Keurig Dr Pepper Inc. [KDP] Filings

10-Q 1 kdp-20230930.htm 10-Q kdp-20230930

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, 2023

☐ 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 24, 2023, there were 1,398,336,103 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	11
		4	Derivatives	12
		5	Leases	16
		6	Segments	17
		7	Revenue Recognition	19
		8	Earnings Per Share	20
		9	Stock-Based Compensation	20
		10	Investments	21
		11	Income Taxes	21
		12	Accumulated Other Comprehensive Income	22
		13	Other Financial Information	23
		14	Commitments and Contingencies	25
		15	Transactions with Variable Interest Entities	26
		16	Restructuring	27
		17	Subsequent Events	28
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		54
	Item 4	Controls and Procedures		54

Part II	Other Information
	Item 1	Legal Proceedings		55
	Item 1A	Risk Factors		55
	Item 2	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		55
	Item 5	Other Information		55
	Item 6	Exhibits		56

s-i

KEURIG DR PEPPER INC.

FORM 10-Q

MASTER GLOSSARY


Term						Definition



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



Annual Report						Annual Report on Form 10-K for the year ended December 31, 2022
AOCI						Accumulated other comprehensive income or loss

Athletic Brewing						Athletic Brewing Holding Company, LLC, an equity method investment of KDP
Bedford						Bedford Systems, LLC, an equity method investment of KDP and the maker of Drinkworks
Board						The Board of Directors of KDP

bps						Basis points
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, KDP’s route-to-market 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


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
La Colombe						La Colombe Holdings, Inc., an equity method investment of KDP
LRB						Liquid refreshment beverages
NCB						Non-carbonated beverage
Notes						Collectively, the Company's senior unsecured notes
Nutrabolt						Woodbolt Holdings LLC, d/b/a Nutrabolt, an equity method investment of KDP


Revive						Revive Brands, a wholly-owned subsidiary of KDP
RSU						Restricted share unit
RTD						Ready to drink
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, KDP’s route-to-market whereby finished beverages are shipped to retailer warehouses, and then delivered by the retailer through its own delivery system to its stores

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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)	2023		2022		2023		2022
Net sales	$	3,805	$	3,622	$	10,947	$	10,254
Cost of sales	1,694		1,721		5,051		4,927
Gross profit	2,111		1,901		5,896		5,327
Selling, general and administrative expenses	1,217		1,196		3,654		3,418
Impairment of intangible assets	2		311		2		311
Gain on litigation settlement	—		—		—		(299)
Other operating income, net	(4)		—		(9)		(35)
Income from operations	896		394		2,249		1,932
Interest expense	237		207		432		570
Loss on early extinguishment of debt	—		—		—		217
Gain on sale of equity method investment	—		—		—		(50)
Impairment of investments and note receivable	—		—		—		12
Other (income) expense, net	(5)		4		(41)		22
Income before provision for income taxes	664		183		1,858		1,161
Provision for income taxes	146		4		370		179
Net income including non-controlling interest	518		179		1,488		982
Less: Net loss attributable to non-controlling interest	—		(1)		—		(1)
Net income attributable to KDP	$	518	$	180	$	1,488	$	983

Earnings per common share:
Basic	$	0.37	$	0.13	$	1.06	$	0.69
Diluted	0.37		0.13		1.05		0.69
Weighted average common shares outstanding:
Basic	1,397.4		1,416.1		1,401.3		1,417.3
Diluted	1,406.2		1,427.2		1,410.8		1,428.8

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)	2023		2022		2023		2022
Net income including non-controlling interest	$	518	$	179	$	1,488	$	982
Other comprehensive (loss) income
Foreign currency translation adjustments	(135)		(249)		132		(283)
Net change in pension and post-retirement liability, net of tax of $0, $0, $0 and $0, respectively	—		—		—		(3)
Net change in cash flow hedges, net of tax of $0, $(12), $24 and $(98), respectively	9		35		(90)		303
Total other comprehensive (loss) income	(126)		(214)		42		17
Comprehensive income (loss) including non-controlling interest	392		(35)		1,530		999
Less: Comprehensive income attributable to non-controlling interest	—		—		—		—
Comprehensive income (loss) attributable to KDP	$	392	$	(35)	$	1,530	$	999

