UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                     TO             

Commission file number 001-33829
kdp-20210331_g1.jpg
Keurig Dr Pepper Inc.
(Exact name of registrant as specified in its charter)
DelawareKeurig Dr Pepper Inc.98-0517725
(Exact name of registrant as specified in its charter)
Delaware98-0517725
(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
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 classTrading SymbolName of each exchange on which registered
Common stockKDPNew YorkThe Nasdaq Stock ExchangeMarket 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 July 28, 2020,April 27, 2021, there were 1,407,196,2281,417,389,722 shares of the registrant's common stock, par value $0.01 per share, outstanding.



KEURIG DR PEPPER INC.
FORM 10-Q TABLE OF CONTENTS
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KEURIG DR PEPPER INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020TABLE OF CONTENTS

   Page
 
  
  
  
  
  
 
 
 
 
 
 
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KEURIG DR PEPPER INC.
MASTER GLOSSARY
TermDefinition
TermDefinition
2009 Incentive PlanKeurig Dr Pepper Inc. Omnibus Incentive Plan of 2009 (formerly known as the Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan of 2009)
2019 Incentive PlanKeurig Dr Pepper Inc. Omnibus Incentive Plan of 2019
2019 KDP Term LoanThe Company refinanced$2 billion aggregate principal amount, with the 2018 KDP Term Loanability to make voluntary and mandatory prepayments, due on February 8, 2019 and entered into the 2019 KDP Term Loan Agreement2023
2019 364-Day Credit AgreementThe Company's $750 million credit agreement, which was entered into on May 29, 2019
2020 364-Day Credit AgreementThe Company's $1,500 million credit agreement, which was entered into on April 12, 2020 and terminated on March 26, 2021
2030 Notes2021 364-Day Credit Agreement$750The Company's $1,500 million aggregate principal amount of 3.20% senior unsecured notes due May 1, 2030credit agreement, which was entered into on March 26, 2021 and contains a term-out option
2050 NotesA Shoc$750 million aggregate principal amountA Shoc Beverage LLC, an equity method investment of 3.80% senior unsecured notes due May 1, 2050KDP, or Adrenaline Shoc energy drinks
A ShocABCAdrenaline ShocThe American Bottling Company, a wholly-owned subsidiary of KDP
ABIAnheuser-Busch InBev SA/NV
Annual ReportAnnual Report on Form 10-K for the year ended December 31, 20192020
AOCIAccumulated other comprehensive income or loss
ASUAccounting Standards Update
ASU 2016-13BedfordFinancial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2018-13Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements
ASU 2020-01Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
ASU 2020-04Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Bai AcquisitionThe acquisition of Bai by DPS
BedfordBedford Systems, LLC, an equity method investment of KDP and the maker of Drinkworks
Big Red AcquisitionBodyArmorThe acquisition of Big Red by KDP
BodyArmorBA Sports Nutrition, LLC, an equity method investment of KDP
bpsbasis points
CompanyCSDKeurig Dr Pepper Inc.
CoreCore Nutrition LLC
Core AcquisitionThe acquisition of Core by KDP
CSDCarbonated soft drink
DIODays inventory outstanding
DPODays of payables outstanding
DPSDr Pepper Snapple Group, Inc.
DPS MergerThe acquisitioncombination 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 by Maple, whereby Merger Sub merged with and into Maple, with Maple surviving the merger as a wholly-owned subsidiarydirect parent of DPS as of July 9, 2018Keurig
DPS Merger AgreementDSDThe Agreement and Plan of Merger by and among DPS, Maple and Merger Sub to effect the DPS Merger
DSDDirect Store Delivery, the operating segment whereby finished beverages are delivered directly to retailers
DSODays sales outstanding
EPSEarnings per share
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFFSFountain Foodservice, an operating segment of KDP which serves the fountain channel, such as restaurants
FASBFinancial Accounting Standards Board
FXForeign exchange
IRiGoldmanGoldman Sachs & Co. LLC
IRiInformation Resources, Inc.
JABJAB Holding Company S.a.r.l. and affiliates
KDPKeurig Dr Pepper Inc.

s-ii

KEURIG DR PEPPER INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020


KDP Credit AgreementsCollectively, the KDP Revolver, the 2019 364-Day Credit Agreement, the 2020 364-Day Credit Agreement, the 2021 364-Day Credit Agreement, and the 2019 KDP Term Loan
KDP RevolverThe Company's $2,400 million revolving credit facility, which was entered into on February 28, 2018
KGMKeurigKeurig Green Mountain, Inc., and the brand of our brewers
LIBORLondon Interbank Offered Rate
MapleLifeFuelsMaple Parent Holdings Corp.LifeFuels, Inc., an equity method investment
Merger SubNCBSalt Merger Sub, Inc.Non-carbonated beverage
NCBNotesNon-carbonated beverage
NotesCollectively, the Company's senior unsecured notes
ParentPeet'sKeurig Dr Pepper, Inc.
Peet'sPeet's Coffee & Tea, Inc.
PETPolyethylene terephthalate, which is used to make the Company's plastic bottles
Proposition 65The State of California's Safe Drinking Water and Toxic Enforcement Act of 1986
PRMBRSUPost-retirement medical benefitRestricted share unit
RSURTDRestricted stock unit
RTDReady to drink
S&PSECStandard & Poors
SECSecurities and Exchange Commission
SG&ASelling, general and administrative
U.S.United States
U.S. GAAPAccounting principles generally accepted in the U.S.
WDVeyron SPEWarehouse DirectVeyron NE Beverage Licensing LLC
WIPWDWork-in-processWarehouse 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

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s-iii



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

ITEM 1.Financial Statements (Unaudited)

KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Second Quarter First Six Months First Quarter
(in millions, except per share data)2020 2019 2020 2019(in millions, except per share data)20212020
Net sales$2,864
 $2,812
 $5,477
 $5,316
Net sales$2,902 $2,613 
Cost of sales1,302
 1,186
 2,463
 2,292
Cost of sales1,302 1,161 
Gross profit1,562
 1,626
 3,014
 3,024
Gross profit1,600 1,452 
Selling, general and administrative expenses1,001
 1,028
 2,029
 1,939
Selling, general and administrative expenses961 1,028 
Other operating (income) expense, net
 11
 (42) 
Other operating income, netOther operating income, net(1)(42)
Income from operations561
 587
 1,027
 1,085
Income from operations640 466 
Interest expense157
 170
 310
 339
Interest expense140 153 
Loss on early extinguishment of debt2
 
 4
 9
Loss on early extinguishment of debt105 
Impairment on investment and note receivable
 
 86
 
Impairment of investments and note receivableImpairment of investments and note receivable0 86 
Other (income) expense, net(4) 1
 16
 6
Other (income) expense, net(3)20 
Income before provision for income taxes406
 416
 611
 731
Income before provision for income taxes398 205 
Provision for income taxes108
 102
 157
 187
Provision for income taxes73 49 
Net income$298
 $314
 $454
 $544
Net income325 156 
Less: Net income attributable to non-controlling interestLess: Net income attributable to non-controlling interest0 
Net income attributable to KDPNet income attributable to KDP$325 $156 
Earnings per common share:       Earnings per common share:  
Basic$0.21
 $0.22
 $0.32
 $0.39
Basic$0.23 $0.11 
Diluted0.21
 0.22
 0.32
 0.38
Diluted0.23 0.11 
Weighted average common shares outstanding:       Weighted average common shares outstanding:  
Basic1,407.2
 1,406.7
 1,407.1
 1,406.5
Basic1,409.2 1,407.0 
Diluted1,421.5
 1,419.2
 1,420.8
 1,418.5
Diluted1,425.6 1,420.1 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Second Quarter First Six Months First Quarter
(in millions)2020 2019 2020 2019(in millions)20212020
Comprehensive income$450
 $402
 $22
 $725
Net incomeNet income$325 $156 
Other comprehensive incomeOther comprehensive income
Foreign currency translation adjustmentsForeign currency translation adjustments16 (583)
Net change in pension and post-retirement liability, net of tax of $0 and $0, respectivelyNet change in pension and post-retirement liability, net of tax of $0 and $0, respectively0 (1)
Net change in cash flow hedges, net of tax of $22 and $0, respectivelyNet change in cash flow hedges, net of tax of $22 and $0, respectively71 
Total other comprehensive income (loss)Total other comprehensive income (loss)87 (584)
Comprehensive income (loss)Comprehensive income (loss)412 (428)
Less: Comprehensive income attributable to non-controlling interestLess: Comprehensive income attributable to non-controlling interest0 
Comprehensive income (loss) attributable to KDPComprehensive income (loss) attributable to KDP$412 $(428)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2



KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31, March 31,December 31,
(in millions, except share and per share data)2020 2019(in millions, except share and per share data)20212020
AssetsAssetsAssets
Current assets:   Current assets:  
Cash and cash equivalents$149
 $75
Cash and cash equivalents$335 $240 
Restricted cash and restricted cash equivalents28
 26
Restricted cash and restricted cash equivalents14 15 
Trade accounts receivable, net1,010
 1,115
Trade accounts receivable, net1,065 1,048 
Inventories747
 654
Inventories841 762 
Prepaid expenses and other current assets306
 403
Prepaid expenses and other current assets410 323 
Total current assets2,240
 2,273
Total current assets2,665 2,388 
Property, plant and equipment, net2,071
 2,028
Property, plant and equipment, net2,261 2,212 
Investments in unconsolidated affiliates102
 151
Investments in unconsolidated affiliates88 88 
Goodwill19,968
 20,172
Goodwill20,209 20,184 
Other intangible assets, net23,785
 24,117
Other intangible assets, net23,949 23,968 
Other non-current assets831
 748
Other non-current assets1,187 894 
Deferred tax assets29
 29
Deferred tax assets44 45 
Total assets$49,026
 $49,518
Total assets$50,403 $49,779 
Liabilities and Stockholders' EquityLiabilities and Stockholders' EquityLiabilities and Stockholders' Equity
Current liabilities:   Current liabilities:  
Accounts payable$3,377
 $3,176
Accounts payable$3,871 $3,740 
Accrued expenses940
 939
Accrued expenses989 1,040 
Structured payables182
 321
Structured payables148 153 
Short-term borrowings and current portion of long-term obligations2,256
 1,593
Short-term borrowings and current portion of long-term obligations1,750 2,345 
Other current liabilities543
 445
Other current liabilities467 416 
Total current liabilities7,298
 6,474
Total current liabilities7,225 7,694 
Long-term obligations11,849
 12,827
Long-term obligations11,715 11,143 
Deferred tax liabilities5,922
 6,030
Deferred tax liabilities6,025 5,993 
Other non-current liabilities1,034
 930
Other non-current liabilities1,367 1,119 
Total liabilities26,103
 26,261
Total liabilities26,332 25,949 
Commitments and contingencies

 

Commitments and contingencies00
Stockholders' equity:   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, 1,407,193,674 and 1,406,852,305 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively14
 14
Preferred stock, $0.01 par value, 15,000,000 shares authorized, 0 shares issuedPreferred stock, $0.01 par value, 15,000,000 shares authorized, 0 shares issued0 
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,417,325,379 and 1,407,260,676 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectivelyCommon stock, $0.01 par value, 2,000,000,000 shares authorized, 1,417,325,379 and 1,407,260,676 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively14 14 
Additional paid-in capital21,624
 21,557
Additional paid-in capital21,718 21,677 
Retained earnings1,613
 1,582
Retained earnings2,174 2,061 
Accumulated other comprehensive (loss) income(328) 104
Accumulated other comprehensive incomeAccumulated other comprehensive income164 77 
Total stockholders' equity22,923
 23,257
Total stockholders' equity24,070 23,829 
Total liabilities and stockholders' equity$49,026
 $49,518
Non-controlling interestNon-controlling interest1 
Total equityTotal equity24,071 23,830 
Total liabilities and equityTotal liabilities and equity$50,403 $49,779 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Contents


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 First Quarter
(in millions)20212020
Operating activities:  
Net income$325 $156 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation expense102 98 
Amortization of intangibles33 33 
Other amortization expense40 32 
Provision for sales returns19 
Deferred income taxes11 (5)
Employee stock-based compensation expense25 19 
Loss on early extinguishment of debt105 
Gain on disposal of property, plant and equipment(1)(43)
Unrealized (gain) loss on foreign currency(10)22 
Unrealized (gain) loss on derivatives(41)43 
Equity in loss of unconsolidated affiliates0 15 
Impairment on investments and note receivable of unconsolidated affiliate0 86 
Other, net15 22 
Changes in assets and liabilities:  
Trade accounts receivable(37)42 
Inventories(77)(38)
Income taxes receivable and payables, net25 (29)
Other current and non-current assets(295)(179)
Accounts payable and accrued expenses121 150 
Other current and non-current liabilities186 (19)
Net change in operating assets and liabilities(77)(73)
Net cash provided by operating activities546 414 
Investing activities:  
Purchases of property, plant and equipment(95)(151)
Proceeds from sales of property, plant and equipment7 201 
Purchases of intangibles(12)(15)
Issuance of related party note receivable0 (6)
Other, net1 
Net cash (used in) provided by investing activities$(99)$34 
 First Six Months
(in millions)2020 2019
Operating activities:   
Net income$454
 $544
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation expense183
 172
Amortization of intangibles66
 63
Other amortization expense76
 90
Provision for sales returns20
 16
Deferred income taxes(29) (5)
Employee stock-based compensation expense42
 34
Loss on early extinguishment of debt4
 9
Gain on disposal of property, plant and equipment(40) (8)
Unrealized loss (gain) on foreign currency12
 (25)
Unrealized loss on derivatives76
 43
Equity in loss of unconsolidated affiliates18
 27
Impairment on investment and note receivable of unconsolidated affiliate86
 
Other, net36
 8
Changes in assets and liabilities:   
Trade accounts receivable58
 68
Inventories(101) (56)
Income taxes receivable and payables, net69
 64
Other current and non-current assets(234) (149)
Accounts payable and accrued expenses260
 339
Other current and non-current liabilities6
 (31)
Net change in operating assets and liabilities58
 235
Net cash provided by operating activities1,062
 1,203
Investing activities:   
Acquisitions of businesses
 (8)
Issuance of related party note receivable(6) (14)
Investments in unconsolidated affiliates
 (11)
Purchases of property, plant and equipment(276) (118)
Proceeds from sales of property, plant and equipment202
 19
Purchases of intangibles(15) (4)
Other, net3
 22
Net cash used in investing activities(92) (114)

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Table of Contents


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Continued)
 First Quarter
(in millions)20212020
Financing activities:  
Proceeds from issuance of common stock$140 $
Proceeds from unsecured credit facility0 1,000 
Proceeds from senior unsecured notes2,150 
Net payment of commercial paper0 (387)
Proceeds from structured payables35 44 
Payments on structured payables(41)(107)
Payments on Notes(1,845)(250)
Payments on term loan(425)(405)
Payments on finance leases(15)(13)
Cash dividends paid(192)(212)
Tax witholdings related to net share settlements(125)
Other, net(37)
Net cash used in financing activities(355)(328)
Cash, cash equivalents, restricted cash, and restricted cash equivalents:  
Net change from operating, investing and financing activities92 120 
Effect of exchange rate changes2 (8)
Beginning balance255 111 
Ending balance$349 $223 
Supplemental cash flow disclosures of non-cash investing activities:
Capital expenditures included in accounts payable and accrued expenses$259 $177 
Supplemental cash flow disclosures of non-cash financing activities:
Dividends declared but not yet paid232 212 
Finance lease additions88 10 
Supplemental cash flow disclosures:
Cash paid for interest29 
Cash paid for income taxes31 81 
 First Six Months
(in millions)2020 2019
Financing activities:   
Proceeds from controlling shareholder stock transactions22
 
Proceeds from unsecured credit facility1,850
 
Proceeds from senior unsecured notes1,500
 
Proceeds from term loan
 2,000
Net (payment) issuance of commercial paper(836) 381
Proceeds from structured payables86
 78
Payments on structured payables(227) (9)
Payments on senior unsecured notes(250) (250)
Payment on unsecured credit facility(1,850) 
Payments on term loan(730) (2,848)
Payments on finance leases(24) (19)
Cash dividends paid(423) (423)
Other, net(19) 10
Net cash used in financing activities(901) (1,080)
Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:   
Operating, investing and financing activities69
 9
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents(3) 12
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period111
 139
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$177
 $160
    
Supplemental cash flow disclosures of non-cash investing activities:   
Measurement period adjustment of Core purchase price$
 $(11)
Capital expenditures included in accounts payable and accrued expenses180
 205
Purchases of intangibles
 2
Supplemental cash flow disclosures of non-cash financing activities:   
Dividends declared but not yet paid212
 212
Finance lease additions26
 30
Supplemental cash flow disclosures:   
Cash paid for interest240
 272
Cash paid for income taxes118
 142

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


KEURIG DR PEPPER INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 Common Stock Issued Additional
Paid-In Capital
 Retained Earnings Accumulated Other Comprehensive Income (Loss) Total
Stockholders' Equity
(in millions, except per share data)Shares Amount    
Balance as of January 1, 20201,406.8
 $14
 $21,557
 $1,582
 $104
 $23,257
Net income
 
 
 156
 
 156
Other comprehensive loss
 
 
 
 (584) (584)
Dividends declared, $0.15 per share
 
 
 (211) 
 (211)
Shares issued under employee stock-based compensation plans and other0.3
 
 
 
 
 
Stock-based compensation and stock options exercised
 
 22
 
 
 22
Balance as of March 31, 20201,407.1
 14
 21,579
 1,527
 (480) 22,640
Net income
 
 
 298
 
 298
Other comprehensive income
 
 
 
 152
 152
Dividends declared, $0.15 per share
 
 
 (212) 
 (212)
Proceeds from controlling shareholder stock transactions
 
 22
 
 
 22
Shares issued under employee stock-based compensation plans and other0.1
 
 
 
 
 
Stock-based compensation and stock options exercised
 
 23
 
 
 23
Balance as of June 30, 20201,407.2
 $14
 $21,624
 $1,613
 $(328) $22,923
            
Balance as of January 1, 20191,405.9
 $14
 $21,471
 $1,178
 $(130) $22,533
Adoption of new accounting standards
 
 
 (5) 
 (5)
Net income
 
 
 230
 
 230
Other comprehensive income
 
 
 
 93
 93
Dividends declared, $0.15 per share
 
 
 (211) 
 (211)
Measurement period adjustment
 
 11
 
 
 11
Shares issued under stock-based compensation plans and other0.8
 
 
 
 
 
Stock-based compensation and stock options exercised
 
 23
 
 
 23
Balance as of March 31, 20191,406.7
 14
 21,505
 1,192
 (37) 22,674
Net income
 
 
 314
 
 314
Other comprehensive income
 
 
 
