory prepayments, which was originally due on February 8, 2023 and was fully repaid in 2021
2021 364-Day Credit Agreement						The Company's $1,500 million credit agreement, which was entered into on March 26, 2021 and was terminated on February 23, 2022
2022 Revolving Credit Agreement						KDP’s $4 billion revolving credit agreement, which was executed in February 2022 and replaced the 2021 364-Day Credit Agreement and the KDP Revolver
2022 Strategic Refinancing						A series of transactions in April 2022, whereby KDP issued the 2029 Notes, the 2032 Notes, and the 2052 Notes, and voluntarily prepaid and retired the remaining 2023 Merger Notes and tendered portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes and the 2048 Merger Notes
A Shoc						A Shoc Beverage LLC, an equity method investment of KDP, or Adrenaline Shoc energy drinks
ABC						The American Bottling Company, a wholly-owned subsidiary of KDP
ABI						Anheuser-Busch InBev SA/NV, the majority owner of Bedford with a 70% interest
Annual Report						Annual Report on Form 10-K for the year ended December 31, 2021
AOCI						Accumulated other comprehensive income or loss

Bedford						Bedford Systems, LLC, an equity method investment of KDP and the maker of Drinkworks
Board						The Board of Directors of KDP
BodyArmor						BA Sports Nutrition, LLC, a former equity method investment of KDP
bps						basis points
CARES Act						U.S. Coronavirus Aid, Relief and Economic Security Act
CSD						Carbonated soft drink
DIO						Days inventory outstanding
DPO						Days of payables outstanding
DPS						Dr Pepper Snapple Group, Inc.
DPS Merger						The combination of the business operations of Keurig and DPS that was consummated on July 9, 2018 through a reverse merger transaction, whereby a wholly-owned special purpose merger subsidiary of DPS merged with and into the direct parent of Keurig
DSD						Direct Store Delivery, the operating segment whereby finished beverages are delivered directly to retailers
DSO						Days sales outstanding
EPS						Earnings per share
Exchange Act						Securities Exchange Act of 1934, as amended
FFS						Fountain Foodservice, an operating segment of KDP which serves the fountain channel, such as restaurants
FASB						Financial Accounting Standards Board
FX						Foreign exchange


IRi						Information Resources, Inc.

KDP						Keurig Dr Pepper Inc.

KDP Revolver						The Company's $2,400 million revolving credit facility, which was entered into on February 28, 2018 and terminated on February 23, 2022.
Keurig						Keurig Green Mountain, Inc., a wholly-owned subsidiary of KDP, and the brand of our brewers
LIBOR						London Interbank Offered Rate

NCB						Non-carbonated beverage
Notes						Collectively, the Company's senior unsecured notes

PET						Polyethylene terephthalate, which is used to make the Company's plastic bottles
Proposition 65						The State of California's Safe Drinking Water and Toxic Enforcement Act of 1986
RSU						Restricted share unit

RVG						Residual value guarantee
Tractor						Tractor Beverages, Inc., an equity method investment of KDP
SEC						Securities and Exchange Commission
SG&A						Selling, general and administrative
SOFR						Secured Overnight Financing Rate
U.S. GAAP						Accounting principles generally accepted in the U.S.
Veyron SPEs						Special purpose entities with the same sponsor, Veyron Global
VIE						Variable interest entity
Vita Coco						The Vita Coco Company, Inc.
WD						Warehouse Direct, the operating segment whereby finished beverages are shipped to retailer warehouses, and then delivered by the retailer through its own delivery system to its stores

s-ii

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.Financial Statements (Unaudited)

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Third Quarter				First Nine Months
(in millions, except per share data)	2022		2021		2022		2021
Net sales	$	3,622	$	3,250	$	10,254	$	9,292
Cost of sales	1,721		1,415		4,927		4,087
Gross profit	1,901		1,835		5,327		5,205
Selling, general and administrative expenses	1,196		1,040		3,418		3,040
Impairment of intangible assets	311		—		311		—
Gain on litigation settlement	—		—		(299)		—
Other operating income, net	—		—		(35)		(4)
Income from operations	394		795		1,932		2,169
Interest expense	207		116		570		381
Loss on early extinguishment of debt	—		—		217		105
Gain on sale of equity method investment	—		—		(50)		—
Impairment of investments and note receivable	—		—		12		—
Other expense (income), net	4		1		22		(6)
Income before provision for income taxes	183		678		1,161		1,689
Provision for income taxes	4		149		179		387
Net income including non-controlling interest	179		529		982		1,302
Less: Net loss attributable to non-controlling interest	(1)		(1)		(1)		(1)
Net income attributable to KDP	$	180	$	530	$	983	$	1,303