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

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KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	September 30,		December 31,
(in millions, except share and per share data)	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	260	$	535

Trade accounts receivable, net	1,279		1,484
Inventories	1,348		1,314
Prepaid expenses and other current assets	519		471
Total current assets	3,406		3,804
Property, plant and equipment, net	2,527		2,491
Investments in unconsolidated affiliates	1,336		1,000
Goodwill	20,122		20,072
Other intangible assets, net	23,223		23,183
Other non-current assets	1,117		1,252
Deferred tax assets	32		35
Total assets	$	51,763	$	51,837
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,090	$	5,206
Accrued expenses	1,123		1,153
Structured payables	122		137
Short-term borrowings and current portion of long-term obligations	2,798		895
Other current liabilities	681		685
Total current liabilities	8,814		8,076
Long-term obligations	9,940		11,072
Deferred tax liabilities	5,714		5,739
Other non-current liabilities	1,931		1,825
Total liabilities	26,399		26,712
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, 1,398,322,033 and 1,408,394,293 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	14		14
Additional paid-in capital	21,014		21,444
Retained earnings	4,165		3,539
Accumulated other comprehensive income	171		129
Total stockholders' equity	25,364		25,126
Non-controlling interest	—		(1)
Total equity	25,364		25,125
Total liabilities and equity	$	51,763	$	51,837

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)	2023		2022
Operating activities:
Net income attributable to KDP	$	1,488	$	983
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	299		301
Amortization of intangibles	103		100
Other amortization expense	136		129
Provision for sales returns	42		38
Deferred income taxes	(22)		(281)
Employee stock-based compensation expense	86		43
Loss on early extinguishment of debt	—		217

Gain on sale of equity method investment	—		(50)
Gain on disposal of property, plant and equipment	(3)		(38)
Unrealized (gain) loss on foreign currency	(4)		22
Unrealized loss on derivatives	44		387
Settlements of interest rate contracts	54		125
Equity in (earnings) loss of unconsolidated affiliates	(24)		6
Impairment of intangible assets	2		311
Impairment on investments and note receivable of unconsolidated affiliate	—		12
Other, net	(5)		22
Changes in assets and liabilities:
Trade accounts receivable	170		(372)
Inventories	(31)		(552)
Income taxes receivable and payables, net	(39)		(106)
Other current and non-current assets	(159)		(380)
Accounts payable and accrued expenses	(1,155)		1,014
Other current and non-current liabilities	50		167
Net change in operating assets and liabilities	(1,164)		(229)
Net cash provided by operating activities	1,032		2,098
Investing activities:


Proceeds from sale of investment in unconsolidated affiliates	—		50
Purchases of property, plant and equipment	(271)		(260)
Proceeds from sales of property, plant and equipment	9		79
Purchases of intangibles	(55)		(19)
Issuance of related party note receivable	—		(18)
Investments in unconsolidated affiliates	(308)		(48)

Other, net	2		3
Net cash (used in) provided by investing activities	$	(623)	$	(213)

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)	2023		2022
Financing activities:
Proceeds from issuance of Notes	$	—	$	3,000
Repayments of Notes	—		(3,365)
Net issuance (repayment) of commercial paper	750		(149)






Proceeds from structured payables	91		114
Repayments of structured payables	(105)		(111)
Cash dividends paid	(842)		(796)
Repurchases of common stock	(457)		(88)

Tax withholdings related to net share settlements	(57)		(10)
Payments on finance leases	(74)		(65)
Other, net	(3)		(45)
Net cash used in financing activities	(697)		(1,515)
Cash, cash equivalents, and restricted cash and cash equivalents:
Net change from operating, investing and financing activities	(288)		370
Effect of exchange rate changes	13		(10)
Beginning balance	535		568
Ending balance	$	260	$	928