 88
 88
Dividends declared, $0.15 per share
 
 
 (212) 
 (212)
Stock-based compensation and stock options exercised
 
 19
 
 
 19
Balance as of June 30, 20191,406.7
 $14
 $21,524
 $1,294
 $51
 $22,883

 Common Stock IssuedAdditional
Paid-In Capital
Retained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestTotal
Equity
(in millions, except per share data)SharesAmount
Balance as of January 1, 20211,407.3 $14 $21,677 $2,061 $77 $23,829 $1 $23,830 
Net income   325  325 0 325 
Other comprehensive income    87 87  87 
Dividends declared, $0.15 per share   (212) (212) (212)
Issuance of common stock4.3  140   140  140 
Shares issued under employee stock-based compensation plans and other5.7        
Stock-based compensation and stock options exercised  (99)  (99) (99)
Balance as of March 31, 20211,417.3 $14 $21,718 $2,174 $164 $24,070 $1 $24,071 
 Common Stock IssuedAdditional
Paid-In Capital
Retained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' EquityNon-controlling InterestTotal Equity
(in millions, except per share data)SharesAmount
Balance as of January 1, 20201,406.8 $14 $21,557 $1,582 $104 $23,257 $$23,257 
Net income— — — 156 — 156 — 156 
Other comprehensive loss— — — — (584)(584)— (584)
Dividends declared, $0.15 per share— — — (211)— (211)— (211)
Shares issued under stock-based compensation plans and other0.3 — — — — — — — 
Stock-based compensation and stock options exercised— — 22 — — 22 — 22 
Balance as of March 31, 20201,407.1 $14 $21,579 $1,527 $(480)$22,640 $$22,640 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6

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


1. General
ORGANIZATION
On January 29, 2018, DPS entered into the DPS Merger Agreement by and among DPS, Maple and Merger Sub. The DPS Merger was consummated on July 9, 2018, at which time DPS changed its name to "Keurig Dr Pepper Inc.".
References in this Quarterly Report on Form 10-Q to "KDP" or "the Company" refer to Keurig Dr Pepper Inc. and all entities included in the unaudited condensed consolidated financial statements. 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.
Except as otherwise specified, references to the "second"first quarter" indicate the Company's quarterly periods ended June 30, 2020March 31, 2021 and 2019.2020.
PRINCIPLES OF CONSOLIDATION
KDP consolidates all wholly owned subsidiaries.
The Company consolidates investments in companies in which it holds the majority interest. In these cases, the third party equity interest is referred to as non-controlling interest. Non-controlling interests are presented as a separate component within equity in the unaudited Condensed Consolidated Balance Sheets, and net income attributable to the non-controlling interests are presented separately in the unaudited Condensed Consolidated Statements of Income.
The Company uses the equity method to account for investments in companies if the investment provides the Company with the ability to exercise significant influence over operating and financial policies of the investee. Consolidated net income includes KDP's proportionate share of the net income or loss of these companies. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors or similar governing body, participation in policy-making decisions and material intercompany transactions.
KDP eliminates from its financial results all intercompany transactions between entities included in the unaudited condensed consolidated financial statements.
USE OF ESTIMATES
The process of preparing KDP's unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.
RECLASSIFICATIONS

The Company reclassified the following amounts in the unaudited condensed consolidated Statement of Cash Flows for the first six months of 2019 in order to conform to current year presentation:
(in millions) Prior Presentation Revised Presentation For the First Six Months of 2019
Net cash provided by operating activities:      
Amortization of intangibles Amortization expense Amortization of intangibles $63
Other amortization expense(1)
 Amortization expense Other amortization expense 90
Gain on disposal of property, plant and equipment Other, net Gain on disposal of property, plant and equipment (8)
Amortization of deferred financing fees Amortization expense Other, net 6
Amortization of bond fair value Amortization expense Other, net 13
(1)Primarily includes amortization of customer rebates and upfront payments.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

RECENTLY ISSUED ACCOUNTING STANDARDSADOPTED PROVISIONS OF U.S. GAAP
InAs of January 2020,1, 2021, the FASB issuedCompany adopted ASU 2020-01.2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The objective of ASU 2020-01the new standard is to clarify the interaction of the accounting for equity securities, investments accounted for under the equity method of accounting and the accounting for certain forward contracts and purchased options accounted for under different topics in U.S. GAAP. ASU 2020-01 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. The Company is currently evaluatingadoption of the standard did not impact of ASU 2020-01 but expects the impact to be immaterial to KDP's consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04. The objective
7

Table of ASU 2020-04 is to provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective and can be elected for all entities from the issuance date of the ASU through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-04 to KDP's consolidated financial statements.
RECENTLY ADOPTED PROVISIONS OF U.S. GAAP
Credit Losses
As of January 1, 2020, the Company adopted ASU 2016-13, which replaced the incurred loss methodology with an expected loss methodology. The objective of ASU 2016-13 was to provide for a new impairment model which requires measurement and recognition of current expected credit losses (CECL) for most financial assets held. The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost, which means that results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption of ASU 2016-13 did not have an impact on the Company's unaudited condensed consolidated financial statements.
Refer to Note 13 for additional information.
Other Accounting Standards
As of January 1, 2020, the Company adopted ASU 2018-13. The objective of ASU 2018-13 is to improve the disclosures related to fair value measurement by removing, modifying, or adding disclosure requirements related to recurring and non-recurring fair value measurements. The adoption of ASU 2018-13 did not have an impact on the Company's unaudited condensed consolidated financial statements.
Contents
2. Long-term Obligations and Borrowing Arrangements
The following table summarizes the Company's long-term obligations:
(in millions)June 30, 2020 December 31, 2019
Senior unsecured notes$13,049
 $11,802
Term loan646
 1,372
Subtotal13,695
 13,174
Less - current portion(1,846) (347)
Long-term obligations$11,849
 $12,827

The following table summarizes the Company's short-term borrowings and current portion of long-term obligations:
(in millions)June 30, 2020 December 31, 2019
Commercial paper notes$410
 $1,246
Revolving credit facilities
 
Current portion of long-term obligations:   
Senior unsecured notes1,748
 250
Term loan98
 97
Short-term borrowings and current portion of long-term obligations$2,256
 $1,593

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

2. Long-term Obligations and Borrowing Arrangements
SENIOR UNSECURED NOTESThe following table summarizes the Company's long-term obligations:
(in millions)March 31, 2021December 31, 2020
Notes$13,465 $13,065 
Term loan0 423 
Subtotal13,465 13,488 
Less - current portion(1,750)(2,345)
Long-term obligations$11,715 $11,143 
The following table summarizes the Company's Notes consistedshort-term borrowings and current portion of the following:long-term obligations:
(in millions)March 31, 2021December 31, 2020
Commercial paper notes$0 $
Revolving credit facilities0 
Current portion of long-term obligations:
Notes1,750 2,246 
Term loan0 99 
Short-term borrowings and current portion of long-term obligations$1,750 $2,345 
(in millions)        
Issuance Maturity Date Rate June 30, 2020 December 31, 2019
2020 Notes(1)
 January 15, 2020 2.000% $
 $250
2021 Merger Notes May 25, 2021 3.551% 1,750
 1,750
2021-A Notes November 15, 2021 3.200% 250
 250
2021-B Notes November 15, 2021 2.530% 250
 250
2022 Notes November 15, 2022 2.700% 250
 250
2023 Merger Notes May 25, 2023 4.057% 2,000
 2,000
2023 Notes December 15, 2023 3.130% 500
 500
2025 Merger Notes May 25, 2025 4.417% 1,000
 1,000
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% 2,000
 2,000
2030 Notes(2)
 May 1, 2030 3.200% 750
 
2038 Notes May 1, 2038 7.450% 125
 125
2038 Merger Notes May 25, 2038 4.985% 500
 500
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% 750
 750
2050 Notes(2)
 May 1, 2050 3.800% 750
 
Principal amount     $13,225
 $11,975
Adjustment from principal amount to carrying amount(3)
 (176) (173)
Carrying amount     $13,049
 $11,802

(1)On January 15, 2020, the Company repaid the 2020 Notes at maturity, using commercial paper notes.
(2)
On April 13, 2020, the Company completed the issuance of $1.5 billion aggregate principal amount of senior unsecured notes consisting of $750 million aggregate principal amount of 3.200% senior unsecured notes due May 1, 2030 and $750 million aggregate principal amount of 3.800% senior unsecured notes due May 1, 2050. The discount associated with the 2030 Notes and the 2050 Notes was approximately $6 million. The net proceeds from the issuance were used to repay outstanding borrowings under the KDP Revolver.
8

(3)The carrying amount includes unamortized discounts, debt issuance costs and fair value adjustments related to the DPS Merger.
BORROWING ARRANGEMENTS
The KDP Credit Agreements consisted of the following carrying values and estimated fair values that are not required to be measured at fair value in the unaudited Condensed Consolidated Balance Sheets:
(in millions)   June 30, 2020 December 31, 2019
Issuance Maturity Date Available Balances Carrying Value Carrying Value
2019 KDP Term Loan(1)
 February 2023 $
 $650
 $1,380
KDP Revolver(2)
 February 2023 2,400
 
 
2019 364-Day Credit Agreement May 2020 
 
 
2020 364-Day Credit Agreement April 2021 1,500
 
 
Principal amount     $650
 $1,380
Unamortized discounts and debt issuance costs  (4) (8)
Carrying amount     $646
 $1,372

(1)During the first quarter of 2020, the Company borrowed $380 million of commercial paper to voluntarily prepay a portion of its outstanding obligations under the 2019 KDP Term Loan. During the second quarter of 2020, the Company voluntarily prepaid an additional $300 million of its outstanding obligations with cash on hand. As a result of these voluntary prepayments, the Company recorded $2 million and $4 million losses on early extinguishment during the second quarter and first six months of 2020, respectively.
(2)
The KDP Revolver has $200 million letters of credit availability and NaN utilized as of June 30, 2020.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

SENIOR UNSECURED NOTES 

The Company's Notes consisted of the following:
(in millions, except %)
IssuanceMaturity DateRateMarch 31, 2021December 31, 2020
2021 Merger NotesMay 25, 20213.551%$1,750 $1,750 
2021-A NotesNovember 15, 20213.200%0 250 
2021-B NotesNovember 15, 20212.530%0 250 
2022 NotesNovember 15, 20222.700%0 250 
2023 Merger NotesMay 25, 20234.057%1,000 2,000 
2023 NotesDecember 15, 20233.130%500 500 
2024 Notes(1)
March 15, 20240.750%1,150 
2025 Merger NotesMay 25, 20254.417%1,000 1,000 
2025 NotesNovember 15, 20253.400%500 500 
2026 NotesSeptember 15, 20262.550%400 400 
2027 NotesJune 15, 20273.430%500 500 
2028 Merger NotesMay 25, 20284.597%2,000 2,000 
2030 NotesMay 1, 20303.200%750 750 
2031 NotesMarch 15, 20312.250%500 
2038 NotesMay 1, 20387.450%125 125 
2038 Merger NotesMay 25, 20384.985%500 500 
2045 NotesNovember 15, 20454.500%550 550 
2046 NotesDecember 15, 20464.420%400 400 
2048 Merger NotesMay 25, 20485.085%750 750 
2050 NotesMay 1, 20503.800%750 750 
2051 NotesMarch 15, 20513.350%500 
Principal amount$13,625 $13,225 
Adjustment from principal amount to carrying amount(2)
(160)(160)
Carrying amount$13,465 $13,065 
(1)The 2024 Notes may be called anytime on or after March 15, 2022, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest.
(2)The carrying amount includes unamortized discounts, debt issuance costs and fair value adjustments related to the DPS Merger.
On April 14, 2020,March 15, 2021, the Company terminatedcompleted the issuance of the 2024 Notes, the 2031 Notes, and the 2051 Notes. The discount associated with these notes was approximately $3 million and the Company incurred $13 million in debt issuance costs. The net proceeds from the issuance were used to repay the Company’s 2021-A Notes, 2021-B Notes, 2022 Notes, and approximately $1 billion of the 2023 Merger Notes, as well as to repay and terminate the 2019 364-Day Credit Agreement and replaced it withKDP Term Loan as described below. As a result of the 2020 364-Day Credit Agreement in order to increaserepayments of senior unsecured notes, the commitment from $750 million to $1.5 billion. The 2020 364-Day Credit Agreement is unsecured, and its proceeds may be used for general corporate purposes. The interest rate applicable to borrowings under the 2020 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a marginCompany recorded losses on early extinguishment of 2.250% to 2.750% or a base rate plus a margin of 1.250% to 1.750%, depending on the rating of certain index debt of $104 million during the Company. first quarter of 2021, comprised of a make-whole premium, fair market value adjustments and deferred financing fees written off.
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Table of Contents
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
VARIABLE-RATE BORROWING ARRANGEMENTS
The 2020 364-DayKDP Credit Agreement will mature on April 13,Agreements consist of the following:
(in millions)March 31, 2021December 31, 2020
IssuanceMaturity DateAvailable BalancesCarrying ValueCarrying Value
2019 KDP Term Loan$— $0 $425 
KDP Revolver(1)
February 20232,400 0 
2020 364-Day Credit Agreement0 0 
2021 364-Day Credit AgreementMarch 20221,500 0 
Principal amount$0 $425 
Unamortized discounts and debt issuance costs0 (2)
Carrying amount$0 $423 
(1)The KDP Revolver has $200 million letters of credit availability and NaN utilized as of March 31, 2021.
As of June 30, 2020,March 31, 2021, the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements.
2019 KDP Term Loan
During the first quarter of 2021, the Company voluntarily prepaid and terminated the 2019 KDP Term Loan using proceeds from the aforementioned issuance of senior subordinated notes. As a result of this voluntary prepayment, the Company recorded $1 million of losses on early extinguishment of debt related to the 2019 KDP Term Loan during the first quarter of 2021.
364-Day Credit Agreements
During the first quarter of 2021, the Company terminated its 2020 364-Day Credit Agreement, which was originally available through April 2021. No amounts were drawn under the 2020 364-Day Credit Agreement prior to termination.
The Company then entered into the 2021 364-Day Credit Agreement on March 24, 2021 among KDP, the banks party thereto and Bank of America, N.A. as administrative agent, pursuant to which the Company obtained a $1,500 million commitment. The interest rate applicable to borrowings under the 2021 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a margin of 1.000% to 1.625% or a base rate plus a margin of 0.000% to 0.625%, depending on the rating of certain index debt of the Company. The 2021 364-Day Credit Agreement matures on March 23, 2022, and includes a term-out option which allows KDP to extend any outstanding amounts borrowed under the agreement for one year for a fee of 0.750% on the amounts borrowed.
Commercial Paper Program
The following table provides information about the Company's weighted average borrowings under its commercial paper program:
 Second Quarter First Six Months
(in millions, except %)2020 2019 2020 2019
Weighted average commercial paper borrowings$497
 $2,074
 $1,081
 $1,911
Weighted average borrowing rates1.10% 2.76% 1.68% 2.83%

First Quarter
(in millions, except %)20212020
Weighted average commercial paper borrowings$22 $1,670 
Weighted average borrowing rates0.18 %1.85 %
Letter of Credit Facility
In addition to the portion of the KDP Revolver reserved for issuance of letters of credit, the Company has an incremental letter of credit facility. Under this facility, $100 million is available for the issuance of letters of credit, $44 million of which was utilized as of June 30, 2020March 31, 2021 and $56 million of which remains available for use.
FAIR VALUE DISCLOSURES
The fair values of each of the Company's commercial paper notes, the 2019 KDP Term Loan, the KDP Revolver, the 2019 364-Day Credit Agreement and the 2020 364-Day Credit Agreement approximate the carrying value and are considered Level 2 within the fair value hierarchy.
The fair values of the Company's Notes are based on current market rates available to the Company 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 the Company's Notes was $14,990$14,828 million and $12,898$15,274 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
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Table of Contents
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)Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total
Balance as of January 1, 2020$9,775
 $5,301
 $4,526
 $570
 $20,172
Foreign currency translation(51) (29) (19) (105) (204)
Balance as of June 30, 2020$9,724
 $5,272
 $4,507
 $465
 $19,968

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

(in millions)Coffee SystemsPackaged BeveragesBeverage ConcentratesLatin America BeveragesTotal
Balance as of January 1, 2021$9,795 $5,314 $4,536 $539 $20,184 
Foreign currency translation27 9 6 (17)25 
Balance as of March 31, 2021$9,822 $5,323 $4,542 $522 $20,209 
INTANGIBLE ASSETS OTHER THAN GOODWILL
The net carrying amounts of intangible assets other than goodwill with indefinite lives are as follows:
(in millions)March 31, 2021December 31, 2020
Brands(1)
$19,876 $19,874 
Trade names2,480 2,480 
Contractual arrangements123 123 
Distribution rights66 57 
Total$22,545 $22,534 
(in millions) June 30, 2020 December 31, 2019
Brands(1)
 $19,673
 $19,948
Trade names 2,479
 2,479
Contractual arrangements 121
 122
Distribution rights 19
 16
Total $22,292
 $22,565

(1)
The increase of $2 million in brands with indefinite lives was due to foreign currency translation during the first quarter of 2021.
(1)The decrease of $275 million in brands with indefinite lives was due to foreign currency translation during the first six months of 2020.
The net carrying amounts of intangible assets other than goodwill with definite lives are as follows:
 June 30, 2020 December 31, 2019
(in millions) Gross Amount Accumulated Amortization Net Amount  Gross Amount Accumulated Amortization Net Amount
Acquired technology$1,146
 $(292) $854
 $1,146
 $(255) $891
Customer relationships633
 (118) 515
 638
 (102) 536
Trade names127
 (62) 65
 128
 (55) 73
Contractual arrangements24
 (4) 20
 24
 (3) 21
Brands21
 (3) 18
 10
 (2) 8
Distribution rights24
 (3) 21
 24
 (1) 23
Total$1,975
 $(482) $1,493
 $1,970
 $(418) $1,552

March 31, 2021December 31, 2020
(in millions) Gross AmountAccumulated AmortizationNet Amount Gross AmountAccumulated AmortizationNet Amount
Acquired technology$1,146 $(346)$800 $1,146 $(328)$818 
Customer relationships638 (143)495 638 (135)503 
Trade names128 (74)54 127 (69)58 
Contractual arrangements24 (6)18 24 (5)19 
Brands21 (6)15 21 (5)16 
Distribution rights29 (7)22 26 (6)20 
Total$1,986 $(582)$1,404 $1,982 $(548)$1,434 
Amortization expense for intangible assets with definite lives was as follows:
 Second Quarter First Six Months
(in millions)2020 2019 2020 2019
Amortization expense for intangible assets with definite lives$33
 $32
 $66
 $63

 First Quarter
(in millions)20212020
Amortization expense$33 $33 
Amortization expense of these intangible assets over the remainder of 20202021 and the next five years is expected to be as follows:
Remainder of 2021For the Years Ending December 31,
(in millions)20222023202420252026
Expected amortization expense$101 $134 $132 $124 $110 $105 
11

 Remainder of 2020 For the Years Ending December 31,
(in millions) 2021 2022 2023 2024 2025
Expected amortization expense for intangible assets with definite lives$66
 $132
 $132
 $131
 $122
 $111
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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. As a result of the changes to the Company’s operating segments effective January 1, 2021, as described in Note 7, which resulted in a change to the Company’s reporting units, management performed a step zero analysis as of the effective date of the goodwill for the impacted reporting units. The Company also performed an analysis as of March 31, 2021 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 circumstances, including the ongoing COVID-19 pandemic, that indicatedindications that the carrying amount of any goodwill or any intangible asset may not be recoverable as of June 30, 2020.recoverable.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

4.Investments in Unconsolidated Affiliates
The following table summarizes investments in unconsolidated affiliates as of June 30, 2020 and December 31, 2019:
    June 30, December 31,
(in millions) Ownership Interest 2020 2019
BodyArmor 12.5% $51
 $52
Bedford 30.0% 
 46
Dyla LLC 12.4% 13
 13
Force Holdings LLC 33.3% 5
 5
Beverage startup companies (various)
 28
 30
Other (various)
 5
 5
Investments in unconsolidated affiliates   $102
 $151

Impairment of Bedford Investment and Related Party Note Receivable

The Company and ABI, in conjunction with the creation of Bedford, had executed a line of credit agreement with Bedford on March 3, 2017, which was amended on December 7, 2018 to increase the line of credit. The Company committed and funded the $51 million capacity, which incurs a fixed interest rate of 8.1% per annum. The credit agreement with Bedford matures on March 3, 2024.

