UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED September 30, ~~2021~~2022

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

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-33829

Keurig Dr Pepper Inc.

(Exact name of registrant as specified in its charter)


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

53 South Avenue

Burlington, Massachusetts

01803

(Address of principal executive offices)

(781) 418-7000

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

KDP

The Nasdaq Stock Market LLC

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

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

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

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

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

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

As of October ~~26, 2021,~~25, 2022, there were ~~1,417,961,594~~1,416,251,307 shares of the registrant's common stock, par value $0.01 per share, outstanding.

KEURIG DR PEPPER INC.

FORM 10-Q

TABLE OF CONTENTS


					Page					Page
Part I.	Part I.	Financial Information				Part I.	Financial Information
							Item 1.	Financial Statements (Unaudited)
		Item 1.	Financial Statements (Unaudited)					Condensed Consolidated Statements of Income		1
			Condensed Consolidated Statements of Income		1			Condensed Consolidated Statements of Comprehensive Income		2
			Condensed Consolidated Statements of Comprehensive Income		2			Condensed Consolidated Balance Sheets		3
			Condensed Consolidated Balance Sheets		3			Condensed Consolidated Statements of Cash Flows		4
			Condensed Consolidated Statements of Cash Flows		4			Condensed Consolidated Statements of Changes in Stockholders' Equity		6
			Condensed Consolidated Statements of Changes in Stockholders' Equity		6			Notes to Condensed Consolidated Financial Statements		8
			Notes to Condensed Consolidated Financial Statements		8			1	General	8
			1	General	8			2	Long-Term Obligations and Borrowing Arrangements	9
			2	Long-Term Obligations and Borrowing Arrangements	9			3	Goodwill and Other Intangible Assets	12
			3	Goodwill and Other Intangible Assets	12			4	Derivatives	13
			4	Restructuring and Integration Costs	13			5	Leases	17
			5	Derivatives	14			6	Segments	19
			6	Leases	17			7	Earnings Per Share	20
			7	Segments	19			8	Stock-Based Compensation	20
			8	Earnings Per Share	20			9	Restructuring and Integration Costs	21
			9	Stock-Based Compensation	20			10	Revenue Recognition	22
			10	Revenue Recognition	21			11	Income Taxes	23
			11	Income Taxes	22			12	Investments	24
			12	Investments in Unconsolidated Affiliates	22			13	Accumulated Other Comprehensive Income (Loss)	25
			13	Other Financial Information	22			14	Other Financial Information	26
			14	Accumulated Other Comprehensive Income (Loss)	25			15	Commitments and Contingencies	27
			15	Commitments and Contingencies	26			16	Transactions with Variable Interest Entities	29
			16	Related Parties	27
			17	Subsequent Event	27
		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		28		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		30
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk		55		Item 3.	Quantitative and Qualitative Disclosures About Market Risk		57
		Item 4.	Controls and Procedures		56		Item 4.	Controls and Procedures		58

Part II.	Part II.	Other Information				Part II.	Other Information
		Item 1.	Legal Proceedings		56		Item 1.	Legal Proceedings		58
		Item 1A.	Risk Factors		56		Item 1A.	Risk Factors		58
		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		56		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58
		Item 6.	Exhibits		57		Item 6.	Exhibits		59

s-i

KEURIG DR PEPPER INC.