Earnings per common share:
Basic	$	0.13	$	0.37	$	0.69	$	0.92
Diluted	0.13		0.37		0.69		0.91
Weighted average common shares outstanding:
Basic	1,416.1		1,417.6		1,417.3		1,414.9
Diluted	1,427.2		1,428.5		1,428.8		1,427.5

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Third Quarter				First Nine Months
(in millions)	2022		2021		2022		2021
Net income including non-controlling interest	$	179	$	529	$	982	$	1,302
Other comprehensive (loss) income
Foreign currency translation adjustments	(249)		(137)		(283)		(9)
Net change in pension and post-retirement liability, net of tax of $—, $—, $— and $—, respectively	—		—		(3)		—
Net change in cash flow hedges, net of tax of $12, $4, $98 and $(22), respectively	35		15		303		(62)
Total other comprehensive (loss) income	(214)		(122)		17		(71)
Comprehensive income including non-controlling interest	(35)		407		999		1,231
Less: Comprehensive income attributable to non-controlling interest	—		—		—		—
Comprehensive (loss) income attributable to KDP	$	(35)	$	407	$	999	$	1,231

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	September 30,		December 31,
(in millions, except share and per share data)	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	925	$	567
Restricted cash and cash equivalents	3		1
Trade accounts receivable, net	1,472		1,148
Inventories	1,438		894
Prepaid expenses and other current assets	487		447
Total current assets	4,325		3,057
Property, plant and equipment, net	2,483		2,494
Investments in unconsolidated affiliates	76		30
Goodwill	20,024		20,182
Other intangible assets, net	23,299		23,856
Other non-current assets	1,196		937
Deferred tax assets	37		42
Total assets	$	51,440	$	50,598
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,284	$	4,316
Accrued expenses	1,129		1,110
Structured payables	145		142
Short-term borrowings and current portion of long-term obligations	—		304
Other current liabilities	675		613
Total current liabilities	7,233		6,485
Long-term obligations	11,561		11,578
Deferred tax liabilities	5,745		5,986
Other non-current liabilities	1,800		1,577
Total liabilities	26,339		25,626
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued	—		—
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,416,251,307 and 1,418,119,197 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	14		14
Additional paid-in capital	21,730		21,785
Retained earnings	3,367		3,199
Accumulated other comprehensive loss	(9)		(26)
Total stockholders' equity	25,102		24,972
Non-controlling interest	(1)		—
Total equity	25,101		24,972
Total liabilities and equity	$	51,440	$	50,598

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	First Nine Months
(in millions)	2022		2021
Operating activities:
Net income attributable to KDP	$	983	$	1,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	301		304
Amortization of intangibles	100		101
Other amortization expense	129		118
Provision for sales returns	38		48
Deferred income taxes	(281)		(21)
Employee stock-based compensation expense	43		68
Loss on early extinguishment of debt	217		105

Gain on sale of equity method investment	(50)		—
Gain on disposal of property, plant and equipment	(38)		(5)
Unrealized loss on foreign currency	22		1
Unrealized loss (gain) on derivatives	387		(94)
Settlements of interest rate contracts	125		—
Equity in loss of unconsolidated affiliates	6		2
Impairment of intangible assets	311		—
Impairment on investments and note receivable of unconsolidated affiliate	12		—
Other, net	22		10
Changes in assets and liabilities:
Trade accounts receivable	(372)		(126)
Inventories	(552)		(210)
Income taxes receivable and payables, net	(106)		(11)
Other current and non-current assets	(380)		(181)
Accounts payable and accrued expenses	1,014		536
Other current and non-current liabilities	167		(15)
Net change in operating assets and liabilities	(229)		(7)
Net cash provided by operating activities	2,098		1,933
Investing activities:


Proceeds from sale of investment in unconsolidated affiliates	50		—
Purchases of property, plant and equipment	(260)		(325)
Proceeds from sales of property, plant and equipment	79		18
Purchases of intangibles	(19)		(31)
Issuance of related party note receivable	(18)		(17)
Investments in unconsolidated affiliates	(48)		—

Other, net	3		5
Net cash used in investing activities	$	(213)	$	(350)

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, CONTINUED)


	First Nine Months
(in millions)	2022		2021
Financing activities:
Proceeds from issuance of Notes	$	3,000	$	2,150
Repayments of Notes	(3,365)		(3,595)
Proceeds from issuance of commercial paper	500		4,756
Repayments of commercial paper	(649)		(3,758)