In March 2020, the Company reduced its expectation of future operating performance for Bedford based on COVID-19 and a new revised five-year projection from the management of Bedford that projected the possibility of profitability two years later than previously anticipated. As a result of these indicators of impairment, the Company tested the Bedford investment for an other-than-temporary impairment using a discounted cash flow framework with multiple scenarios, including the conversion of the note receivable into equity. The results of its analysis indicated that the note receivable of $55 million was fully impaired and the investment in unconsolidated affiliates was impaired by $31 million, which was recorded on the Impairment on investment and note receivable line in the Condensed Consolidated Statements of Income. As a result of the other-than-temporary impairment, the Company has placed the note receivable in non-accrual status.
5. Restructuring and Integration Costs
The Company implements restructuring programs from time to time and incurs costs that are designed to improve operating effectiveness and lower costs. When the Company implements these programs, the Company incurs expenses, such as employee separations, lease terminations and other direct exit costs, that qualify as exit and disposal costs under U.S. GAAP.
The Company also incurs expenses that are an integral component of, and directly attributable to, its restructuring activities, which do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments, implementation costs and other incremental costs. These costs are recorded within SG&A expenses on the income statement and are held primarily within unallocated corporate costs.
Restructuring and integration charges incurred on the defined programs were as follows:
 Second Quarter First Six Months
(in millions)2020 2019 2020 2019
Keurig 2.0 exit$
 $
 $
 $1
DPS integration program52
 32
 105
 92
Total restructuring and integration charges$52
 $32
 $105
 $93

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

Restructuring liabilities that qualify as exit and disposal costs under U.S. GAAP are included in accounts payable and accrued expenses on the unaudited condensed consolidated financial statements. Restructuring liabilities as of June 30, 2020 along with charges to expense, cash payments and non-cash charges for the period specific to the DPS Integration Program were as follows:
(in millions)Workforce Reduction Costs
Balance as of January 1, 2020$15
Charges to expense18
Cash payments(11)
Non-cash adjustment items(4)
Balance as of June 30, 2020$18

RESTRUCTURING PROGRAMS
DPS Integration ProgramINTEGRATION PROGRAM
As part of the DPS Merger, the Company developed a program to deliver $600 million in synergies over a three-year period through supply chain optimization, reduction of indirect spend through new economies of scale, elimination of duplicative support functions and advertising and promotion optimization. The Company expects to incur total cash expenditures of $750 million, comprised of both capital expenditures and expense, and expects to complete the program byin 2021. The restructuring and integration program resulted in cumulative pre-tax charges of approximately $492$630 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through June 30, 2020.March 31, 2021. Restructuring and integration charges on the DPS Integration Program were $43 million and $53 million for the first quarter of 2021 and 2020, respectively.
6. Income Taxes
Our effective tax ratesRestructuring liabilities that qualify as exit and disposal costs under U.S. GAAP are included in accounts payable and accrued expenses on the unaudited condensed consolidated financial statements. Restructuring liabilities for the DPS Integration Program, all of which were workforce reduction costs, were as follows:follows for the period presented:
  Second Quarter First Six Months
(in millions) 2020 2019 2020 2019
Effective tax rate 26.6% 24.5% 25.7% 25.6%

(in millions)Restructuring Liabilities
Balance as of January 1, 2021$14
Charges to expense13
Cash payments(9)
Balance as of March 31, 2021$18
For the second quarter of 2020, the provision for income taxes was higher than the second quarter of 2019 primarily due to the decrease in the valuation of the Company's deferred tax liabilities and decrease of income tax reserves in the second quarter of 2019.
For the first six months of 2020, the provision for income taxes was higher than the first six months of 2019 primarily due to the tax benefit received in the first six months of 2019 from the valuation allowance release on realizability of foreign net operating loss carryforwards, which was offset by the tax benefit received from the Company’s jurisdictional income mix through the first six months of 2020.
7.5. 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 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 are de-designated as afor which the designated hedging instrument,relationship is discontinued, the gain or loss on the instrument is recognized in earnings in the period of change.
12

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

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.
INTEREST RATES 
Economic Hedges
The CompanyKDP is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate swaps to provide predictability in the Company's overall cost structure, including both receive-fixed, pay-variable and receive-variable, pay-fixed swaps. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the unaudited Condensed Consolidated Statements of Income. As of June 30, 2020,March 31, 2021, all economic interest rate swap contracts will mature in March 2025.
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. The forward starting swaps are planned to be unwound at the issuance of long-term debt. As of March 31, 2021, the forward starting swaps have mandatory termination dates ranging from June 2022 to May 2025.
FOREIGN EXCHANGE
The Company's Canadian and Mexican businesses purchase certain inventory through transactions denominated and settledKDP is exposed to foreign exchange risk in U.S. dollars, a currencyits international subsidiaries, which may transact in currencies that are different from the functional currencycurrencies of those businesses.subsidiaries. The Company additionally has a subsidiary in Canada with intercompany notes denominated and settled in U.S. dollars, a currency different from the functional currencybalance sheets of the Canadian business. The accounts payable related to the inventory purchases and the intercompany noteseach of these businesses are also subject to exposure from movements in exchange rates.
Economic Hedges
During the secondfirst quarter of 2021 and first six months of 2020, and 2019, the CompanyKDP held FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX exchange 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. These FX contracts have maturities ranging from July 2020April 2021 to September 2024 as of June 30, 2020.March 31, 2021.
Cash Flow Hedges
Beginning in the second quarter ofDuring 2020, the CompanyKDP began to designate certain FX forward contracts related to inventory purchases of the Canadian and Mexican businesses as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. These FX contracts, carried at fair value, have maturities ranging from October 2020April 2021 to December 2020November 2022 as of June 30, 2020.March 31, 2021.
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 intent of these contracts is to provide a certain level of predictability in the Company's overall cost structure. During the secondfirst quarter of 2021 and first six months of 2020, and 2019, the Company held forward, future, swap and option contracts that economically hedged certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. These commodity contracts have maturities ranging from July 2020April 2021 to December 2022January 2024 as of June 30, 2020.March 31, 2021.
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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 the Company'sKDP's outstanding derivative instruments by type:
(in millions)March 31, 2021December 31, 2020
Interest rate contracts
Forward starting swaps, designated as cash flow hedges$2,500 $
Receive-variable, pay-fixed interest rate swaps, not designated as hedging instruments450 450 
FX contracts
Forward contracts, not designated as hedging instruments505 476 
Forward contracts, designated as cash flow hedges369 333 
Commodity contracts450 450 
 June 30, December 31,
(in millions)2020 2019
Interest rate contracts   
Receive-fixed, pay-variable interest rate swaps(1)
$
 $50
Receive-variable, pay-fixed interest rate swaps(2)
450
 575
FX contracts   
Forward contracts, not designated as hedging instruments464
 523
Forward contracts, designated as cash flow hedges21
 
Commodity contracts580
 150
(1)During the first six months of 2020, the Company elected to terminate $50 million notional amount of receive-fixed, pay-variable interest rate swaps and received cash of $18 million.
(2)During the first six months of 2020, the Company elected to terminate $575 million notional amount of receive-variable, pay-fixed interest rate swaps and received cash of $2 million.
FAIR VALUE OF DERIVATIVE INSTRUMENTS
The fair values of commodity contracts, interest rate contracts and FX forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of commodity contracts are valued using the market approach based on observable market transactions, primarily underlying commodities futures or physical index prices, at the reporting date. Interest rate contracts are valued using models based primarily on readily observable market parameters, such as LIBOR forward rates, for all substantial terms of the Company's contracts and credit risk of the counterparties. The fair value of FX forward contracts are valued using quoted forward FX prices at the reporting date. Therefore, the Company has categorized these contracts as Level 2.
Not Designated as Hedging Instruments
The following table summarizes the fair value hierarchy and the location of the fair value of the Company's derivative instruments which are not designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets:Sheets. All such instruments are designated level 2 within the fair value hierarchy.
(in millions)Fair Value Hierarchy Level Balance Sheet Location June 30,
2020
 December 31,
2019
Assets:       
Interest rate contracts2 Prepaid expenses and other current assets $
 $1
FX contracts2 Prepaid expenses and other current assets 7
 
Commodity contracts2 Prepaid expenses and other current assets 6
 30
Interest rate contracts2 Other non-current assets 
 18
FX contracts2 Other non-current assets 9
 
Commodity contracts2 Other non-current assets 3
 1
     
 

Liabilities:       
Interest rate contracts2 Other current liabilities $2
 $
FX contracts2 Other current liabilities 1
 2
Commodity contracts2 Other current liabilities 44
 10
Interest rate contracts2 Other non-current liabilities 6
 
FX contracts2 Other non-current liabilities 
 3
Commodity contracts2 Other non-current liabilities 16
 1

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

(in millions)Balance Sheet LocationMarch 31, 2021December 31, 2020
Assets:
Commodity contractsPrepaid expenses and other current assets$65 $45 
Interest rate contractsOther non-current assets2 
Commodity contractsOther non-current assets25 12 
Liabilities:   
Interest rate contractsOther current liabilities$2 $
FX contractsOther current liabilities7 
Commodity contractsOther current liabilities1 
Interest rate contractsOther non-current liabilities0 
FX contractsOther non-current liabilities14 
Commodity contractsOther non-current liabilities2 
Designated as Hedging Instruments
The following table summarizes the fair value hierarchy and the location of the fair value of the Company's derivative instruments which are designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets:Sheets. All such instruments are designated level 2 within the fair value hierarchy.
(in millions)Balance Sheet LocationMarch 31, 2021December 31, 2020
Assets:
Interest rate contractsOther non-current assets$92 $
Liabilities:   
FX contractsOther current liabilities$13 $12 
(in millions)Fair Value Hierarchy Level Balance Sheet Location June 30,
2020
 December 31,
2019
Assets:       
FX contracts2 Prepaid expenses and other current assets $1
 $
14


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KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS
The following table presents the amount of (gains) losses recognized in the unaudited Condensed Consolidated Statements of Income related to derivative instruments not designated as hedging instruments under U.S. GAAP during the periods presented. Amounts include both realized and unrealized gains and losses.
   Second Quarter First Six Months
(in millions)Income Statement Location 2020 2019 2020 2019
Interest rate contractsInterest expense $5
 $2
 $9
 $4
FX contractsCost of sales 3
 1
 (20) 3
FX contractsOther (income) expense, net 5
 
 (12) 6
Commodity contractsCost of sales 34
 (3) 51
 12
Commodity contractsSG&A expenses (9) 2
 36
 (12)
Total  $38
 $2
 $64
 $13

 First Quarter
(in millions)Income Statement Location20212020
Interest rate contractsInterest expense$(8)$
FX contractsCost of sales4 (23)
FX contractsOther (income) expense, net5 (17)
Commodity contractsCost of sales(17)17 
Commodity contractsSG&A expenses(29)45 
Total$(45)$26 
IMPACT OF CASH FLOW HEDGES
The following table presents the impactamount of loss reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income related to derivative instruments designated as cash flow hedging instruments under U.S. GAAP:
  Second Quarter First Six Months
(in millions) 2020 2019 2020 2019
FX contracts designated as hedges:        
Amount of gain recognized in other comprehensive income(1)
 $1
 $
 $1
 $

(1)Amounts expected to be reclassified into net income during the next twelve months.

There was no hedge ineffectiveness during the periods presented.presented:
First Quarter
(in millions)Income Statement Location20212020
Interest rate contractsInterest expense$0 $
FX contractsCost of sales5 
8.KDP expects to reclassify approximately $15 million of pre-tax net losses from AOCI into net income during the next twelve months related to its FX contracts. KDP does not expect to reclassify any amounts from AOCI into net income during the next twelve months related to its interest rate contracts.
6. Leases
The Company leases certain facilities and machinery and equipment, including fleet. These leases expire at various dates through 2044. Some lease agreements contain standard renewal provisions that allow the Company to renew the lease at rates equivalent to fair market value at the end of the lease term. The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants, except for leases of certain manufacturing properties that contain residual value guarantees at the end of the term. KDP has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.
The following table presents the components of lease cost:
 First Quarter
(in millions)20212020
Operating lease cost$30 $28 
Finance lease cost
Amortization of right-of-use assets13 11��
Interest on lease liabilities3 
Variable lease cost(1)
8 
Short-term lease cost0 
Sublease income0 (1)
Total lease cost$54 $48 
(1)Variable lease cost primarily consists of common area maintenance costs, property taxes, and adjustments for inflation.
15

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

The following table presents the components of lease cost:
 Second Quarter First Six Months
(in millions)2020 2019 2020 2019
Operating lease cost$28
 $20
 $56
 $40
Finance lease cost       
Amortization of right-of-use assets11
 10
 22
 20
Interest on lease liabilities3
 3
 7
 7
Variable lease cost(1)
7
 8
 13
 14
Short-term lease cost1
 2
 1
 3
Sublease income
 (1) (1) (1)
Total lease cost$50
 $42
 $98
 $83
(1)Variable lease cost primarily consists of common area maintenance costs, property taxes, and adjustments for inflation.
The following table presents supplemental cash flow information about the Company's leases:
 First Six Months
(in millions)2020 2019
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows from operating leases$49
 $38
Operating cash flows from finance leases7
 7
Financing cash flows from finance leases24
 19

First Quarter
(in millions)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$28 $26 
Operating cash flows from finance leases3 
Financing cash flows from finance leases15 13 
The following table presents information about the Company's weighted average discount rate and remaining lease term:
 June 30, 2020 December 31, 2019
Weighted average discount rate   
Operating leases4.6% 4.6%
Finance leases4.9% 5.1%
Weighted average remaining lease term   
Operating leases11 years
 10 years
Finance leases11 years
 12 years

March 31, 2021December 31, 2020
Weighted average discount rate
Operating leases3.8 %4.3 %
Finance leases4.5 %4.4 %
Weighted average remaining lease term
Operating leases13 years12 years
Finance leases11 years11 years
Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of June 30, 2020March 31, 2021 were as follows:
(in millions)Operating Leases Finance Leases
Remainder of 2020$47
 $28
202189
 50
202277
 44
202369
 39
202466
 36
202560
 33
Thereafter354
 165
Total future minimum lease payments762
 395
Less: imputed interest(166) (90)
Present value of minimum lease payments$596
 $305

(in millions)Operating LeasesFinance Leases
Remainder of 2021$72 $52 
202299 65 
202392 59 
202490 56 
202584 52 
202573 65 
Thereafter536 153 
Total future minimum lease payments1,046 502 
Less: imputed interest(206)(86)
Present value of minimum lease payments$840 $416 
SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED
As of June 30, 2020,March 31, 2021, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $670$343 million. These leases are expected to commence between the thirdsecond quarter of 2020 and firstfourth quarter of 2021, with initial lease terms ranging from 75 years to 2010 years.
KEURIG DR PEPPER INC.
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)


ASSET SALE-LEASEBACK TRANSACTIONS
On January 6, 2020, the Company closed an asset sale-leaseback transaction on two manufacturing properties as the buyer obtained control. The Company received proceedsTable of approximately $150 million, net of selling costs for the properties, which had a carrying value of $131 million, and resulted in an approximately $19 million gain on the sale transaction. The initial term of the leaseback is expected to end during 2034 and has two 10-year renewal options. The renewal options are not reasonably assured as (i) the Company's position that the dynamic environment in which it operates precludes the Company's ability to be reasonably certain of exercising the renewal options in the distant future and (ii) the options are contingent as the Company must remain investment grade and a change-in-control has not occurred as of the end of the lease term. The leaseback has a residual value guarantee; however, the Company concluded it was not probable that the Company will owe an amount at the end of the lease term and will record the lease obligation excluding the residual value guarantee.
On January 10, 2020, the Company closed the asset sale-leaseback transaction on two distribution properties as the buyer obtained control. The Company received proceeds of approximately $50 million, net of selling costs for the properties, which had a carrying value of $27 million, and resulted in an approximately $23 million gain on the sale transaction. The term of the leaseback is expected to end in 2025 and has two three-year renewals.
Contents
9. Earnings Per Share
The following table presents the Company's basic and diluted EPS and shares outstanding:
 Second Quarter First Six Months
(in millions, except per share data)2020 2019 2020 2019
Basic EPS:       
Net income$298
 $314
 $454
 $544
Weighted average common shares outstanding1,407.2
 1,406.7
 1,407.1
 1,406.5
Earnings per common share — basic$0.21
 $0.22
 $0.32
 $0.39
Diluted EPS:       
Net income$298
 $314
 $454
 $544
Weighted average common shares outstanding1,407.2
 1,406.7
 1,407.1
 1,406.5
Effect of dilutive securities:       
Stock options0.3
 0.5
 0.4
 0.7
RSUs14.0
 12.0
 13.3
 11.3
Weighted average common shares outstanding and common stock equivalents1,421.5
 1,419.2
 1,420.8
 1,418.5
Earnings per common share — diluted$0.21
 $0.22
 $0.32
 $0.38
        
Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation0.3
 0.1
 0.3
 0.1

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

7. Segments
Effective January 1, 2021, the Company modified its internal reporting and operating segments to reflect changes in the executive leadership team to further enhance speed-to-market and decision effectiveness. These modifications did not change the Company’s reportable segments. The Company's reportable segments consist of the following:
The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to the Company's coffee system, K-Cup pods and brewers.
The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third-party brands, through both the DSD and WD systems. DSD and WD have both been identified as operating segments that the Company aggregated into Packaged Beverages due to similar economic characteristics and similarities in the nature of finished goods sales and route-to-markets.
The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands. Our FFS operating segment is aggregated with our Branded Concentrates operating segment into our Beverage Concentrates reportable segment due to similar economic characteristics and similarities in the nature of the product sold.
The Latin America Beverages segment reflects sales primarily in Mexico and the Caribbean from the manufacture and distribution of concentrates, syrup and finished beverages.
Segment results are based on management reports. Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments. Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income. “Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.
Information about the Company's operations by reportable segment is as follows:
 First Quarter
(in millions)20212020
Segment Results – Net sales
Coffee Systems$1,142 $973 
Packaged Beverages1,307 1,217 
Beverage Concentrates328 306 
Latin America Beverages125 117 
Net sales$2,902 $2,613 
 First Quarter
 (in millions)20212020
Segment Results – Income from operations
Coffee Systems$336 $272 
Packaged Beverages175 189 
Beverage Concentrates238 197 
Latin America Beverages22 27 
Unallocated corporate costs(131)(219)
Income from operations$640 $466 
17

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KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
8. Earnings Per Share
The following table presents the Company's basic and diluted EPS and shares outstanding:
 First Quarter
(in millions, except per share data)20212020
Basic EPS:  
Net income attributable to KDP$325 $156 
Weighted average common shares outstanding1,409.2 1,407.0 
Earnings per common share — basic$0.23 $0.11 
Diluted EPS:  
Net income attributable to KDP$325 $156 
Weighted average common shares outstanding1,409.2 1,407.0 
Effect of dilutive securities:  
RSUs16.0 12.7 
Stock options0.3 0.4 
PSUs0.1 
Weighted average common shares outstanding and common stock equivalents1,425.6 1,420.1 
Earnings per common share — diluted$0.23 $0.11 
Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation0 0.3 

18

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KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
9. Revenue Recognition
The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include CSDs, NCB, K-Cup pods and appliances, occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.
The following table disaggregates the Company's revenue by portfolio:
(in millions)Coffee SystemsPackaged BeveragesBeverage ConcentratesLatin America BeveragesTotal
For the first quarter of 2021:
CSD(1)
$0 $624 $323 $87 $1,034 
NCB(1)
0 581 3 38 622 
K-Cup pods(2)
903 0 0 0 903 
Appliances174 0 0 0 174 
Other65 102 2 0 169 
Net sales$1,142 $1,307 $328 $125 $2,902 
For the first quarter of 2020:
CSD(1)
$$563 $302 $82 $947 
NCB(1)
562 35 599 
K-Cup pods(2)
791 791 
Appliances127 127 
Other55 92 149 
Net sales$973 $1,217 $306 $117 $2,613 
(1)Represents net sales of owned and partner brands within our portfolio.
(2)    Represents net sales from owned brands, partner brands and private label owners. Net sales for partner brands and private label owners are contractual and long-term in nature.
19

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KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
10. Stock-Based Compensation
Stock-based compensation expense is primarily recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income. The components of stock-based compensation expense are presented below:
 Second Quarter First Six Months
(in millions)2020 2019 2020 2019
Total stock-based compensation expense$23
 $20
 $42
 $34
Income tax benefit recognized in the Statements of Income(4) (4) (8) (7)
Stock-based compensation expense, net of tax$19
 $16
 $34
 $27

First Quarter
(in millions)20212020
Total stock-based compensation expense$25 $19 
Income tax benefit recognized in the Statements of Income(4)(4)
Stock-based compensation expense, net of tax$21 $15 
RESTRICTED STOCKSHARE UNITS
The table below summarizes RSU activity:
 RSUs Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (Years) 
Aggregate Intrinsic Value
(in millions)
Outstanding as of December 31, 201921,492,786
 $18.14
 2.6 $622
Granted5,933,438
 23.21
    
Vested and released(26,155) 24.84
   1
Forfeited(913,680) 20.18
    
Outstanding as of June 30, 202026,486,389
 $19.20
 2.4 $752

 RSUsWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual Term (Years)
Aggregate Intrinsic Value
(in millions)
Outstanding as of December 31, 202026,688,304 $19.66 2.0$854 
Granted3,712,188 27.96 
Vested and released(9,401,295)10.38 316 
Forfeited(416,825)24.05 
Outstanding as of March 31, 202120,582,372 $25.30 2.8$707 
As of June 30, 2020,March 31, 2021, there was $328$373 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.813.8 years.
Total payments for the employees' tax obligations to the relevant taxing authorities were $125 million for the first quarter of 2021, which were funded through the issuance of shares in at-the-market offerings, known as an ATM program. There were no such payments made during the first quarter of 2020. This payment is reflected as a financing activity within the unaudited Condensed Consolidated Statements of Cash Flows.
11. Income Taxes
The Company’s effective tax rates were as follows:
First Quarter
(in millions)20212020
Effective tax rate18.3 %23.9 %
For the first quarter of 2021, the provision for income taxes was lower than the first quarter of 2020, which was primarily driven by the tax benefit received from excess tax deductions that were generated from the vesting of RSUs.
11. Accumulated Other Comprehensive Income (Loss)12. Investments in Unconsolidated Affiliates
The following table provides a summarysummarizes investments in unconsolidated affiliates as of changes in AOCI, netMarch 31, 2021 and December 31, 2020:
March 31,December 31,
(in millions)Ownership Interest20212020
BodyArmor12.5 %$53 $51 
Dyla LLC12.4 %12 12 
Force Holdings LLC33.3 %5 
Beverage startup companies(various)13 15 
Other(various)5 
Investments in unconsolidated affiliates$88 $88 
20

Table of taxes:

Contents

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

12.Trade Accounts Receivables, Net
Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The Company is exposed to potential credit risks associated with its accounts receivable, as it generally does not require collateral on its accounts receivable. The Company determines the required allowance for expected credit losses using information such as its customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impacts of COVID-19 in the first six months of 2020. Allowances can be affected by changes in the industry, customer credit issues or customer bankruptcies or expectations of any such events in a future period when reasonable and supportable. Historical information is utilized beyond reasonable and supportable forecast periods. Amounts are charged against the allowance when it is determined that expected credit losses may occur.
Activity in the allowance for expected credit loss accounts during the Periods was as follows:
(in millions)Allowance for Expected Credit Loss
Balance as of January 1, 2019$8
Charges to bad debt expense2
Write-offs and adjustments(1)
Balance as of December 31, 2019$9
Charges to bad debt expense15
Write-offs and adjustments(5)
Balance as of June 30, 2020$19

13.Other Financial Information
CASH AND CASH EQUIVALENTS
The carrying value of cash, cash equivalents, restricted cash and restricted cash equivalents is valued as of the balance sheet date equating fair value and classified as Level 1. The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported with the unaudited Condensed Consolidated Balance Sheets to the total of the same amounts shown in the unaudited Condensed Consolidated Statements of Cash Flows:
 (in millions)March 31, 2021December 31, 2020
Cash and cash equivalents$335 $240 
Restricted cash and restricted cash equivalents(1)
14 15 
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows$349 $255 
 (in millions)June 30, 2020 December 31, 2019
Cash and cash equivalents$149
 $75
Restricted cash and restricted cash equivalents(1)
28
 26
Non-current restricted cash and restricted cash equivalents included in Other non-current assets
 10
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows$177
 $111
(1)Restricted cash and cash equivalents primarily represent amounts held in escrow in connection with the acquisitions of Bai Brands LLC, Core Nutrition LLC and Big Red Group Holdings, LLC, which have a corresponding holdback liability recorded in other current liabilities, as shown below.
ALLOWANCE FOR EXPECTED CREDIT LOSSES
Activity in the allowance for expected credit losses account during the periods presented was as follows:
(in millions)Allowance for Expected Credit Losses
(1)Restricted cash and cash equivalents primarily represent amounts held in escrow in connection with the Core Acquisition, the Bai Acquisition and the Big Red Acquisition. Amounts held in escrow are expected to be released within one year.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:
 June 30, December 31,
(in millions)2020 2019
Trade accounts receivable, net:   
Trade and other accounts receivable$1,029
 $1,124
Allowance for expected credit losses(19) (9)
Total trade accounts receivable, net$1,010
 $1,115
Inventories:   
Raw materials$271
 $215
WIP7
 8
Finished goods492
 447
Total770
 670
Allowance for excess and obsolete inventories(23) (16)
Total Inventories$747
 $654
Prepaid expenses and other current assets:   
Other receivables$58
 $65
Customer incentive programs87
 12
Derivative instruments14
 31
Prepaid marketing26
 17
Spare parts50
 49
Assets held for sale(1)
3
 165
Income tax receivable7
 4
Other61
 60
Total prepaid expenses and other current assets$306
 $403
Other non-current assets:   
Customer incentive programs$75
 $33
Marketable securities - trading(2)
37
 40
Operating lease right-of-use assets592
 497
Derivative instruments12
 19
Equity securities without readily determinable fair values1
 1
Non-current restricted cash and restricted cash equivalents
 10
Related party notes receivable(3)

 50
Other114
 98
Total other non-current assets$831
 $748

(1)Balance as of December 31, 2020The decrease in assets held for sale was due to the assets included in sale-leaseback transactions that closed during the period. Refer to Note 8 for additional information about the transactions. The remaining amounts were comprised of property, plant and equipment expected to be sold within the next twelve months.$
21 
(2)Charges to bad debt expenseFair values of marketable securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. The fair value of marketable securities was $37 million and $40 million as of June 30, 2020 and December 31, 2019, respectively.
1
(3)Write-offs and adjustmentsRefer to Note 4 for additional information.0
Balance as of March 31, 2021$22

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

 June 30, December 31,
(in millions)2020 2019
Accrued expenses:   
Customer rebates & incentives$324
 $362
Accrued compensation167
 183
Insurance reserve53
 39
Accrued interest60
 54
Accrued professional fees25
 31
Other accrued expenses311
 270
Total accrued expenses$940
 $939
Other current liabilities:   
Dividends payable$212
 $212
Income taxes payable135
 75
Operating lease liability74
 69
Finance lease liability41
 41
Derivative instruments47
 12
Holdback liabilities25
 25
Other9
 11
Total other current liabilities$543
 $445
Other non-current liabilities:   
Pension and post-retirement liability$28
 $29
Insurance reserves72
 66
Operating lease liability522
 427
Finance lease liability264
 269
Derivative instruments22
 4
Deferred compensation liability37
 40
Other89
 95
Total other non-current liabilities$1,034
 $930

ACCOUNTS PAYABLE
KDP has an agreement with a third party administrator which allows participating suppliers to track payments from KDP, and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions. Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted. KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions. KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted. AsKDP has been informed by the third party administrator that as of June 30, 2020March 31, 2021 and December 31, 2019, $2,4872020, $2,777 million and $2,097$2,578 million, respectively, of KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

21

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KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
SELECTED BALANCE SHEET INFORMATION
The tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:
 March 31,December 31,
(in millions)20212020
Inventories:
Raw materials$259 $260 
Work-in-progress7 
Finished goods600 520 
Total866 786 
Allowance for excess and obsolete inventories(25)(24)
Total Inventories$841 $762 
Prepaid expenses and other current assets:
Other receivables$74 $85 
Customer incentive programs91 34 
Derivative instruments65 45 
Prepaid marketing15 15 
Spare parts60 55 
Assets held for sale2 
Income tax receivable10 11 
Other93 76 
Total prepaid expenses and other current assets$410 $323 
Other non-current assets:  
Customer incentive programs$67 $70 
Marketable securities - trading(1)
42 41 
Operating lease right-of-use assets830 645 
Derivative instruments119 12 
Equity securities without readily determinable fair values1 
Other128 125 
Total other non-current assets$1,187 $894 
(1)Fair values of marketable securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1. The fair value of marketable securities was $42 million and $41 million as of March 31, 2021 and December 31, 2020, respectively.


22

Table of Contents
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
 March 31,December 31,
(in millions)20212020
Accrued expenses:
Customer rebates & incentives$326 $382 
Accrued compensation149 215 
Insurance reserve40 35 
Accrued interest163 57 
Accrued professional fees24 21 
Other accrued expenses287 330 
Total accrued expenses$989 $1,040 
Other current liabilities:
Dividends payable$232 $212 
Income taxes payable63 39 
Operating lease liability80 72 
Finance lease liability49 44 
Derivative instruments23 25 
Holdback liabilities12 15 
Other8 
Total other current liabilities$467 $416 
Other non-current liabilities:
Pension and post-retirement liability$38 $38 
Insurance reserves74 72 
Operating lease liability760 580 
Finance lease liability367 298 
Derivative instruments16 18 
Deferred compensation liability42 41 
Other70 72 
Total other non-current liabilities$1,367 $1,119 
14. Accumulated Other Comprehensive Income (Loss)
The following table provides a summary of changes in AOCI, net of taxes:
 (in millions)Foreign Currency Translation AdjustmentsPension and Post-Retirement Benefit LiabilitiesCash Flow HedgesAccumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2021$95 $(4)$(14)$77 
Other comprehensive income16 0 68 84 
Amounts reclassified from accumulated other comprehensive income0 0 3 3 
Net current period other comprehensive income16  71 87 
Balance as of March 31, 2021$111 $(4)$57 $164 
Balance as of January 1, 2020$104 $$$104 
Other comprehensive loss(583)(1)(584)
Balance as of March 31, 2020$(479)$(1)$$(480)

23

Table of Contents
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
The following table presents the amount of (gains)/losses reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income:
First Quarter
(in millions)Income Statement Caption20212020
Cash Flow Hedges:
Interest rate contractsInterest expense$$
FX contractsCost of sales
Total
Income tax benefit(2)
Total, net of tax$$
15. Commitments and Contingencies
LEGAL MATTERS
The Company is involved from time to time in various claims, proceedings, and litigation. The CompanyKDP establishes reserves for specific legal proceedings when the Company determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. The CompanyKDP has also identified certain other legal matters where the Company believes an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

Antitrust Litigation
In February 2014, TreeHouse Foods, Inc. and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, KGM, in the U.S. District Court for the Southern District of New York (“SDNY”) (TreeHouse Foods, Inc. et al. v. Green Mountain Coffee Roasters, Inc. et al). The TreeHouse complaint asserted claims under the federal antitrust laws and various state laws, contending that Keurig had monopolized alleged markets for single serve coffee brewers and single serve coffee pods. The TreeHouse complaint sought monetary damages, declaratory relief, injunctive relief and attorneys’ fees. In March 2014, JBR, Inc. filed suit against KGM in the U.S. District Court for the Eastern District of California (JBR, Inc. v. Keurig Green Mountain, Inc.). The claims asserted and relief sought in the JBR, Inc. complaint were substantially similar to the claims asserted and relief sought in the TreeHouse complaint.
Beginning in March 2014, twenty-seven putative class actions asserting similar claims and seeking similar relief were filed on behalf of purported direct and indirect purchasers of KGM’s products in various federal district courts. In June 2014, the Judicial Panel on Multidistrict Litigation granted a motion to transfer these various actions, including the TreeHouse and JBR actions, to a single judicial district for coordinated or consolidated pre-trial proceedings (the “Multidistrict Antitrust Litigation”). Consolidated putative class action complaints by direct purchaser and indirect purchaser plaintiffs were filed in July 2014. An additional class action on behalf of indirect purchasers, originally filed in the Circuit Court of Faulkner County, Arkansas (Julie Rainwater et al. v. Keurig Green Mountain, Inc.), was transferred into the Multidistrict Antitrust Litigation in November 2015. In January 2019, McLane Company, Inc. filed suit against KGM (McLane Company, Inc. v. Keurig Green Mountain, Inc.) in the SDNY asserting similar claims and also was also transferred into the Multidistrict Antitrust Litigation. These actions are now pending in the SDNY (In re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation). Discovery in the Multidistrict Antitrust Litigation commenced in December 2017.
Separately, a statement of claim was filed in September 2014 against KGM and Keurig Canada Inc. in Ontario, Canada by Club Coffee L.P., a Canadian manufacturer of single serve beverage pods, claiming damages of CDN $600 million and asserting a breach of competition law and false and misleading statements by KGM.Keurig.
In July 2020, KGM reached an agreement with the putative indirect purchaser class plaintiffs in the Multidistrict Antitrust Litigation to settle the claims asserted in their complaint for $31 million. The settlement class consists of individuals and entities in the United States that purchased, from persons other than KGM and not for purposes of resale, KGM manufactured or licensed single serve beverage portion packs during the applicable class period (beginning in September 2010 for most states). The agreement remains subject to court granted preliminary approval prior to which putativeof the settlement in December 2020, and the Company paid the settlement amount in January 2021. Putative class members will be given notice andhave the opportunity to object or opt out of the settlement.settlement, and a final approval hearing is scheduled in June 2021.
KDP intends to vigorously defend the remaining pending lawsuits brought by Treehouse, JBR, McLane, the putative direct purchaser class and Club Coffee. At this time, the Company is unable to predict the outcome of these lawsuits, the potential loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.
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KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)
Proposition 65 Litigation
In May 2011, the Council for Education and Research on ToxicsCERT filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, (Council for Education and Research on Toxics v. Brad Barry LLC, et al., Case No. BC461182), alleging that KGM, in addition to nearly one hundredand certain other defendants who manufacture, package, distribute or sell coffee, failed to warn persons in California that KGM's coffee products expose persons to the chemical acrylamide in violation of Proposition 65. Plaintiff seeks equitable relief, including providing warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. Council for Education and Research on Toxics asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65.
KGM, as part of a joint defense group organized to defend against the lawsuit, disputes thedisputed CERT's claims of the Plaintiff. Acrylamide is not added to coffee, but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. KGM hasand asserted multiple affirmative defenses. The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees, but the California Courtsuch trial did not occur in light of Appeal granted the defendants request for a stay of the third phase trial in October 2018. The stay order was prompted by California’s Office of Environmental Health Hazard Assessment proposal of a new Proposition 65 regulation clarifying that cancer warnings are not required for chemicals, such as acrylamide, that are present in coffee as a result of roasting coffee beans. After the regulation took effect in October 2019, the Court of Appeal lifted its stay order and the litigation has continued based on, among other items, CERT’s contentions that the regulation is legally invalid and, alternatively, cannot be applied to its pending claims.
At this stage of In August 2020, the proceedings,court granted the Company is unable to reasonably estimate the potential loss or effect on the Company or its operations that could be associated with the lawsuit. The trial court has discretion to impose zero penalties against the Company or to impose significant statutory penalties. Significant labeling or warning requirements that could potentially be imposed bydefendants' motion for summary judgment, effectively ending CERT's Proposition 65 litigation at the trial court may increaselevel. CERT has filed its appeal brief, and the Company's costsCompany intends to continue vigorously defending itself in this action. However, the Company believes that the likelihood that it will incur a material loss in connection with the CERT litigation is remote and adversely affect sales of coffee products.accordingly, no loss contingency has been recorded.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