MASTER GLOSSARY


Term						Definition


2019 KDP Term Loan						$2 billion aggregate principal amount, with the ability to make voluntary and mandatory prepayments, which was originally due on February 8, 2023
~~2020 364-Day Credit Agreement~~						~~The Company's $1,500 million credit agreement, which~~ and was ~~entered into on April 12, 2020 and terminated on March 26,~~fully repaid in 2021
2021 364-Day Credit Agreement						The Company's $1,500 million credit agreement, which was entered into on March 26, 2021 and ~~contains a term-out option~~was terminated on February 23, 2022
2022 Revolving Credit Agreement						KDP’s $4 billion revolving credit agreement, which was executed in February 2022 and replaced the 2021 364-Day Credit Agreement and the KDP Revolver
2022 Strategic Refinancing						A series of transactions in April 2022, whereby KDP issued the 2029 Notes, the 2032 Notes, and the 2052 Notes, and voluntarily prepaid and retired the remaining 2023 Merger Notes and tendered portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes and the 2048 Merger Notes
A Shoc						A Shoc Beverage LLC, an equity method investment of KDP, or Adrenaline Shoc energy drinks
ABC						The American Bottling Company, a wholly-owned subsidiary of KDP
ABI						Anheuser-Busch InBev SA/NV, the majority owner of Bedford with a 70% interest
Annual Report						Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021
AOCI						Accumulated other comprehensive income or loss
~~ASU~~						~~Accounting Standards Update~~
Bedford						Bedford Systems, LLC, an equity method investment of KDP and the maker of Drinkworks
Board						The Board of Directors of KDP
BodyArmor						BA Sports Nutrition, LLC, ana former equity method investment of KDP
bps						basis points
CARES Act						U.S. Coronavirus Aid, Relief and Economic Security Act
CSD						Carbonated soft drink
DIO						Days inventory outstanding
DPO						Days of payables outstanding
DPS						Dr Pepper Snapple Group, Inc.
DPS Merger						The combination of the business operations of Keurig and DPS that was consummated on July 9, 2018 through a reverse merger transaction, whereby a wholly-owned special purpose merger subsidiary of DPS merged with and into the direct parent of Keurig
DSD						Direct Store Delivery, the operating segment whereby finished beverages are delivered directly to retailers
DSO						Days sales outstanding
EPS						Earnings per share
Exchange Act						Securities Exchange Act of 1934, as amended
FFS						Fountain Foodservice, an operating segment of KDP which serves the fountain channel, such as restaurants
FASB						Financial Accounting Standards Board
FX						Foreign exchange
~~GILTI~~						~~Global intangible low-taxed income~~
~~Goldman~~						~~Goldman Sachs & Co. LLC~~
IRi						Information Resources, Inc.
~~JAB~~						~~JAB Holding Company S.a.r.l. and affiliates~~
KDP						Keurig Dr Pepper Inc.
~~KDP Credit Agreements~~						~~Collectively, the KDP Revolver, the 2020 364-Day Credit Agreement, the 2021 364-Day Credit Agreement, and the 2019 KDP Term Loan~~
KDP Revolver						The Company's $2,400 million revolving credit facility, which was entered into on February 28, 2018 and terminated on February 23, 2022.
Keurig						Keurig Green Mountain, Inc., a wholly-owned subsidiary of KDP, and the brand of our brewers
LIBOR						London Interbank Offered Rate
~~LifeFuels~~						~~LifeFuels, Inc., an equity method investment~~
NCB						Non-carbonated beverage
Notes						Collectively, the Company's senior unsecured notes
~~Peet's~~						~~Peet's Coffee & Tea, Inc.~~
PET						Polyethylene terephthalate, which is used to make the Company's plastic bottles
Proposition 65						The State of California's Safe Drinking Water and Toxic Enforcement Act of 1986
RSU						Restricted share unit

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

s-ii

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.Financial Statements (Unaudited)