Supplemental cash flow disclosures of non-cash investing activities:
Capital expenditures included in accounts payable and accrued expenses	$	196	$	179
Transaction costs included in accounts payable and accrued expenses	13		—
Non-cash conversion of note receivable to investment in unconsolidated affiliate	—		6
Non-cash purchases of intangibles	—		22
Supplemental cash flow disclosures of non-cash financing activities:
Dividends declared but not yet paid	300		284

Supplemental cash flow disclosures:
Cash paid for interest	255		236
Cash paid for income taxes	413		566

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		Total Stockholders' Equity		Non-controlling Interest		Total Equity
(in millions, except per share data)	Shares	Amount
Balance as of January 1, 2023	1,408.4	$	14	$	21,444	$	3,539	$	129	$	25,126	$	(1)	$	25,125
Net income	—	—		—		467		—		467		—		467
Other comprehensive income	—	—		—		—		26		26		—		26
Dividends declared, $0.20 per share	—	—		—		(282)		—		(282)		—		(282)

Repurchases of common stock, inclusive of excise tax obligation	(6.6)	—		(232)		—		—		(232)		—		(232)
Shares issued under employee stock-based compensation plans and other	1.9	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(31)		—		—		(31)		—		(31)
Stock-based compensation and stock options exercised	—	—		29		—		—		29		—		29
Balance as of March 31, 2023	1,403.7	14		21,210		3,724		155		25,103		(1)		25,102
Net income	—	—		—		503		—		503		—		503
Other comprehensive income	—	—		—		—		142		142		—		142
Dividends declared, $0.20 per share	—	—		—		(279)		—		(279)		—		(279)

Repurchases of common stock, inclusive of excise tax obligation	(7.0)	—		(229)		—		—		(229)		—		(229)
Shares issued under employee stock-based compensation plans and other	0.2	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(1)		—		—		(1)		—		(1)
Stock-based compensation and stock options exercised	—	—		29		—		—		29		—		29
Balance as of June 30, 2023	1,396.9	$	14	$	21,009	$	3,948	$	297	$	25,268	$	(1)	$	25,267
Net income	—	—		—		518		—		518		—		518
Other comprehensive loss	—	—		—		—		(126)		(126)		—		(126)
Dividends declared, $0.215 per share	—	—		—		(300)		—		(300)		—		(300)
Repurchases of common stock, inclusive of excise tax obligation	—	—		1		—		—		1		—		1
Shares issued under employee stock-based compensation plans and other	1.4	—		—		—		—		—		—		—
Tax withholdings related to net share settlements	—	—		(25)		—		—		(25)		—		(25)
Stock-based compensation and stock options exercised	—	—		29		—		—		29		—		29
Non-controlling interest surrender of shares	—	—		—		(1)		—		(1)		1		—
Balance as of September 30, 2023	1,398.3	$	14	$	21,014	$	4,165	$	171	$	25,364	$	—	$	25,364

Table of Contents


	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

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

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. General

ORGANIZATION

References in this Quarterly Report on Form 10-Q to "KDP" or "the Company" refer to Keurig Dr Pepper Inc. and all entities included in the unaudited condensed consolidated financial statements. Definitions of terms used in this Quarterly Report on Form 10-Q are included within the Master Glossary.

This Quarterly Report on Form 10-Q refers to some of KDP's owned or licensed trademarks, trade names and service marks, which are referred to as the Company's brands. All of the product names included herein are either KDP registered trademarks or those of the Company's licensors.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with KDP's consolidated financial statements and accompanying notes included in the Company's Annual Report.

References to the "third quarter" indicate the Company's quarterly periods ended September 30, 2023 and 2022.

USE OF ESTIMATES

The process of preparing KDP's unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect reported amounts. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.

REPORTABLE SEGMENTS

As of January 1, 2023, the Company revised its segment structure to align with changes in how the Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources. This change had no impact on the Company’s consolidated results of operations or financial position. Prior period segment results have been recast to reflect the Company’s new reportable segments. Refer to Note 6 for additional information on the Company’s reportable segments and Note 7 for the Company’s disaggregated revenue portfolio for each reportable segment. The change in segment structure also resulted in a change to the Company’s reporting units. Refer to Note 3 for additional information on the Company’s reporting units.