15.16. Related Parties
KDP is indirectly controlled by IDENTIFICATION OF RELATED PARTIES
JAB holds a privately held investor group.significant but non-controlling interest in KDP. As of March 31, 2021, JAB beneficially owned approximately 33% of KDP's outstanding common stock. JAB and its affiliates have controllingalso hold investments in a number of other companies that have commercial relationships with the Company, including Peet's, Caribou Coffee Company, Inc., Panera Bread Company, Einstein Bros Bagels, and Krispy Kreme Doughnuts Inc.
KDP purchases certain raw materials from Peet's and manufactures coffee and tea portion packs under Peet's brands for sale by KDP and Peet's in the U.S. and Canada.
KDP exclusively manufactures, distributes and sells Peet's RTD beverage products in the U.S. and Canada.
KDP licenses the Caribou Coffee, Panera Bread and Krispy Kreme trademarks for use in the manufacturing of portion packs for the Keurig brewing system.
KDP sells various beverage concentrates and packaged beverages to Caribou Coffee Company, Inc., Panera Bread Company, Einstein Bros Bagels, and Krispy Kreme Doughnuts Inc. for resale to retail customers.
KDP holds investments in certain brand ownership companies, and in certain instances, the Company also has rights in specified territories to bottle and/or distribute the brands owned by such companies. KDP purchases inventory from these brand ownership companies and sells finished product to third-party customers primarily in the U.S. Additionally, any transactions with significant partners in these investments, such as ABI, are considered related party transactions. ABI purchases Clamato from KDP and pays the Company a royalty for use of the brand name. Refer to Note 412 for additional information about KDP's investments in unconsolidated affiliates.brand ownership companies.
25

16. SegmentsTable of Contents
For all periods presented, the Company's operating structure consisted of the following four reportable segments:
The Coffee Systems segment reflects sales in the U.S. and Canada of the manufacture and distribution of finished goods relating to the Company's coffee system, K-Cup pods and brewers.
The Packaged Beverages segment reflects sales in the U.S. and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third-party brands, through both the DSD system and the WD system.
The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers primarily in the U.S. and Canada. Most of the brands in this segment are carbonated soft drink brands.
The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.
Segment results are based on management reports. Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments. Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income. “Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.
Information about the Company's operations by reportable segment is as follows:
 Second Quarter First Six Months
(in millions)2020 2019 2020 2019
Segment Results – Net sales       
Coffee Systems$1,043
 $990
 $2,016
 $1,958
Packaged Beverages1,392
 1,311
 2,609
 2,427
Beverage Concentrates309
 370
 615
 674
Latin America Beverages120
 141
 237
 257
Net sales$2,864
 $2,812
 $5,477
 $5,316

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

 Second Quarter First Six Months
 (in millions)2020 2019 2020 2019
Segment Results – Income from operations       
Coffee Systems$290
 $287
 $562
 $580
Packaged Beverages208
 186
 397
 335
Beverage Concentrates220
 244
 417
 445
Latin America Beverages21
 26
 48
 37
Unallocated corporate costs(178) (156) (397) (312)
Income from operations$561
 $587
 $1,027
 $1,085

17. Revenue Recognition
The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include CSD, NCB, K-Cup pods and appliances, occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar taxes are excluded from revenue. Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.
KEURIG DR PEPPER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Continued)

The following table disaggregates the Company's revenue by portfolio:
(in millions)Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total
For the second quarter of 2020:         
CSD(1)
$
 $621
 $304
 $91
 $1,016
NCB(1)

 662
 2
 28
 692
K-Cup pods(2)
830
 
 
 
 830
Appliances173
 
 
 
 173
Other40
 109
 3
 1
 153
Net sales$1,043
 $1,392
 $309
 $120
 $2,864
          
For the first six months of 2020:         
CSD(1)
$
 $1,184
 $606
 $173
 $1,963
NCB(1)

 1,224
 4
 63
 1,291
K-Cup pods(2)
1,621
 
 
 
 1,621
Appliances300
 
 
 
 300
Other95
 201
 5
 1
 302
Net sales$2,016
 $2,609
 $615
 $237
 $5,477
          
For the second quarter of 2019:         
CSD(1)
$
 $541
 $362
 $102
 $1,005
NCB(1)

 662
 3
 38
 703
K-Cup pods(2)
783
 
 
 
 783
Appliances154
 
 
 
 154
Other53
 108
 5
 1
 167
Net sales$990
 $1,311
 $370
 $141
 $2,812
          
For the first six months of 2019:         
CSD(1)
$
 $1,063
 $660
 $182
 $1,905
NCB(1)

 1,163
 5
 74
 1,242
K-Cup pods(2)
1,576
 
 
 
 1,576
Appliances277
 
 
 
 277
Other105
 201
 9
 1
 316
Net sales$1,958
 $2,427
 $674
 $257
 $5,316
(1)    Represents net sales of owned and partner brands within our portfolio.
(2)
Represents net sales from owned brands, partner brands and private label owners. Net sales for partner brands and private label owners are contractual and long term in nature.
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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, 2020.25, 2021.
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“outlook,” “guidance,” “anticipate,” “expect,” “believe,” “could,” “estimate,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will,” “would,” and similar words, "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend"phrases or the negativeexpressions and variations or negatives of these terms or similar expressionswords 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) CSDs, NCBs, 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, which are 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.

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Table of Contents

COFFEE SYSTEMS
Our Coffee Systems segment is primarily a producer of innovative single serve brewing systemsbrewers 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 pods (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 servesingle-serve K-Cup pod format in the U.S. We manufacture and sell 100% of the K-Cup pods of our ownthe following brands such asto retailers, away from home channel participants and end-use consumers: Green Mountain Coffee Roasters, The Original Donut Shop, McCafé, Laughing Man, REVV, and Van Houtte.
We have licensingmanufacture and manufacturing agreements withsell K-Cup pods for the following brands to our partner brands, including brands such aspartners, who in turn sell them to retailers: Starbucks, Smuckers, Peet's, Dunkin' Donuts, Folgers, Newman’s Own Organics, McCafé, Peet's Coffee, Caribou Coffee, Eight O’Clock, Maxwell House, and Tim Hortons, andas well as private label arrangements. Our Coffee Systems segmentGenerally, we are able to sell these brands to our away from home channel participants and end-use consumers. We also hashave agreements for manufacturing, distributing, and selling K-Cup pods for tea under brands such as Celestial Seasonings, Lipton and Tazo in addition to K-Cup pods of our own brand, Snapple. We also produce and sell K-Cup pods for cocoa, including through a licensing agreement for the Swiss Miss brand, and hot apple cider.cider, including under our own brand, Mott's.
Our Coffee Systems segment manufactures its K-Cup pods in facilities in North America that include specialty designed proprietary high-speed packaging lines using freshly roasted and ground coffee as well as tea, cocoa and other products. We offer high-quality coffee, including 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,brewers, where we then utilize third-party contract manufacturers located in various countries in Asia for brewer appliance manufacturing. We distribute our Coffee Systems productsbrewers 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.
OurThe larger NCB brands in this segment include Snapple, Mott's, Bai, Clamato, Hawaiian Punch, Core, Yoo-Hoo, ReaLemon, evian, Vita Coco coconut water, evian water,and Mr and Mrs T mixers, and Forto Coffee. Ourmixers. The larger CSD brands in this segment include Dr Pepper, Canada Dry, 7UP, A&W, 7UP, Sunkist, soda, Squirt, Big Red, RC Cola, Vernors and A Shoc. Vernors.
Approximately 95%The majority of our 2019 Packaged Beverages net sales camecome 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 BeveragesWe also recognize net sales camein this segment from the distribution of our partner brands such as evian, Vita Coco, coconut water, evian water, Neuro drinks, High BrewPeet's RTD Coffee, Forto Coffee shots, A Shoc energy drinks, Peet's RTD Coffee and Runa energy drinks.drinks and Polar sparkling seltzer waters. 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.channels.
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. We are expanding our manufacturing capabilities to include a concentrate manufacturing facility in Ireland in 2021.
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.retailers through our Branded Concentrates operating segment. 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.consumers through our FFS operating segment. Dr Pepper represents most of our fountain channelFFS 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.channels.
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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 20192020 net sales. This segment participates mainly in the carbonated mineral water, flavored CSD, bottled water and vegetable juice with particular strength in carbonated mineral water, vegetable juice categories and grapefruit flavored CSDs.categories. The largest brands include Peñafiel, Clamato, 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 pods or brewers.
Beverage ConcentratesCoffee Systems K-Cup Pod and Appliance Sales Volume
In our Beverage Concentrates segment,Coffee Systems segments, we measure our sales volume as concentrate case sales. The unitthe number of measurement for concentrate case sales equals 288 fluid ouncesappliances and the number of finished beverage, the equivalent of 24 twelve ounce servings.
Concentrate case sales represent units of measurement for concentratesindividual K-Cup pods 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.customers.
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 ApplianceBeverage Concentrates Sales Volume
In our Coffee Systems segments,Beverage Concentrates segment, we measure our sales volume as the number of appliances and the number of individual K-Cup podsconcentrate case sales for concentrates sold by us to our customers.bottlers and distributors. A concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage, the equivalent of 24 twelve ounce servings. It does not include any other component of the finished beverage other than concentrate.
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 this 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
On March 11, 2021, the world marked the one-year anniversary of the date that the World Health Organization declared COVID-19 a global pandemic. The impact of COVID-19 on our secondfirst quarter net sales performance presentedcontinued to present both headwinds and tailwinds across the business and within the segments, requiring strong portfolio, package 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 optimizedrive overall performance and deliver a strong secondfirst quarter.
Coffee Systems experienced significantdouble-digit growth in brewers and K-Cup coffee pods for at-home consumption which more than offset athe continued significant drop-offdecline in away-from-home consumption due to weaknesses in the office coffee channel, as elevated work-from-home trends persisted throughout the quarter. Brewer volume advanced significantly reflecting growth in purchases of brewers due to successful innovation and hospitality businesses. E-commerce demonstrated particular strength duringinvestments to drive household penetration. Sales in the quarter, reflecting an acceleration ofe-commerce channel were again very strong, as consumers shifting some of theircontinue to shift purchases to the on-lineonline channel, including at the Keurig.comwww.keurig.com retail site.
Packaged Beverages experienced adelivered strong net benefit fromsales driven by strong in-market execution leading tothat resulted in market share growth in the majority of our coldthe segment's beverage segments, more than offsetportfolio, despite lapping the declineinitial pantry stock-up behavior at the onset of the COVID-19 pandemic at the end of the first quarter of 2020. Performance in large-format channels continued to be strong across multi-pack and take-home packages, and performance in the convenience and gas channels due to reducedimproved during the quarter, as consumer mobility.mobility increased.
Beverage Concentrates experienced a decline duereturned to growth in the quarter as volume growth in sales to bottlers and distributors was tempered by declines in the fountain foodservice component of the business, which services restaurants and hospitality, reflecting changes in consumer behavior.which continues to experience softness as a result of COVID-19 but has been steadily improving as businesses begin to reopen.
Latin America Beverages experienced a modest negative impact due todecline in sales volumes driven by continued limited consumer mobility in Mexico.
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The current environment has increased operating costs, requiring us to take deliberate action. In addition to strong portfolio, package and channel mix management to optimize overall net sales performance, we institutedmaintained our 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 didwhich included the following:
Reduced our marketing expense partially because in relation to the prior year pre-COVID-19 levels of spending, given the current COVID-19 landscape we are not obtaininghas reduced the sameeffectiveness and return on investment previously achieved;certain marketing investments; and
Paused substantiallySignificantly reduced 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 this 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, employeeEmployee 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)
Total
For the first quarter of 2021:
Coffee Systems$1 $9 $ $10 
Packaged Beverages3 2  5 
Beverage Concentrates    
Latin America Beverages 1  1 
Total$4 $12 $ $16 
For the first quarter of 2020:
Coffee Systems$— $— $$
Packaged Beverages13 
Beverage Concentrates— — — — 
Latin America Beverages— — — — 
Total$3 $2 $10 $15 
(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)In 2021, includes pay for temporary employees, including the associated taxes, as well as incremental benefits provided to frontline workers such as extended sick leave, in order to maintain essential operations during the COVID-19 pandemic. In 2020, primarily reflected temporary incremental frontline incentive pay and benefits, as well as pay for temporary employees, including the associated taxes. 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.

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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 Beverages38
 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 Beverages41
 18
 8
 
 67
Beverage Concentrates
 
 4
 
 4
Latin America Beverages
 
 
 
 
Unallocated corporate costs
 
 
 
 
Total$48
 $20
 $14
 $8
 $90
          
Financial Overview - First Quarter of 2021 as compared to First Quarter of 2020
(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.
As Reported, in millions (except EPS)
(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.
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(3)Includes costs associated with personal protective equipment, temperature scans, cleaning and other sanitization services. Impacts both cost of sales and SG&A expenses.
As Adjusted, in millions (except EPS)
(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.
kdp-20210331_g6.jpgkdp-20210331_g7.jpgkdp-20210331_g8.jpg
(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 OverviewKey Events During the First Quarter of 2021
Net sales increased $52In February 2021, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.15 per share, payable in U.S. dollars, on the Company’s common stock. The regular quarterly dividend was paid on April 15, 2021 to shareholders of record on April 1, 2021.
In March 2021, we filed a prospectus supplement with the SEC to sell up to 4,300,000 shares to or through Goldman in at-the-market offerings, known as an ATM Program. The ATM Program was completed effective March 15, 2021, and the net proceeds of approximately $140 million or 1.8%,were primarily used to $2,864 million forcover our obligation to remit cash to local, state and federal tax authorities in connection with the secondnet settlement of vesting restricted stock units during the first quarter of 2020 compared with $2,8122021. Use of the ATM Program to fund these tax withholding obligations is intended to create an orderly market in KDP shares being sold to cover tax obligations on behalf of employees upon the vesting of equity awards in 2021.
In March 2021, we completed the issuance of a total of $1,150 million inaggregate principal amount of 2024 Notes, $500 million aggregate principal amount of 2031 Notes and $500 million aggregate principal amount of 2051 Notes. We used 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%proceeds from these Notes to repay our 2021-A Notes, our 2021-B Notes, our 2022 Notes, 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 reductionapproximately $1 billion of our marketing expense2023 Notes, as well as to voluntarily prepay and the benefit of lower indebtedness due to continued deleveraging.


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 ofterminate 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 LoanLoan.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS AND SEC REGULATIONS
On November 19, 2020, the SEC issued a final rule intended to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K related to Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information. Early adoption on an item-by-item basis is permitted after February 10, 2021, the effective date of the rule, and we must apply the rule to our Notes. Additionally, we repaid $227 million and added $86 millionForm 10-K for the year ending December 31, 2021. We early adopted the amendments to one item resulting in the elimination 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 $1.5 billion senior unsecured notes issuance and the refinancing and upsizingItem 301, Selected Financial Data, from Part II, Item 6 of our 2019 364-Day Credit Agreement. The proactive refinancing,Annual Report, and we have adopted the remaining amendments which did not changeare applicable to Form 10-Q in this Quarterly Report for the quarter ended March 31, 2021.
Refer to Note 1 of the Notes to our total debt balance or deleveraging commitments, increased our liquidity toUnaudited Condensed Consolidated Financial Statements for a level that we believe will exceed our near-term liquidity needs, even in the eventdiscussion of a protracted downturn.recently issued accounting standards and recently adopted provisions of U.S. GAAP.
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RESULTS OF OPERATIONS
We eliminate from our financial results all intercompany transactions between entities included in our consolidated financial statements and the intercompany transactions with our equity method investees.
References in the financial tables to percentage changes that are not meaningful are denoted by "NM".
Non-GAAP financial measures are provided in addition to U.S. GAAP measures. Such non-GAAP financial measures are excluded from the Results of Operations by Segment when there is no difference between the non-GAAP and the corresponding U.S. GAAP measure. See COVID-19 Pandemic DisclosuresNon-GAAP Financial Measures for more information, aboutincluding reconciliations to the specific costs related to COVID-19.corresponding U.S. GAAP measures.
SecondFirst Quarter of 2020 Compared to Second Quarter of 2019
Consolidated Operations
The following table sets forth our unaudited condensed consolidated results of operations for the second quarter of 2020 and 2019:
 Second Quarter Dollar Percentage
($ in millions, except per share amounts)2020 2019 Change Change
Net sales$2,864
 $2,812
 $52
 1.8 %
Cost of sales1,302
 1,186
 116
 9.8
Gross profit1,562
 1,626
 (64) (3.9)
Selling, general and administrative expenses1,001
 1,028
 (27) (2.6)
Other operating (income) expense, net
 11
 (11) NM
Income from operations561
 587
 (26) (4.4)
Interest expense157
 170
 (13) (7.6)
Loss on early extinguishment of debt2
 
 2
 NM
Other (income) expense, net(4) 1
 (5) NM
Income before provision for income taxes406
 416
 (10) (2.4)
Provision for income taxes108
 102
 6
 5.9
Net income$298
 $314
 (16) (5.1)
        
Earnings per common share:   
    
Basic$0.21
 $0.22
 $(0.01) (4.5)%
Diluted0.21
 0.22
 (0.01) (4.5)
        
Gross margin54.5% 57.8%   (330 bps)
Operating margin19.6% 20.9%   (130 bps)
Effective tax rate26.6% 24.5%   210 bps


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 volume9.5 %
Brewer volume11.6
CSD sales volume(1.7)
NCB sales volume0.6
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.


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 expense145
 138
 7
 5.1
Adjusted provision for income taxes165
 142
 23
 16.2
Adjusted net income469
 423
 46
 10.9
Adjusted diluted EPS0.33
 0.30
 0.03
 10.0
        
Adjusted operating margin27.1% 25.0%   210 bps
Adjusted effective tax rate26.0% 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.


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 Beverages1,392
 1,311
Beverage Concentrates309
 370
Latin America Beverages120
 141
Net sales$2,864
 $2,812
    
 Second Quarter
(in millions)2020 2019
Segment Results — Income from Operations   
Coffee Systems$290
 $287
Packaged Beverages208
 186
Beverage Concentrates220
 244
Latin America Beverages21
 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 operations290
 287
 3
 1.0
Operating margin27.8% 29.0%   (120 bps)
Adjusted income from operations$363
 $331
 $32
 9.7%
Adjusted operating margin34.8% 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%.


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 operations208
 186
 22
 11.8%
Operating margin14.9% 14.2%   70 bps
Adjusted income from operations$269
 $190
 $79
 41.6%
Adjusted operating margin19.3% 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 operations220
 244
 (24) (9.8)
Operating margin71.2% 65.9%   530 bps
Adjusted income from operations$222
 $246
 $(24) (9.8)%
Adjusted operating margin71.8% 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%.