Repayments of 2019 KDP Term Loan	—		(425)
Proceeds from structured payables	114		112
Repayments of structured payables	(111)		(123)
Cash dividends paid	(796)		(687)
Repurchases of common stock	(88)		—
Proceeds from issuance of common stock	—		140
Tax withholdings related to net share settlements	(10)		(125)
Payments on finance leases	(65)		(40)
Other, net	(45)		(35)
Net cash used in financing activities	(1,515)		(1,630)
Cash, cash equivalents, and restricted cash and cash equivalents:
Net change from operating, investing and financing activities	370		(47)
Effect of exchange rate changes	(10)		(5)
Beginning balance	568		255
Ending balance	$	928	$	203

Supplemental cash flow disclosures of non-cash investing activities:
Capital expenditures included in accounts payable and accrued expenses	$	179	$	180
Non-cash conversion of note receivable to investment in unconsolidated affiliate	6		—
Purchases of intangibles	22		—
Supplemental cash flow disclosures of non-cash financing activities:
Dividends declared but not yet paid	284		268
Supplemental cash flow disclosures:
Cash paid for interest	236		284
Cash paid for income taxes	566		408

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)


	Common Stock Issued			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity		Non-controlling Interest		Total Equity
(in millions, except per share data)	Shares	Amount
Balance as of January 1, 2022	1,418.1	$	14	$	21,785	$	3,199	$	(26)	$	24,972	$	—	$	24,972
Net income	—	—		—		585		—		585		—		585
Other comprehensive income	—	—		—		—		241		241		—		241
Dividends declared, $0.1875 per share	—	—		—		(266)		—		(266)		—		(266)

Shares issued under employee stock-based compensation plans and other	0.4	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(5)		—		—		(5)		—		(5)
Stock-based compensation and stock options exercised	—	—		(16)		—		—		(16)		—		(16)
Balance as of March 31, 2022	1,418.5	14		21,764		3,518		215		25,511		—		25,511
Net income	—	—		—		218		—		218		—		218
Other comprehensive loss	—	—		—		—		(10)		(10)		—		(10)
Dividends declared, $0.1875 per share	—	—		—		(265)		—		(265)		—		(265)

Repurchases of common stock	(2.5)	—		(88)		—		—		(88)		—		(88)
Shares issued under employee stock-based compensation plans and other	0.1	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(3)		—		—		(3)		—		(3)
Stock-based compensation and stock options exercised	—	—		28		—		—		28		—		28
Balance as of June 30, 2022	1,416.1	14		21,701		3,471		205		25,391		—		25,391
Net income	—	—		—		180		—		180		(1)		179
Other comprehensive loss	—	—		—		—		(214)		(214)		—		(214)
Dividends declared, $0.20 per share	—	—		—		(284)		—		(284)		—		(284)
Shares issued under employee stock-based compensation plans and other	0.2	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(2)		—		—		(2)		—		(2)
Stock-based compensation and stock options exercised	—	—		31		—		—		31		—		31
Balance as of September 30, 2022	1,416.3	$	14	$	21,730	$	3,367	$	(9)	$	25,102	$	(1)	$	25,101

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED, CONTINUED)


	Common Stock Issued			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity		Non-controlling Interest		Total Equity
(in millions, except per share data)	Shares	Amount
Balance as of January 1, 2021	1,407.3	$	14	$	21,677	$	2,061	$	77	$	23,829	$	1	$	23,830

Net income	—	—		—		325		—		325		—		325
Other comprehensive loss	—	—		—		—		87		87		—		87
Dividends declared, $0.15 per share	—	—		—		(212)		—		(212)		—		(212)

Issuance of common stock	4.3	—		140		—		—		140		—		140
Shares issued under employee stock-based compensation plans and other	5.7	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(125)		—		—		(125)		—		(125)
Stock-based compensation and stock options exercised	—	—		26		—		—		26		—		26
Balance as of March 31, 2021	1,417.3	14		21,718		2,174		164		24,070		1		24,071
Net income	—	—		—		448		—		448		—		448
Other comprehensive income	—	—		—		—		(36)		(36)		—		(36)
Dividends declared, $0.1875 per share	—	—		—		(265)		—		(265)		—		(265)

Shares issued under employee stock-based compensation plans and other	0.1	—		—		—		—		—		—		—
Stock-based compensation and stock options exercised	—	—