RECLASSIFICATIONS

The Company reclassified amounts in the Financing Activities section of the unaudited condensed consolidated Statement of Cash Flows for the first nine months of 2022 in order to conform to current year presentation, as maturities for the Company’s commercial paper program in both periods are 90 days or less.

(in millions)

Prior Presentation

First Nine Months of 2022

Net issuance (repayment) of commercial paper

Proceeds from issuance of commercial paper

500

Net issuance (repayment) of commercial paper

Repayments of commercial paper

(649)

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

RECENTLY ADOPTED ACCOUNTING STANDARDS

As of January 1, 2023, the Company adopted ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The objective of ASU 2022-04 is to require entities to disclose information about the use of supplier finance programs in connection with the purchase of goods and services. While the adoption of ASU 2022-04 did not have a material impact on the Company’s unaudited condensed consolidated financial statements, it did impact the nature of the disclosures. The disclosure previously included in the Company’s Form 10-K was specific to the amount of KDP’s outstanding payment obligations that were voluntarily elected by the supplier and sold to financial institutions as informed by the third party administrators. ASU 2022-04 instead requires disclosure of the amount of KDP’s outstanding obligations loaded into the supplier finance programs by the Company at each reporting period regardless of whether the outstanding obligation has been elected by the supplier to be sold to financial institutions. Refer to Note 13 for additional information on the Company’s obligations to participating suppliers.

2. Long-term Obligations and Borrowing Arrangements

The following table summarizes the Company's long-term obligations:


(in millions)	September 30, 2023		December 31, 2022
Notes	$	11,589	$	11,568
Less: current portion of long-term obligations	(1,649)		(496)
Long-term obligations	$	9,940	$	11,072

The following table summarizes the Company's short-term borrowings and current portion of long-term obligations:


(in millions)	September 30, 2023		December 31, 2022
Commercial paper notes	$	1,149	$	399
Current portion of long-term obligations	1,649		496
Short-term borrowings and current portion of long-term obligations	$	2,798	$	895

SENIOR UNSECURED NOTES

The Company's Notes consisted of the following:


(in millions, except %)
Issuance	Maturity Date	Rate	September 30, 2023		December 31, 2022
2023 Notes	December 15, 2023	3.130%	$	500	$	500
2024 Notes	March 15, 2024	0.750%	1,150		1,150
2025 Merger Notes	May 25, 2025	4.417%	529		529
2025 Notes	November 15, 2025	3.400%	500		500
2026 Notes	September 15, 2026	2.550%	400		400
2027 Notes	June 15, 2027	3.430%	500		500
2028 Merger Notes	May 25, 2028	4.597%	1,112		1,112
2029 Notes	April 15, 2029	3.950%	1,000		1,000
2030 Notes	May 1, 2030	3.200%	750		750
2031 Notes	March 15, 2031	2.250%	500		500
2032 Notes	April 15, 2032	4.050%	850		850
2038 Merger Notes	May 25, 2038	4.985%	211		211
2045 Notes	November 15, 2045	4.500%	550		550
2046 Notes	December 15, 2046	4.420%	400		400
2048 Merger Notes	May 25, 2048	5.085%	391		391
2050 Notes	May 1, 2050	3.800%	750		750
2051 Notes	March 15, 2051	3.350%	500		500
2052 Notes	April 15, 2052	4.500%	1,150		1,150
Principal amount			11,743		11,743
Adjustment from principal amount to carrying amount(1)			(154)		(175)
Carrying amount			$	11,589	$	11,568

(1)The carrying amount includes unamortized discounts, debt issuance costs and fair value adjustments related to the DPS Merger.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

VARIABLE-RATE BORROWING ARRANGEMENTS

Revolving Credit Agreement

The following table summarizes information about the 2022 Revolving Credit Agreement:

(in millions)

September 30, 2023

December 31, 2022

Issuance

Maturity Date

Capacity

Carrying Value

2022 Revolving Credit Agreement(1)

February 23, 2027

4,000

—

(1)The 2022 Revolving Credit Agreement has $200 million letters of credit available, none of which were utilized as of September 30, 2023.