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 operations21
 26
 (5) (19.2)%
Operating margin17.5% 18.4%   (90 bps)
Adjusted income from operations$23
 $20
 $3
 15.0 %
Adjusted operating margin19.2% 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%.


First Six Months of 20202021 Compared to First Six MonthsQuarter of 20192020
Consolidated Operations
The following table sets forth our unaudited condensed consolidated results of operations for the first six monthsquarter of 20202021 and 2019:2020:
First Six Months Dollar Percentage First QuarterDollarPercentage
($ in millions, except per share amounts)2020 2019 Change Change($ in millions, except per share amounts)20212020ChangeChange
Net sales$5,477
 $5,316
 $161
 3.0 %Net sales$2,902 $2,613 $289 11.1 %
Cost of sales2,463
 2,292
 171
 7.5
Cost of sales1,302 1,161 141 12.1 
Gross profit3,014
 3,024
 (10) (0.3)Gross profit1,600 1,452 148 10.2 
Selling, general and administrative expenses2,029
 1,939
 90
 4.6
Selling, general and administrative expenses961 1,028 (67)(6.5)
Other operating (income) expense, net(42) 
 (42) NM
Other operating income, netOther operating income, net(1)(42)41 NM
Income from operations1,027
 1,085
 (58) (5.3)Income from operations640 466 174 37.3 
Interest expense310
 339
 (29) (8.6)Interest expense140 153 (13)(8.5)
Loss on early extinguishment of debt4
 9
 (5) (55.6)Loss on early extinguishment of debt105 103 NM
Impairment on investment and note receivable86
 
 86
 NM
Impairment of investments and note receivableImpairment of investments and note receivable 86 (86)NM
Other (income) expense, net16
 6
 10
 NM
Other (income) expense, net(3)20 (23)NM
Income before provision for income taxes611
 731
 (120) (16.4)Income before provision for income taxes398 205 193 94.1 
Provision for income taxes157
 187
 (30) (16.0)Provision for income taxes73 49 24 49.0 
Net income$454
 $544
 (90) (16.5)Net income$325 $156 169 108.3 
       
Earnings per common share:       Earnings per common share:   
Basic$0.32
 $0.39
 $(0.07) (17.9)%Basic$0.23 $0.11 $0.12 109.1 %
Diluted0.32
 0.38
 (0.06) (15.8)Diluted0.23 0.11 0.12 109.1 
       
Gross margin55.0% 56.9% 

 (190 bps)
Gross margin55.1 %55.6 %(50 bps)
Operating margin18.8% 20.4% 

 (160 bps)
Operating margin22.1 %17.8 %430 bps
Effective tax rate25.7% 25.6%   10 bps
Effective tax rate18.3 %23.9 %(560 bps)
Sales volume.Volume. The following table sets forth changesprovides the percentage increase in sales volume for the first six months of 2020volumes compared to the prior year period:
Increase / (Decrease)Percentage Change
K-Cup pod volumePods7.613.7 %
Brewer volumeBrewers5.861.4 
CSD sales volumeCSDs(0.86.8 )
NCB sales volumeNCBs3.1(10.2)
Net Sales. Net sales increased $161$289 million, or 3.0%11.1%, to $5,477$2,902 million for the first six monthsquarter of 20202021 compared to $5,316$2,613 million in the prior year period. This performance reflected higher volume/mix of 4.7%10.3%, reflecting the impact of COVID-19, partially offset by lower net price realization of 1.0%0.5% and unfavorable foreign currencyfavorable FX translation of 0.7%, primarily in our Latin America Beverages segment.0.3%.
Gross Profit. Gross profit decreased $10increased $148 million, or 0.3%10.2%, to $3,014$1,600 million for the first six monthsquarter of 20202021 compared to $3,024$1,452 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, tariffsstrong volume/mix and an increase in other manufacturing costs. These decreases werethe benefit of productivity and merger synergies, partially offset by the impact of higher volume/mix and productivity and merger synergies.inflation in commodity costs. Gross margin decreased 19050 bps versus the year ago period to 55.0%55.1%.
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Selling, General and Administrative Expenses. SG&A expenses increased $90decreased $67 million, or 4.6%6.5%, to $2,029$961 million for the first six monthsquarter of 20202021 compared to $1,939$1,028 million in the prior year period. The increasedecrease was driven by $63 million in COVID-19 charges, the unfavorablefavorable change in commodity mark-to-market impacts expenses associated with productivityof $72 million, lower marketing expense in relation to the prior year pre-COVID-19 levels of spending 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, partially offset by inflation in logistics, higher operating costs associated with the increased shipment volume and a reduction in our marketing expense. higher professional fees.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,Income, net. Other operating income, net had a favorablean unfavorable change of $42$41 million for the first six monthsquarter of 20202021 compared to the prior year period, due tolargely driven by the network optimization program gain of $42 million on the asset sale-leaseback of four facilities in the current year.first quarter of 2020.
Income from Operations. Income from operations decreased $58increased $174 million, or 5.3%37.3%, to $1,027$640 million for the first six monthsquarter of 20202021 compared to $1,085$466 million in the prior year period, due todriven by the increase in gross profit and the decrease in SG&A expenses, partially offset by a favorablethe unfavorable change in other operating (income) expense,income, net. Operating margin declined 160increased 430 bps versus the year ago period to 18.8%22.1%.
Interest Expense. Interest expense decreased $29$13 million, or 8.6%8.5%, to $310$140 million for the first six monthsquarter of 20202021 compared to $339$153 million for the prior year period. This change was primarily the result of the favorable change in unrealized interest rate swap mark-to-market impacts of $32 million, partially offset by the unfavorable comparison to the realized benefit of lower indebtednessunwinding several interest rate swap contracts in the prior year period.
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt reflected expense of $105 million during the first quarter of 2021 due to continued deleveraging.our strategic refinancing initiatives.
Impairment on Investmentof Investments and Note Receivable. Impairment on investmentinvestments and note receivable reflected a favorable comparison to a non-cash impairment charge of $86 million forin the first six months of 2020prior year period 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 ratesrate decreased 560 bps to 18.3% for the first six monthsquarter of 2020 and 20192021, compared to 23.9% in the prior year period, primarily driven by the tax benefit received from excess tax deductions that were 25.7% and 25.6%, respectively. Refer to Note 6generated from the vesting of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.RSUs.
Net Income. Net income decreased $90increased $169 million, or 108.3%, to $454$325 million for the first six monthsquarter of 20202021 as compared to $544$156 million in the prior year period. This performance was primarilyperiod, driven by a non-cashimproved income from operations and reduced interest expense, as well as the favorable comparison to the impairment charge duringon investments and note receivable in the first six monthsquarter of 2020, partially offset by the loss on early extinguishment of $86 million associated with our Bedford investment.debt in the first quarter of 2021.
Diluted EPS. Diluted EPS decreased 15.8%increased 109.1% to $0.32$0.23 per diluted share as compared to $0.38$0.11 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 monthsquarter of 20202021 and 2019:2020:
First Six Months Dollar Percent First QuarterDollarPercent
(in millions, except per share amounts)2020 2019 Change Change(in millions, except per share amounts)20212020ChangeChange
Adjusted income from operations$1,459
 $1,323
 $136
 10.3
Adjusted income from operations$741 $684 $57 8.3 %
Adjusted interest expense265
 262
 3
 1.1
Adjusted interest expense139 120 19 15.8 
Adjusted provision for income taxes301
 270
 31
 11.5
Adjusted provision for income taxes134 136 (2)(1.5)
Adjusted net income877
 785
 92
 11.7
Adjusted net income471 408 63 15.4 
Adjusted diluted EPS0.62
 0.55
 0.07
 12.7
Adjusted diluted EPS0.33 0.29 0.04 13.8 
       
Adjusted operating margin26.6% 24.9%   170 bps
Adjusted operating margin25.5 %26.2 %(70 bps)
Adjusted effective tax rate25.6% 25.6%   
Adjusted effective tax rate22.1 %25.0 %(290 bps)
Adjusted Income from Operations. Adjusted income from operations increased $136$57 million, or 10.3%8.3%, to $1,459$741 million for the first six monthsquarter of 20202021 compared to Adjusted income from operations of $1,323$684 million in the prior year period. Driving this performance in the current period were strong volume/mix, the benefit of productivity and merger synergies, which impacted both SG&A and cost of sales, higher volume/mix, a reduction in ourand lower marketing expense in relation to the prior year pre-COVID-19 levels of spending. Partially offsetting these positive drivers were higher manufacturing costs and operating costs, driven by inflation in commodities and logistics, increases in employee costs and professional fees, and an unfavorable comparison to 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 withfacilities in the strong consumer demand.prior year period. Adjusted operating margin grew 170declined 70 bps versus the year ago period to 26.6%25.5%.
Adjusted Interest Expense. Adjusted interest expense increased $3$19 million, or 1.1%15.8%, to $265$139 million for the first six monthsquarter of 20202021 compared to Adjusted interest expense of $262$120 million in the prior year period. This change wasperiod, driven by the result of a $27 million unfavorable comparison betweento the gains recorded in each year forrealized benefit of unwinding several interest rate swap contracts and amortizationin the first quarter of deferred financing costs associated with the bond issuance in April 2020, partially offset by the benefit2020.
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Adjusted Effective Tax Rate. The Adjusted effective tax rate remained constant at 25.6%decreased 290 bps to 22.1% for the first quarter of 2021, compared to 25.0% in the first six monthsprior year period, primarily driven by the tax benefit received from excess tax deductions that were generated from the vesting of 2020RSUs. to the first six months of 2019.
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Adjusted Net Income. Adjusted net income increased 11.7%15.4% to $877$471 million for the first six monthsquarter of 20202021 as compared to Adjusted net income of $785$408 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%13.8% to $0.62$0.33 per diluted share as compared to Adjusted diluted EPS of $0.55$0.29 per diluted share in the prior year period.
Results of Operations by Segment
The following tables set forthprovide net sales and income from operations for our reportable segments for the first six monthsquarter of 20202021 and 2019,2020, 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 Quarter
Segment Results — Net sales20212020
Coffee Systems$1,142 $973 
Packaged Beverages1,307 1,217 
Beverage Concentrates328 306 
Latin America Beverages125 117 
Net sales$2,902 $2,613 
First Quarter
(in millions)20212020
Segment Results — Income from Operations  
Coffee Systems$336 $272 
Packaged Beverages175 189 
Beverage Concentrates238 197 
Latin America Beverages22 27 
Unallocated corporate costs(131)(219)
Income from operations$640 $466 
(in millions)First Six Months
Segment Results — Net sales2020 2019
Coffee Systems$2,016
 $1,958
Packaged Beverages2,609
 2,427
Beverage Concentrates615
 674
Latin America Beverages237
 257
Net sales$5,477
 $5,316
    
 First Six Months
(in millions)2020 2019
Segment Results — Income from Operations   
Coffee Systems$562
 $580
Packaged Beverages397
 335
Beverage Concentrates417
 445
Latin America Beverages48
 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 First QuarterDollarPercent
(in millions)2020 2019 Change Change(in millions)20212020ChangeChange
Net sales$2,016
 $1,958
 $58
 3.0 %Net sales$1,142 $973 $169 17.4 %
Income from operations562
 580
 (18) (3.1)Income from operations336 272 64 23.5 
Operating margin27.9% 29.6%   (170 bps)
Operating margin29.4 %28.0 %140 bps
Adjusted income from operations710
 666
 44
 6.6
Adjusted income from operations389 347 42 12.1 
Adjusted operating margin35.2% 34.0%   120 bps
Adjusted operating margin34.1 %35.7 %(160 bps)
Sales Volume. TheSales volume growth in the first six monthsquarter of 20202021 compared to the prior year period for the Coffee Systems segment reflectedincluded strong K-Cup pod volume growth of 7.6%13.7%, reflecting strength in at-home consumption which was tempered by continued softness in the impact of COVID-19.away-from-home business due to the COVID-19 pandemic. Brewer volume increased 5.8%61.4% in the first six monthsquarter of 2020, despite2021, as compared to a comparison to 16.4% growthdecline of 2.4% in the year-ago period, reflectingdriven by our successful brewer innovation introduced over the past 12 months and investments to drive household penetration.program as well as a benefit from shipment timing.
Net Sales.Net sales increased $58 million, or 3.0%,17.4% to $2,016$1,142 million for the first six monthsquarter of 20202021 compared to $1,958$973 million forin the prior year period, due todriven by strong volume/mix growth of 6.0%19.5% and favorable FX translation of 0.5%, 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%2.6%.
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Income from Operations. Income from operations decreased $18increased $64 million, or 3.1%23.5%, to $562$336 million for the first six monthsquarter of 2020,2021, compared to $580$272 million in the prior year period, driven by strategic pricing, expenses associated withstrong volume/mix and the continued benefit of productivity projects, $19 million in COVID-19 charges, tariffs and an increase in our litigation reserve.merger synergies, as well as reduced costs to achieve those productivity and merger synergies. These impactsbenefits were partially offset by strong productivity and merger synergies, which impacted both cost of sales and SG&A, strong volume/mix growth anddeclines due to strategic pricing initiatives, the unfavorable comparison to a network optimization program gain of $16 million on an asset sale-leaseback of a manufacturing facility.facility in the prior year period, inflation in packaging and raw materials and $10 million of increased charges due to COVID-19. Operating margin declined 170grew 140 bps versus the year ago period to 27.9%29.4%.
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Adjusted Income from Operations. Adjusted income from operations increased $44$42 million, or 6.6%12.1%, to $710$389 million for the first six monthsquarter of 2020,2021, compared to $666$347 million in the prior year period, driven by strong volume/mix and the continued benefit of productivity and merger synergies, which impacted both cost of sales and SG&A, strong volume/mix andsynergies. These benefits were partially offset by declines due to strategic pricing initiatives, the unfavorable comparison to a network optimization program gain of $16 million on an asset sale-leaseback of a manufacturing facility. Partially offsetting these factors was strategic pricingfacility in the prior year period, and tariffs.inflation in packaging and coffee costs. Adjusted operating margin grew 120declined 160 bps versus the year ago period to 35.2%.34.1%, primarily reflecting unfavorable mix due to the strong brewer growth and the unfavorable comparison to the gain on an asset sale-leaseback in the prior year.
PACKAGED BEVERAGES
The following table provides selected information about our Packaged Beverages segment's results:
First Six Months Dollar Percent First QuarterDollarPercent
(in millions)2020 2019 Change Change(in millions)20212020ChangeChange
Net sales$2,609
 $2,427
 $182
 7.5%Net sales$1,307 $1,217 $90 7.4 %
Income from operations397
 335
 62
 18.5
Income from operations175 189 (14)(7.4)
Operating margin15.2% 13.8% 

 140 bps
Operating margin13.4 %15.5 %(210 bps)
Adjusted income from operations472
 350
 122
 34.9
Adjusted income from operations197 203 (6)(3.0)
Adjusted operating margin18.1% 14.4%   370 bps
Adjusted operating margin15.1 %16.7 %(160 bps)
Sales Volume. Sales volume for the first six monthsquarter of 20202021 increased 3.8% compared to the prior year period, increased 16.4%, reflecting the impact of COVID-19 which displayeddriven by 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 werewhich was partially offset by lower volume in enhanced water and teas during the current period. Contract manufacturing also contributedunfavorable comparison to the increase duringstock-up behavior in the current period.first quarter of 2020 related to COVID-19.
Net Sales. Net sales increased $1827.4% to $1,307 million or 7.5%, to $2,609 million forin the first six monthsquarter of 20202021, compared to $2,427$1,217 million forin the prior year period, driven by higher volume/mix of 7.6%6.8%, reflecting the impactnet price realization of COVID-19, partially offset by an unfavorable foreign currency0.4% and favorable FX translation of 0.1%0.2%.
Income from Operations. Income from operations increased $62decreased $14 million, or 18.5%7.4%, to $397$175 million for the first six monthsquarter of 20202021 compared to $335$189 million for the prior year period, reflecting strong volume/mix, reflectingdriven primarily by the impact of COVID-19. Other favorable drivers included continued productivity and merger synergies, a reduction in our marketing expense andunfavorable comparison to a network optimization program gain of $26 million onin the prior year period related to the asset sale-leaseback of three facilities.facilities, inflation, led by commodity costs and logistics, increased operating costs due to higher volumes and expenses associated with productivity projects. These growth driversdecreases 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 demandvolume/mix growth and the unfavorable comparison to a $10 million net gain on a renegotiationbenefit of a manufacturing contract in the prior year period.productivity and merger synergies. Operating margin grew 140declined 210 bps versus the year ago period to 15.2%13.4%.
Adjusted Income from Operations. Adjusted income from operations increased $122decreased $6 million, or 34.9%3.0%, to $472$197 million for the first six monthsquarter of 20202021 compared to $350$203 million for the prior year period, largely driven primarily 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 andunfavorable comparison to a network optimization program gain of $26 million onin the prior year period related to the asset sale-leaseback of three facilities.facilities, inflation, led by commodity costs and logistics, and increased operating costs due to higher volumes. These driversdecreases were partially offset by higher manufacturingstrong volume/mix growth and operating costs, such as logisticsproductivity 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.merger synergies. Adjusted operating margin grew 370declined 160 bps versus the year ago period to 18.1%.15.1%, primarily reflecting the aforementioned asset sale-leaseback gain in the year-ago period.

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BEVERAGE CONCENTRATES
The following table provides selected information about our Beverage Concentrates segment's results:
First Six Months Dollar Percent First QuarterDollarPercent
(in millions)2020 2019 Change Change(in millions)20212020ChangeChange
Net sales$615
 $674
 $(59) (8.8)%Net sales$328 $306 $22 7.2 %
Income from operations417
 445
 (28) (6.3)Income from operations238 197 41 20.8 
Operating margin67.8% 66.0%   180 bps
Operating margin72.6 %64.4 %820 bps
Adjusted income from operations419
 447
 (28) (6.3)Adjusted income from operations239 197 42 21.3 
Adjusted operating margin68.1% 66.3%   180 bps
Adjusted operating margin72.9 %64.4 %850 bps
Sales Volume. Sales volume for the first six monthsquarter of 2020 as2021 increased 1.0% compared to the prior year period declined 14.8% reflectingperiod. Sales to our bottlers and distributors increased compared to the impactprior year period. This increase was partially offset by declines in sales volume for our fountain foodservice business, which services restaurants and hospitality, which continue to experience softness as a result of COVID-19.COVID-19 with sequential improvements over recent periods as businesses begin to reopen.
Net Sales.Sales. Net sales decreased $59increased 7.2% to $328 million or 8.8%, to $615 million forin the first six monthsquarter of 20202021, compared to $674$306 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%7.2% and unfavorable foreign currencyfavorable FX translation of 0.2% also drove the decrease in net sales.
Table0.7%, partially offset by lower volume/mix of Contents0.7%.


Income from Operations. Income from operations decreased $28increased $41 million, or 6.3%20.8%, to $417$238 million for the first six monthsquarter of 20202021 compared to $445$197 million in the prior year period. This performance reflected higher net price realization and lower marketing expenses in relation to the net sales decline partially offset by a reduction in our marketing expense.prior year pre-COVID-19 levels of spending. Operating margin increased 180820 bps versus the year ago period to 67.8%72.6%.
Adjusted Income from Operations. Adjusted income from operations decreased $28increased $42 million, or 6.3%21.3%, to $419$239 million for the first six monthsquarter of 20202021 compared to $447$197 million in the prior year period. This performance reflected higher net price realization and lower marketing expenses in relation to the net sales decline partially offset by a reduction in our marketing expense.prior year pre-COVID-19 levels of spending. Adjusted operating margin increased 180850 bps versus the year ago period to 68.1%.72.9%, primarily reflecting the favorable net price realization.
LATIN AMERICA BEVERAGES
The following table provides selected information about our Latin America Beverages segment's results:
First Six Months Dollar Percent First QuarterDollarPercent
(in millions)2020 2019 Change Change(in millions)20212020ChangeChange
Net sales$237
 $257
 $(20) (7.8)%Net sales$125 $117 $6.8 %
Income from operations48
 37
 11
 29.7
Income from operations22 27 (5)(18.5)
Operating margin20.3% 14.4%   590 bps
Operating margin17.6 %23.1 %(550 bps)
Adjusted income from operations50
 32
 18
 56.3
Adjusted income from operations23 27 (4)(14.8)
Adjusted operating margin21.1% 12.5%   860 bps
Adjusted operating margin18.4 %23.1 %(470 bps)
Sales Volume. Sales volume for the first six monthsquarter of 20202021 as compared to the prior year period increased 3.9%decreased 0.4%, drivenas increases in Peñafiel were more than offset by Squirt.declines in Aguafiel and Crush.
Net Sales. Net sales decreased $20 million, or 7.8%,grew 6.8% to $237$125 million for the first six monthsquarter of 20202021, compared to $257$117 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 higherreflecting net price realization of 6.0%,10.3%. This growth was partially offset by unfavorable volume/mix of 2.9%2.6% and unfavorable FX translation of 0.9%.
Income from Operations. Income from operations increased $11decreased $5 million, or 29.7%18.5%, to $48$22 million for the first six monthsquarter of 20202021 compared to $37$27 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). and unfavorable volume/mix, partially offset by higher net price realization. Operating margin increased 590decreased 550 bps versus the year ago period to 20.3%17.6%.
Adjusted Income from Operations. Adjusted income from operations increased $18decreased $4 million, or 56.3%14.8%, to $50$23 million infor the first six monthsquarter of 20202021 compared to $32$27 million in the prior year period. This performance reflected higher net price realization, continued productivity and a reduction in our marketing expense, partially offsetperiod, driven by unfavorable volume/mix and unfavorable FX effects (FX translation and transaction). and unfavorable volume/mix, partially offset by higher net price realization. Adjusted operating margin grew 860declined 470 bps versus the year ago period to 21.1%.18.4%, primarily reflecting the unfavorable impact of FX transaction.
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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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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$546 million for the first six monthsquarter of 20202021 compared to $1,203$414 million for the prior year period. Although there is continued uncertainty related to the anticipated impact of the recentongoing 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 over the course of the pandemic to strengthen our balance sheet leave us well positioned to manage our business as the crisis continues to unfold.business. 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 through our integration and productivity initiatives, and developing new opportunities for growth.growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.
The following summarizes our cash activity for the first quarter of 2021 and 2020:
kdp-20210331_g9.jpg
Cash, cash equivalents, restricted cash and restricted cash equivalents increased $94 million from December 31, 2020 to March 31, 2021 as cash generated from our operations outpaced the impact of dividends and deleveraging.
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 $177 million and $165 million as of March 31, 2021 and December 31, 2020, respectively.
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Principal Sources of Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents, as well as cash generated from our operations and borrowing capacity currently available under our existing KDP Revolver and 20202021 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
Sources 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 ACTIVITIESLiquidity - Operations
Net cash provided by operating activities decreased $141increased $132 million for the first six monthsquarter of 2020,2021, as compared to the first six monthsquarter of 2019,2020, 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.items, partially offset by a decline in working capital.
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:
ComponentCalculation (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 declinedimproved 19 days to approximately (52)66 days as of June 30, 2020March 31, 2021 as compared to (33)47 days in the prior year period. The change was primarily driven by a increase of 17 days infollowing table summarizes 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.cash conversion cycle:
 June 30,March 31,
 2020 201920212020
DIO 52
 50
DIO55 52 
DSO 33
 37
DSO33 34 
DPO 137
 120
DPO154 133 
Cash conversion cycle (52) (33)Cash conversion cycle(66)(47)
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 programPayable 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. AsWe have been informed by the third party administrator that as of June 30, 2020March 31, 2021 and December 31, 2019, $2,4872020, $2,777 million and $2,097$2,578 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$698 million and $723$557 million for the first six monthsquarter of 2021 and 2020, respectively.
Impact of the Cares Act
Beginning in the second quarter of 2020, we deferred payments of employer-related payroll taxes as allowed under the U.S. Coronavirus Aid, Relief and Economic Security Act, commonly known as the CARES Act. Payment of at least 50% of the deferred amount is due on January 3, 2022, with the remainder due by January 3, 2023. As of March 31, 2021, we have deferred a total of $59 million in such payments.

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Sources of Liquidity - Financing
During the first quarter of 2021, we undertook a strategic refinancing and issued $2,150 million aggregate face value of Notes, consisting of $1,150 million aggregate principal amount of 0.750% 2024 Notes, $500 million aggregate principal amount of 2.250% 2031 Notes, and $500 million aggregate principal amount of 3.350% 2051 Notes. The proceeds from the issuance were used to voluntarily prepay several tranches of our existing Notes and our 2019 respectively.KDP Term Loan in order to take advantage of current market conditions to refinance our debt maturities at more attractive interest rates, while also extending the duration of our debt.
kdp-20210331_g10.jpg
NET CASH USED IN INVESTING ACTIVITIESIn March 2021, we also terminated our 2020 364-Day Credit Agreement, which would have expired in April 2021, and replaced it with our 2021 364-Day Credit Agreement, which has a term-out option allowing us to extend the maturity date by converting the facility into a term loan agreement for an additional one-year term.
CashAdditionally, in March 2021, we filed a prospectus supplement with the SEC in order to sell up to 4,300,000 shares to or through Goldman in at-the-market offerings, known as an ATM Program. The ATM Program was completed effective March 15, 2021, and the net proceeds of approximately $140 million were primarily used to cover our obligation to remit cash to local, state and federal tax authorities in investing activitiesconnection with the net settlement of vesting restricted stock units during the first quarter of 2021. Commissions and fees paid under the ATM program were less than $1 million for the first six monthsquarter of 2021.
Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for management's discussion of our financing arrangements.
We also have an active shelf registration statement, filed with the SEC on August 27, 2019, which allows us to issue an indeterminate number or amount of common stock, preferred stock, debt securities and warrants from time to time in one or more offerings at the direction of our Board of Directors.
Debt Ratings
As of March 31, 2021, our credit ratings were as follows:
Rating AgencyLong-Term Debt RatingCommercial Paper RatingOutlookDate of Last Change
Moody'sBaa2P-2StableFebruary 26, 2021
S&PBBBA-2StableMay 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.
As of March 31, 2021, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.
Principal Uses of Capital Resources
Our principal uses of our capital resources following the DPS Merger are deleveraging, providing shareholder return to our investors through dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.
Deleveraging and Other Debt Repayments
In 2018, management set deleveraging targets for a 2-3 year time period following the DPS Merger in order to optimize our balance sheet, and we continue to be focused on achieving those targets within that time frame. Since the DPS Merger, we have made net repayments of $3,295 million of our Notes, our commercial paper and our other credit agreements, including $120 million for the first quarter of 2021.
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In May 2021, our $1,750 million 2021 Merger Notes will be repaid at maturity, using cash generated from operations and, as needed, issuance of variable-rate debt available to us through the various KDP Credit Agreements, including commercial paper.
Dividends
In February 2021, we announced that our Board of Directors approved a 25% increase in our annualized dividend rate to $0.75 per share, from the current annualized rate of $0.60 per share, effective with the Company’s regular quarterly dividend to be announced in the second quarter of 2021, subject to official declaration by the Board of Directors. We additionally announced that our Board of Directors declared a regular quarterly cash dividend of $0.15 per share, payable in U.S. dollars, on our common stock. The regular quarterly dividend was paid on April 15, 2021 to shareholders of record on April 1, 2021.
Capital Expenditures
We have significantly invested in state-of-the-art manufacturing and warehousing facilities, including expansive investments in new facilities in Spartanburg, South Carolina; Newbridge, Ireland; and Allentown, Pennsylvania, in order to optimize our supply chain network through integration and productivity projects.
Purchases of property, plant and equipment were $95 million and $151 million for the first quarter of 2021 and 2020, consisted primarily ofrespectively.
Capital expenditures, which includes both 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 usedamounts included in investing activitiesaccounts payable and accrued expenses, for the first six monthsquarter of 2019 consisted2021 primarily related to our continued investment in the build-out of purchasesour Allentown manufacturing facility, the build out of property, plantthe Ireland facility and equipmentbuild-out of $118 million.
NET CASH USED IN FINANCING ACTIVITIES
Cash usedour Spartanburg manufacturing facility. Capital expenditures included in financing activitiesaccounts payable and accrued expenses were $259 million for the first six monthsquarter of 2020 consisted2021, which 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.these investments.
Net cash used in financing activitiesCapital expenditures for the first six monthsquarter of 2019 consisted2020 primarily related to manufacturing equipment, our continued investment in the build-out of our Spartanburg facility and Allentown facility, the purchase of real estate in Ireland and logistics equipment. Capital expenditures included in accounts payable and accrued expenses was $177 million for the first quarter of 2020, which primarily related to these investments.
As we begin to move past the three-year period after the DPS Merger, we expect that total capital expenditures will be approximately 3% of net sales on an annualized basis.
Purchases of Intangible Assets
We have invested in the expansion of our DSD network through transactions with strategic independent bottlers to ensure competitive distribution scale for our brands. These transactions are generally accounted for as an asset acquisition, as the majority of the voluntary and mandatory repayments ontransaction price represents the term loan facilityreacquisition of $848 million, repaymentour distribution rights. Purchases of the 2019 Notes of $250intangible assets were $12 million and dividend payments$15 million for the first quarter of $423 million. These cash outflows from financing activities were partially offset by net issuance of commercial paper notes of $381 million2021 and net proceeds from structured payables of $69 million.2020, respectively.
Uncertainties and Trends Affecting Liquidity
Disruptions in financial and credit markets, including those caused by the ongoing 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 intention to drive significant cash flow generation to enable rapid deleveraging within three years from the DPS Merger;
Our ability to access our committed financing arrangements, including our KDP Revolver and our 20202021 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 intentionA significant downgrade in our credit ratingscould limit i) a financial institution's willingness to drive significant cash flow generationparticipate in our accounts payable program and reduce the attractiveness of the accounts payable program to enable rapid deleveraging within three yearsparticipating suppliers who may sell payment obligations from the DPS Merger;us to financial institutions, which could impact our accounts payable program; or ii) our ability to issue debt at terms that are favorable to us;
A significant downgrade in our credit ratingscould 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;Our continued capital expenditures;
Fluctuations in our tax obligations;
Future equity investments; and
Future mergers or acquisitions, ofwhich may include brand ownership companies, regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage.coverage;
Future equity investments;
Debt Ratings
As of June 30, 2020, our credit ratings were as follows:
Rating AgencyLong-Term Debt RatingCommercial Paper RatingOutlookDate of Last Change
Moody'sBaa2P-2NegativeMay 11, 2018
S&PBBBA-2StableMay 14, 2018
These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or bothSeasonality 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 handwhich could impact short-term liquidity; 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 disclosedFluctuations 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 payments5,540
 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 contractualtax 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 Parent Holdings Corp. 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 ParentKeurig Dr Pepper Inc. (the “Parent”) and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from;from and 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 operations237
Equity in earnings of subsidiaries, net of tax174
Net income454
(in millions)June 30, 2020 December 31, 2019
Current assets(1)
$1,600
 $1,404
Non-current assets42,898
 28,180
Current liabilities(2)
$4,811
 $3,942
Non-current liabilities16,764
 17,707
(in millions)For the First Quarter of 2021
Net sales$1,617 
(1)Income from operationsIncludes $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.
317 
(2)Net income attributable to KDPIncludes $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.325 
(in millions)March 31, 2021December 31, 2020
Current assets(1)
$2,047 $1,810 
Non-current assets43,636 43,333 
Current liabilities(2)
$4,621 $5,148 
Non-current liabilities16,991 16,164 
(1)Includes $408 million and $423 million of current intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of March 31, 2021 and December 31, 2020, respectively.
(2)Includes $32 million and $30 million of current intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of March 31, 2021 and December 31, 2020, respectively.
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NON-GAAP FINANCIAL MEASURES
To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented for the secondfirst quarter of 2021 and first six months of 2020 and 2019 (i) Adjusted income from operations, (ii) Adjusted interest expense, (iii) Adjusted provision for income taxes, (iv) Adjusted net income attributable to KDP and (iii)(v) 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. The Company uses these non-GAAP financial measures, in addition to U.S. GAAP financial measures, to evaluate its operating and financial performance and to compare such performance to that of prior periods and to the performance of its competitors. Additionally, the Company uses these non-GAAP financial measures in making operational and financial decisions and in the Company’s budgeting and planning process. The Company believes that providing these non-GAAP financial measures to investors helps investors evaluate the Company’s operating performance, profitability and business trends in a way that is consistent with how management evaluates such performance and consistent with guidance previously provided by the Company.
For the secondfirst quarter of 2021 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;Merger; (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 and the associated windfall tax benefit 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;KDP; and (vi) other certain items that are excluded for comparison purposes to prior year periods.
TableFor the first quarter of Contents


2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations; (ii) productivity expenses; (iii) costs related to significant non-routine legal matters; (iv) the loss on early extinguishment of debt related to the redemption of debt; (v) incremental costs to our operations related to risks associated with the COVID-19 pandemic; and (vi) gains from insurance recoveries related to the February 2019 organized malware attack on our business operation networks in the Coffee Systems segment.
For secondthe first 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 nonroutinenon-routine legal matters; (v) the loss on early extinguishment of debt related to the redemption of debt;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 secondfirst quarter of 2021 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 interest expense, Adjusted provision for income taxes, Adjusted net income attributable to KDP 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 SecondFirst Quarter of 20202021
(Unaudited, in millions, except per share data)
Cost of salesGross profitGross marginSelling, general and administrative expensesIncome from operationsOperating margin
Reported$1,302 $1,600 55.1 %$961 $640 22.1 %
Items Affecting Comparability:
Mark to market(9)29 (38)
Amortization of intangibles— — (33)33 
Stock compensation— — (6)
Restructuring and integration costs— — (43)43 
Productivity(8)(25)33 
Nonroutine legal matters— — (10)10 
COVID-19(12)12 (4)16 
Malware incident— — (2)
Adjusted$1,291 $1,611 55.5 %$871 $741 25.5 %
 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 shareInterest expenseLoss on early extinguishment of debtIncome before provision for income taxesProvision for income taxesEffective tax rateNet income attributable to KDPDiluted earnings per share
Reported$157
 $2
 $406
 $108
 26.6% $298
 1,421.5 $0.21
Reported$140 $105 $398 $73 18.3 %$325 $0.23 
Items Affecting Comparability:          
    Items Affecting Comparability:
Mark to market(3) 
 16
 5
   11
   0.01
Mark to market— (46)(11)(35)(0.02)
Amortization of intangibles
 
 33
 9
   24
   0.02
Amortization of intangibles— — 33 25 0.02 
Amortization of deferred financing costs(3) 
 3
 
   3
   
Amortization of deferred financing costs(3)— — — 
Amortization of fair value debt adjustment(6) 
 6
 1
   5
   
Amortization of fair value debt adjustment(6)— — 
Stock compensation
 
 8
 2
   6
   
Stock compensation— — 12 (6)— 
Restructuring and integration costs
 
 52
 12
   40
   0.03
Restructuring and integration costs— — 43 11 32 0.02 
Productivity
 
 19
 4
   15
   0.01
Productivity— — 33 25 0.02 
Loss on early extinguishment of debt
 (2) 2
 1
   1
   
Loss on early extinguishment of debt— (105)105 25 80 0.06 
Investment Impairment
 
 
 
   
   
Nonroutine legal matters
 
 26
 7
   19
   0.01
Nonroutine legal matters— — 10 0.01 
COVID-19
 
 63
 16
   47
   0.03
COVID-19— — 16 12 0.01 
Adjusted GAAP$145
 $
 $634
 $165
 26.0% $469
 1,421.5
 $0.33
Malware incidentMalware incident— — (2)— (2)— 
AdjustedAdjusted$139 $— $605 $134 22.1 %$471 $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 SecondFirst Quarter of 20192020
(Unaudited, in millions, except per share data)
Cost of salesGross profitGross marginSelling, general and administrative expensesIncome from operationsOperating margin
Reported$1,161 $1,452 55.6 %$1,028 $466 17.8 %
Items Affecting Comparability:
Mark to market(15)15 (43)58 
Amortization of intangibles— — (33)33 
Stock compensation— — (7)
Restructuring and integration costs— — (52)52 
Productivity(16)16 (38)54 
Nonroutine legal matters— — (9)
COVID-19(1)(4)
Adjusted$1,129 $1,484 56.8 %$842 $684 26.2 %
 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 market11
 (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 shareInterest expenseLoss on early extinguishment of debtImpairment of investment and note receivableIncome before provision for income taxesProvision for income taxesEffective tax rateNet income attributable to KDPDiluted earnings per share
Reported$310
 $4
 $86
 $611
 $157
 25.7% $454
 1,420.8 $0.32
Reported$153 $$86 $205 $49 23.9 %$156 $0.11 
Items Affecting Comparability:            
  Items Affecting Comparability:
Mark to market(27) 
 
 98
 26
   72
 0.05
Mark to market(24)— — 82 21 61 0.04 
Amortization of intangibles
 
 
 66
 18
   48
 0.03
Amortization of intangibles— — — 33 24 0.02 
Amortization of deferred financing costs(6) 
 
 6
 1
   5
 
Amortization of deferred financing costs(3)— — — 
Amortization of fair value debt adjustment(12) 
 
 12
 3
   9
 0.01
Amortization of fair value debt adjustment(6)— — — 
Stock compensation
 