As of September 30, 2023, KDP was in compliance with its minimum interest coverage ratio relating to the 2022 Revolving Credit Agreement.

Commercial Paper Program

The following table provides information about the Company's weighted average borrowings under its commercial paper program:


	Third Quarter						First Nine Months
(in millions, except %)	2023			2022			2023			2022
Weighted average commercial paper borrowings	$	1,495		$	—		$	1,061		$	29
Weighted average borrowing rates	5.49		%	—		%	5.31		%	0.58		%

Letter of Credit Facility

In addition to the portion of the 2022 Revolving Credit Agreement reserved for issuance of letters of credit, KDP has an incremental letter of credit facility. Under this facility, $150 million is available for the issuance of letters of credit, $68 million of which was utilized as of September 30, 2023 and $82 million of which remains available for use.

FAIR VALUE DISCLOSURES

The fair value of KDP's commercial paper approximates the carrying value and are considered Level 2 within the fair value hierarchy.

The fair values of KDP's Notes are based on current market rates available to KDP and are considered Level 2 within the fair value hierarchy. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date. The fair value of KDP's Notes was $10,242 million and $10,495 million as of September 30, 2023 and December 31, 2022, respectively.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

3. Goodwill and Other Intangible Assets

GOODWILL

Changes in the carrying amount of goodwill by reportable segment are as follows:


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
Balance as of January 1, 2023	$	8,714	$	8,622	$	2,736	$	20,072
Foreign currency translation	—		—		50		50

Balance as of September 30, 2023	$	8,714	$	8,622	$	2,786	$	20,122

INTANGIBLE ASSETS OTHER THAN GOODWILL

The net carrying amounts of intangible assets other than goodwill with indefinite lives are as follows:


(in millions)	September 30, 2023		December 31, 2022
Brands(1)	$	19,380	$	19,291
Trade names	2,478		2,480
Contractual arrangements	122		122
Distribution rights(2)	155		100
Total	$	22,135	$	21,993

(1)The change in brands with indefinite lives was primarily driven by foreign currency translation of $89 million during the first nine months of 2023.

(2)The Company acquired certain distribution rights during the first nine months of 2023 of approximately $55 million, primarily attributable to Nutrabolt.

The net carrying amounts of intangible assets other than goodwill with definite lives are as follows:


	September 30, 2023						December 31, 2022
(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Acquired technology	$	1,146	$	(530)	$	616	$	1,146	$	(475)	$	671
Customer relationships	636		(227)		409		638		(204)		434
Trade names	126		(111)		15		127		(101)		26
Brands	51		(24)		27		51		(19)		32
Contractual arrangements	24		(11)		13		24		(10)		14
Distribution rights	29		(21)		8		29		(16)		13

Total	$	2,012	$	(924)	$	1,088	$	2,015	$	(825)	$	1,190

Amortization expense for intangible assets with definite lives was as follows:


	Third Quarter				First Nine Months
(in millions)	2023		2022		2023		2022
Amortization expense	$	34	$	33	$	103	$	100

Amortization expense of these intangible assets over the remainder of 2023 and the next five years is expected to be as follows:


	Remainder of 2023		For the Years Ending December 31,
(in millions)	Remainder of 2023		2024		2025		2026		2027		2028
Expected amortization expense	$	33	$	127	$	115	$	111	$	95	$	87

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

IMPAIRMENT TESTING

KDP conducts impairment tests on goodwill and all indefinite lived intangible assets annually, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable. Changes to the Company’s operating segments effective January 1, 2023, as described in Note 6, resulted in a change to the Company’s reporting units. The Company’s reporting units are as follows:


Reportable Segments						Reporting Units
U.S. Refreshment Beverages						U.S. Beverage Concentrates
						U.S. WD
						DSD
U.S. Coffee						U.S. Coffee
International						Canada Beverage Concentrates
						Canada WD
						Canada Coffee
						Latin America Beverages

Management performed a step 0 analysis of the goodwill as of the effective date of the segment change for the impacted reporting units. The Company also performed an analysis as of September 30, 2023 to ensure that there were no additional triggering events which occurred during the quarter. As a result of these analyses, management did not identify any indications that a material carrying amount of any goodwill or any intangible asset may not be recoverable.