 
 15
 3
   12
 0.01
Stock compensation— — — — 
Restructuring and integration costs
 
 
 104
 26
   78
 0.05
Restructuring and integration costs— — 52 14 38 0.03 
Productivity
 
 
 73
 19
   54
 0.04
Productivity— — — 54 15 39 0.03 
Loss on early extinguishment of debt
 (4) 
 4
 1
   3
 
Loss on early extinguishment of debt— (2)— — — 
Investment impairment
 
 (86) 86
 21
   65
 0.05
Impairment of investment and note receivableImpairment of investment and note receivable— — (86)86 21 65 0.05 
Nonroutine legal matters
 
 
 35
 9
   26
 0.02
Nonroutine legal matters— — — — 
COVID-19
 
 
 68
 17
   51
 0.04
COVID-19— — — — 
Adjusted GAAP$265
 $
 $
 $1,178
 $301
 25.6% $877
 1,420.8 $0.62
AdjustedAdjusted$120 $— $— $544 $136 25.0 %$408 $0.29 
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 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.
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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 Beverages208
 61
 269
Beverage Concentrates220
 2
 222
Latin America Beverages21
 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 Beverages186
 4
 190
Beverage Concentrates244
 2
 246
Latin America Beverages26
 (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)ReportedItems Affecting ComparabilityAdjusted GAAP
For the first quarter of 2021:
Income from Operations
Coffee Systems$336 $53 $389 
Packaged Beverages175 22 197 
Beverage Concentrates238 239 
Latin America Beverages22 23 
Unallocated corporate costs(131)24 (107)
Total income from operations$640 $101 $741 
For the first quarter of 2020:
Income from Operations
Coffee Systems$272 $75 $347 
Packaged Beverages189 14 203 
Beverage Concentrates197 — 197 
Latin America Beverages27 — 27 
Unallocated corporate costs(219)129 (90)
Total income from operations$466 $218 $684 

44
(in millions)Reported Items Affecting Comparability Adjusted GAAP
For the first six months of 2020:     
Income from Operations     
Coffee Systems$562
 $148
 $710
Packaged Beverages397
 75
 472
Beverage Concentrates417
 2
 419
Latin America Beverages48
 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 Beverages335
 15
 350
Beverage Concentrates445
 2
 447
Latin America Beverages37
 (5) 32
Unallocated corporate costs(312) 140
 (172)
Total income from operations$1,085
 $238
 $1,323


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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading.
FOREIGN EXCHANGE RISK
The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As of June 30, 2020,March 31, 2021, the impact to our income from operations of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $25$41 million on an annual basis.
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of June 30, 2020,March 31, 2021, we had derivative contracts outstanding with a notional value of $485$874 million maturing at various dates through September 25, 2024.
INTEREST RATE RISK
We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable-rate debt. As of June 30, 2020,March 31, 2021, the carrying value of our fixed-rate debt, excluding lease obligations, was $13,049$13,465 million and ourwe had no variable-rate debt. Although we had no variable-rate debt was $1,056 million, inclusiveoutstanding as of March 31, 2021, we held variable-rate debt throughout the first quarter of 2021 in the form of commercial paper.
Additionally, aspaper, and we intend to continue utilizing variable-rate debt throughout 2021. As of June 30, 2020,March 31, 2021, the total notional value of receive-variable, pay-fixed interest rate swaps was $450 million.
The following table is an estimate As a result of the impact to ourthese factors, there was no interest rate expense based uponrisk associated with our variable rate debt and derivative instruments that could result from hypothetical interest rate changes during the term of the financial instruments,balances based on debt levels as of June 30, 2020:March 31, 2021.
Hypothetical Change in Interest Rates(1)
Annual Impact to Interest Expense
1-percent decrease$6 million decrease
1-percent increase$6 million increase
(1)We pay an average floating rate, which fluctuates periodically, based on LIBOR and a credit spread, as a result of variable rate debt instruments. See Notes 2 and 7 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.
COMMODITY RISKS
We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of coffee beans, PET, aluminum, diesel fuel, corn (for high fructose corn syrup), apple juice concentrate, apples, sucrose and natural gas (for use in processing and packaging), resin, PET, corn (for high fructose corn syrup), pulp, coffee beans, diesel fuel, apple juice concentrate, apples and sucrose..    
We utilize commodities derivative instruments and supplier pricing agreements to hedge the risk of adverse movements in commodity prices for limited time periods for certain commodities. As of June 30, 2020,March 31, 2021, we had derivative contracts outstanding with a notional value of $580$450 million maturing at various dates through December 31, 2022.January 8, 2024. The fair market value of these contracts as of June 30, 2020March 31, 2021 was a net liabilityasset of $51$87 million.
As of June 30, 2020,March 31, 2021, the impact of a 10% change (up or down) in market prices for these commodities where the risk of adverse movements has not been hedged is estimated to have a $2$8 million impact to our income from operations for the remainder of the year ending December 31, 2020.
2021.
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ITEM 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, as of June 30, 2020,March 31, 2021, our disclosure controls and procedures are effective to (i) provide reasonable assurance that information required to be disclosed in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and (ii) ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter ended June 30, 2020March 31, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
We are occasionally subject to litigation or other legal proceedings relating to our business.
See Note 1415 of the Notes to our Unaudited Condensed Consolidated Financial Statements for more information related to commitments and contingencies, which is incorporated herein by reference.
BODYARMOR LITIGATION
On March 6, 2019, ABC, a subsidiary of KDP, filed suit against BodyArmor and Mike Repole in the Superior Court for the State of Delaware. The complaint assertsasserted claims for breach of contract and promissory estoppel against BodyArmor and assertsasserted a claim for tortious interference against Mr. Repole, in each case in connection with BodyArmor'sBodyArmor's attempted early termination of the distribution contract between BodyArmor and ABC. The complaint seeks monetary damages relating to lost distribution revenues, disgorgement of profits, liquidated and punitive damages, attorneys' fees and costs. ABC filed an amended complaint, which added Coca-Cola as a defendant to the suit and asserted a claim for tortious interference against Coca-Cola. In December 2020, the court dismissed the individual claim against Mr. Repole, but ABC's claims against BodyArmor and Coca-Cola continue. Fact and expert discovery in the case is ongoing and a trial date is set for February 2022. ABC intends to continue to vigorously prosecute the action. The court has rejected BodyArmor's motion to dismiss our lawsuit. On June 16, 2020, The Coca-Cola Company was added as a defendant to the suit. We are unable to predict the outcome of the lawsuit, the potential recovery, if any, associated with the resolution of the lawsuit or any potential effect it may have on us or our operations.
There have been no other material changes that we are aware of from the legal proceedings set forth in Item 3 of our Annual Report.
ITEM 1A. Risk Factors
Widespread health developments and economic uncertainty resulting from the recent global COVID-19 pandemic, could materially and adversely affect our business, financial condition and results of operations.
Our business has been, and may continue to be, impacted by the fear of exposure to, or actual effects, of the COVID-19 pandemic in countries where we operate or our customers and suppliers are located, such as recommendations or mandates from governmental authorities to close businesses, limit travel, avoid large gatherings or to self-quarantine, as well as temporary closures or decreased operations of the facilities of our customers, distributors or suppliers. These impacts include, but are not limited to:
Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other restrictions, store closures, or financial hardship, shifts in demand away from one or more of our higher priced products to lower priced products, or stockpiling or similar activity, reduced options for marketing and promotion of products or other restrictions in connection with the COVID-19 pandemic; if prolonged, such impacts can further increase the difficulty of operating our business, including accurately planning and forecasting;
Inability to meet our consumers' and customers’ needs and achieve cost targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements, such as raw materials or purchased finished goods, logistics, reduction or loss of workforce due to the insufficiency or failure of our safety protocols, or other manufacturing and distribution capability;
Failure of third parties, including those located in international locations, on which we rely, including our suppliers, bottlers, distributors, contract manufacturers, third-party service providers, contractors, commercial banks and external business partners, to meet their obligations to us or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties; or
Significant changes in the conditions in markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our third-party bottlers, distributors, partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products.
All of these impacts could place limitations on our ability to execute on our business plan and materially and adversely affect our business, financial condition and results of operations. We continue to monitor the situation, have actively implemented policies and procedures to address the situation, and as the pandemic continues to further unfold, we may adjust our current policies and procedures as regulations are implemented or more information and guidance become available. The impact of COVID-19 may also exacerbate other risks discussed in Item 1A of our Annual Report, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.
There have been no other material changes that we are aware of from the risk factors set forth in Part I, Item 1A ofin our Annual Report.
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ITEM 6. Exhibits
Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K (filed on November 23, 2016) and incorporated herein by reference).
Amendment No. 1, dated as of January 31, 2017, to the Agreement and Plan of Merger, dated as of November 21, 2016, by and among Bai Brands LLC, Dr Pepper Snapple Group, Inc., Superfruit Merger Sub, LLC and Fortis Advisors LLC, (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K (filed on January 31, 2017) and incorporated herein by reference).
Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 17, 2012 (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (filed July 26, 2012) and incorporated herein by reference).
Certificate of Second Amendment to Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of May 19, 2016 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed May 20, 2016) and incorporated herein by reference).
Certificate of Third Amendment to the Amended and Restated Certificate of Incorporation of Dr Pepper Snapple Group, Inc. effective as of July 9, 2018 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 9, 2018) and incorporate herein by reference).
Amended and Restated By-Laws of Keurig Dr Pepper Inc. effective as of July 9, 2018 (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K (filed July 9, 2018) and incorporated herein by reference.
Indenture, dated April 30, 2008, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A. (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
Form of 7.45% Senior Notes due 2038 (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
Registration Rights Agreement, dated April 30, 2008, between Dr Pepper Snapple Group, Inc., J.P. Morgan Securities Inc., Banc of America Securities LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, UBS Securities LLC, BNP Paribas Securities Corp., Mitsubishi UFJ Securities International plc, Scotia Capital (USA) Inc., SunTrust Robinson Humphrey, Inc., Wachovia Capital Markets, LLC and TD Securities (USA) LLC (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on May 1, 2008) and incorporated herein by reference).
Registration Rights Agreement Joinder, dated May 7, 2008, by the subsidiary guarantors named therein (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
Supplemental Indenture, dated May 7, 2008, among Dr Pepper Snapple Group, Inc., the subsidiary guarantors named therein and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on May 12, 2008) and incorporated herein by reference).
Second Supplemental Indenture dated March 17, 2009, to be effective as of December 31, 2008, among Splash Transport, Inc., as a subsidiary guarantor, Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K (filed on March 26, 2009) and incorporated herein by reference).
Third Supplemental Indenture, dated October 19, 2009, among 234DP Aviation, LLC, as a subsidiary guarantor; Dr Pepper Snapple Group, Inc., and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q (filed November 5, 2009) and incorporated herein by reference).
Fourth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184 Innovations Inc., a Delaware corporation (each as a new subsidiary guarantors under the Indenture dated April 30, 2008 (as referenced in Item 4.1 in this Exhibit Index), Dr Pepper Snapple Group, Inc., each other then-existing Guarantor under the Indenture and Wells Fargo, National Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed February 2, 2017) and incorporated herein by reference).
Indenture, dated as of December 15, 2009, between Dr Pepper Snapple Group, Inc. and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 23, 2009) and incorporated herein by reference).
Second Supplemental Indenture, dated as of January 11, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on January 11, 2011) and incorporated herein by reference).
Third Supplemental Indenture, dated as of November 15, 2011, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
3.20% Senior Note due 2021 (in global form), dated November 15, 2011, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 15, 2011) and incorporated herein by reference).
Fourth Supplemental Indenture, dated as of November 20, 2012, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee.
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2.00% Senior Note due 2020 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
2.70% Senior Note due 2022 (in global form), dated November 20, 2012, in the principal amount of $250 million (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 20, 2012) and incorporated herein by reference).
Fifth Supplemental Indenture, dated as of November 9, 2015, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
3.40% Senior Note due 2025 (in global form), dated November 9, 2015, in the principal amount of $500,000,000 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
4.50% Senior Note due 2045 (in global form), dated November 9, 2015, in the principal amount of $250,000,000 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on November 10, 2015) and incorporated herein by reference).
Sixth Supplemental Indenture, dated as of September 16, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on September 16, 2016) and incorporated herein by reference).
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2.55% Senior Note due 2026 (in global form), dated September 16, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on September 16, 2016) and incorporated herein by reference).
Seventh Supplemental Indenture, dated as of December 14, 2016, among Dr Pepper Snapple Group, Inc., the guarantors party thereto and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
2.53% Senior Note due 2021 (in global form), dated December 14, 2016, in the principal amount of $250,000,000 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
3.13% Senior Note due 2023 (in global form), dated December 14, 2016, in the principal amount of $500,000,000 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
3.43% Senior Note due 2027 (in global form), dated December 14, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
4.42% Senior Note due 2046 (in global form), dated December 14, 2016, in the principal amount of $400,000,000 (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on December 14, 2016) and incorporated herein by reference).
Eighth Supplemental Indenture, dated as of January 31, 2017, among Bai Brands LLC, a New Jersey limited liability company, 184 Innovations Inc., a Delaware corporation (each as a new subsidiary guarantor under the Indenture dated April 30, 2008 (as referenced in Item 4.1 in this Exhibit Index), Dr Pepper Snapple Group, Inc., each other then-existing Guarantor under the Indenture) and Wells Fargo, National Bank, N.A., as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on February 2, 2017) and incorporated herein by reference).
Ninth Supplemental Indenture, dated as of June 15, 2017, among Dr Pepper Snapple Group, Inc., the guarantors party thereto, and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on June 15, 2017) and incorporated herein by reference).
Investor Rights Agreement by and among Keurig Dr Pepper Inc. and The Holders Listed on Schedule A thereto, dated as of July 9, 2018 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Base Indenture, dated as of May 25, 2018 between Maple Escrow Subsidiary and Wells Fargo Bank, N.A. as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
First Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2021 Notes (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Second Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2023 Notes (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Third Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2025 Notes (filed as Exhibit 4.4 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Fourth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2028 Notes (filed as Exhibit 4.5 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
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Fifth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2038 Notes (filed as Exhibit 4.6 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Sixth Supplemental Indenture (including the form of note), dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and Maple Parent Holdings Corp. as parent guarantor, and Wells Fargo Bank, N.A., as trustee relating to the 2048 Notes (filed as Exhibit 4.7 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Seventh Supplemental Indenture, dated as of July 9, 2018, among Keurig Dr Pepper Inc., the subsidiary guarantors thereto, and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.8 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Registration Rights Agreement, dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representative of the several purchasers of the Notes (filed as Exhibit 4.9 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Joinder to the Registration Rights Agreement, dated as of May 25, 2018, among Maple Escrow Subsidiary, Inc. and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representative of the several purchasers of the Notes (filed as Exhibit 4.10 to the Company's Current Report on Form 8-K (filed on July 9, 2018) and incorporated herein by reference).
Description of registered securities (filed as Exhibit 4.40 to the Company's Annual Report on Form 10-K (filed on February 27, 2020) and incorporated herein by reference).
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Tenth Supplemental Indenture (including 3.20% Senior Notes Due 2030 and 3.80% Senior Notes Due 2050 (in global form)), dated as of April 13, 2020, among Keurig Dr Pepper Inc., the subsidiary guarantors thereto, and Wells Fargo Bank, N.A., as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (filed on April 13, 2020) and incorporated herein by reference).
Term Loan Agreement,Eleventh Supplemental Indenture (including 0.750% Senior Notes Due 2024, 2.250% Senior Notes Due 2031, and 3.350% Senior Notes Due 2051 (in global form)), dated as of February 8, 2019,March 15, 2021, among Keurig Dr Pepper Inc., the banks partysubsidiary guarantors thereto, and JPMorgan Chase,Wells Fargo Bank, N.A., as administrative agenttrustee (filed as Exhibit 10.14.1 to the Company'sCompany’s Current Report on Form 8-K (filed on February 11, 2019)March 15, 2021) and incorporated herein by reference).
Credit Agreement, dated as of May 29, 2019, among Keurig Dr Pepper Inc., the banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on May 29, 2019) and incorporated herein by reference).

Amended and Restated Employment Agreement, dated as of July 2, 2018, by and between Keurig Green Mountain, Inc. and Robert J. Gamgort (filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Employment Agreement, dated as of April 12, 2016, by and between Keurig Green Mountain, Inc. and Ozan Dokmecioglu (filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Matching Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Directors' Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Incentive Plan of 2009 (filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q (filed on November 8, 2018) and incorporated herein by reference). ++
Keurig Dr Pepper Inc. Omnibus Stock Incentive Plan of 2019 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (filed on June 11, 2019) and incorporated herein by reference).++
Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Stock Incentive Plan of 2019 (filed as Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q (filed on August 8, 2019) and incorporated herein by reference).++
Matching Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Stock Incentive Plan of 2019 (filed as Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q (filed on August 8, 2019) and incorporated herein by reference).++
Keurig Dr Pepper Inc. Severance Pay Plan for Executives, effective as of January 1, 2020 (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K (filed on February 27, 2020) and incorporated herein by reference).++
Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Stock Incentive Plan of 2019 (retention incentive awards for three of the Company’s Named Executive Officers) (filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q (filed on October 29, 2020) and incorporated herein by reference).
Restricted Stock Unit Award Terms and Conditions under the Keurig Dr Pepper Omnibus Stock Incentive Plan of 2019, amended and restated as of December 7, 2020 (retention incentive award for one of the Company’s Named Executive Officers) (filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K (filed on February 25, 2021) and incorporated herein by reference).++
Credit Agreement, dated as of April 14, 2020,March 24, 2021, among Keurig Dr Pepper Inc., the bankslenders party thereto, and JPMorgan Chase Bank of America, N.A., as administrative agent (filed as Exhibit 10.1 to the Company'sCompany’s Current Report on Form 8-K (filed on April 15, 2020)March 26, 2021) and incorporated herein by reference).
List of Guarantor Subsidiaries
Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(a) or 15d-14(a) promulgated under the Exchange Act.
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Certification of Chief Executive Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Certification of Chief Financial Officer of Keurig Dr Pepper Inc. pursuant to Rule 13a-14(b) or 15d-14(b) promulgated under the Exchange Act, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101*The following financial information from Keurig Dr Pepper Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,March 31, 2021, formatted in XBRL (eXtensible Business Reporting Language):Inline XBRL: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statement of Changes in Stockholders' Equity, and (vi) the Notes to Condensed Consolidated Financial Statements. The Instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104*The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.
* Filed herewith.
** Furnished herewith.
++ Indicates a management contract or compensatory plan or arrangement.



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

Keurig Dr Pepper Inc.
By:/s/ Ozan Dokmecioglu
Name:Ozan Dokmecioglu
Title:Chief Financial Officer of Keurig Dr Pepper Inc.
(Principal Financial Officer)
Date: July 30, 2020April 29, 2021


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