4. Derivatives

KDP is exposed to market risks arising from adverse changes in interest rates, commodity prices, and FX rates. KDP manages these risks through a variety of strategies, including the use of interest rate contracts, FX forward contracts, commodity forward, future, swap and option contracts and supplier pricing agreements. KDP does not hold or issue derivative financial instruments for trading or speculative purposes.

KDP formally designates and accounts for certain foreign exchange forward contracts and interest rate contracts that meet established accounting criteria under U.S. GAAP as cash flow hedges. For such contracts, the effective portion of the gain or loss on the derivative instruments is recorded, net of applicable taxes, in AOCI. When net income is affected by the variability of the underlying transaction, the applicable offsetting amount of the gain or loss from the derivative instrument deferred in AOCI is reclassified to net income. Cash flows from derivative instruments designated in a qualifying hedging relationship are classified in the same category as the cash flows from the hedged items. If a cash flow hedge were to cease to qualify for hedge accounting, or were terminated, the derivatives would continue to be carried on the balance sheet at fair value until settled, and hedge accounting would be discontinued prospectively. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI would be reclassified to earnings at that time.

For derivatives that are not designated or for which the designated hedging relationship is discontinued, the gain or loss on the instrument is recognized in earnings in the period of change.

The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements. Historically, the Company has not experienced material credit losses as a result of counterparty nonperformance. The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

INTEREST RATES

Economic Hedges

KDP is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate contracts to provide predictability in the Company's overall cost structure and to manage the balance of fixed-rate and variable-rate debt. KDP primarily enters into receive-fixed, pay-variable and receive-variable, pay-fixed swaps and swaption contracts. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are generally reported in interest expense in the unaudited Condensed Consolidated Statements of Income. As of September 30, 2023, economic interest rate derivative instruments have maturities ranging from December 2023 to January 2038.

Cash Flow Hedges

In order to hedge the variability in cash flows from interest rate changes associated with the Company’s planned future issuances of long-term debt, during the first quarter of 2021, the Company entered into forward starting swaps and designated them as cash flow hedges. During the first quarter of 2023, KDP terminated the remaining forward starting swaps which were designated as cash flow hedges. As the forecasted debt transaction associated with the terminated forward starting swaps was no longer considered probable, the realized gains associated with the termination were recorded in interest expense during the first quarter of 2023.

FOREIGN EXCHANGE

KDP is exposed to foreign exchange risk in its international subsidiaries or with certain counterparties in foreign jurisdictions, which may transact in currencies that are different from the functional currencies of KDP’s legal entities. Additionally, the balance sheets of each of the Company’s Canadian and Mexican businesses are subject to exposure from movements in exchange rates.

Economic Hedges

KDP holds FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX rates described above. The intent of these FX contracts is to minimize the impact of FX risk associated with balance sheet positions not in local currency. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same caption of the unaudited Condensed Consolidated Statements of Income as the associated risk. As of September 30, 2023, these FX contracts have maturities ranging from October 2023 to October 2024.

Cash Flow Hedges

KDP designates certain FX forward contracts as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above. These designated FX forward contracts relate to forecasted inventory purchases in U.S. dollars of the Canadian and Mexican businesses. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. As of September 30, 2023, these FX contracts have maturities ranging from October 2023 to December 2024.

COMMODITIES

Economic Hedges

KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts. The Company generally holds some combination of future, swap and option contracts that economically hedge certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items or as an offset to certain costs of production. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's reportable segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. As of September 30, 2023, these commodity contracts have maturities ranging from October 2023 to June 2025.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

The following table presents the notional amounts of KDP's outstanding derivative instruments by type:


(in millions)	September 30, 2023		December 31, 2022
Interest rate contracts
Forward starting swaps, not designated as hedging instruments	$	1,700	$	1,000
Forward starting swaps, designated as cash flow hedges	—		500

Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments	—		1,900
Swaptions, not designated as hedging instruments	1,700		—
FX contracts
Forward contracts, not designated as hedging instruments	652		490
Forward contracts, designated as cash flow hedges	482