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions, except per share data)	(in millions, except per share data)	2021		2020		2021		2020		(in millions, except per share data)	2022		2021		2022		2021
Net sales	Net sales	$	3,250	$	3,020	$	9,292	$	8,497	Net sales	$	3,622	$	3,250	$	10,254	$	9,292
Cost of sales	Cost of sales	1,415		1,316		4,087		3,779		Cost of sales	1,721		1,415		4,927		4,087
Gross profit	Gross profit	1,835		1,704		5,205		4,718		Gross profit	1,901		1,835		5,327		5,205
Selling, general and administrative expenses	Selling, general and administrative expenses	1,040		949		3,040		2,978		Selling, general and administrative expenses	1,196		1,040		3,418		3,040
Other operating expense (income), net		—		2		(4)		(40)
Impairment of intangible assets										Impairment of intangible assets	311		—		311		—
Gain on litigation settlement										Gain on litigation settlement	—		—		(299)		—
Other operating income, net										Other operating income, net	—		—		(35)		(4)
Income from operations	Income from operations	795		753		2,169		1,780		Income from operations	394		795		1,932		2,169
Interest expense	Interest expense	116		148		381		458		Interest expense	207		116		570		381
Loss on early extinguishment of debt	Loss on early extinguishment of debt	—		—		105		4		Loss on early extinguishment of debt	—		—		217		105
Gain on sale of equity method investment										Gain on sale of equity method investment	—		—		(50)		—
Impairment of investments and note receivable	Impairment of investments and note receivable	—		16		—		102		Impairment of investments and note receivable	—		—		12		—
Other expense (income), net	Other expense (income), net	1		5		(6)		21		Other expense (income), net	4		1		22		(6)
Income before provision for income taxes	Income before provision for income taxes	678		584		1,689		1,195		Income before provision for income taxes	183		678		1,161		1,689
Provision for income taxes	Provision for income taxes	149		141		387		298		Provision for income taxes	4		149		179		387
Net income including non-controlling interest	Net income including non-controlling interest	529		443		1,302		897		Net income including non-controlling interest	179		529		982		1,302
Less: Net loss attributable to non-controlling interest	Less: Net loss attributable to non-controlling interest	(1)		—		(1)		—		Less: Net loss attributable to non-controlling interest	(1)		(1)		(1)		(1)
Net income attributable to KDP	Net income attributable to KDP	$	530	$	443	$	1,303	$	897	Net income attributable to KDP	$	180	$	530	$	983	$	1,303

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.37	$	0.31	$	0.92	$	0.64	Basic	$	0.13	$	0.37	$	0.69	$	0.92
Diluted	Diluted	0.37		0.31		0.91		0.63		Diluted	0.13		0.37		0.69		0.91
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	1,417.6		1,407.3		1,414.9		1,407.2		Basic	1,416.1		1,417.6		1,417.3		1,414.9
Diluted	Diluted	1,428.5		1,422.9		1,427.5		1,421.5		Diluted	1,427.2		1,428.5		1,428.8		1,427.5

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Net income including non-controlling interest	Net income including non-controlling interest	$	529	$	443	$	1,302	$	897	Net income including non-controlling interest	$	179	$	529	$	982	$	1,302
Other comprehensive income
Other comprehensive (loss) income										Other comprehensive (loss) income
Foreign currency translation adjustments	Foreign currency translation adjustments	(137)		111		(9)		(321)		Foreign currency translation adjustments	(249)		(137)		(283)		(9)
Net change in pension and post-retirement liability, net of tax of $—, $—, $— and $—, respectively	Net change in pension and post-retirement liability, net of tax of $—, $—, $— and $—, respectively	—		(1)		—		(2)		Net change in pension and post-retirement liability, net of tax of $—, $—, $— and $—, respectively	—		—		(3)		—
Net change in cash flow hedges, net of tax of $4, $—, $(22) and $—, respectively		15		1		(62)		2
Total other comprehensive income (loss)		(122)		111		(71)		(321)
Net change in cash flow hedges, net of tax of $12, $4, $98 and $(22), respectively										Net change in cash flow hedges, net of tax of $12, $4, $98 and $(22), respectively	35		15		303		(62)
Total other comprehensive (loss) income										Total other comprehensive (loss) income	(214)		(122)		17		(71)
Comprehensive income including non-controlling interest	Comprehensive income including non-controlling interest	407		554		1,231		576		Comprehensive income including non-controlling interest	(35)		407		999		1,231
Less: Comprehensive income attributable to non-controlling interest	Less: Comprehensive income attributable to non-controlling interest	—		—		—		—		Less: Comprehensive income attributable to non-controlling interest	—		—		—		—
Comprehensive income attributable to KDP		$	407	$	554	$	1,231	$	576
Comprehensive (loss) income attributable to KDP										Comprehensive (loss) income attributable to KDP	$	(35)	$	407	$	999	$	1,231

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


		September 30,		December 31,			September 30,		December 31,
(in millions, except share and per share data)	(in millions, except share and per share data)	2021		2020		(in millions, except share and per share data)	2022		2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	200	$	240	Cash and cash equivalents	$	925	$	567
Restricted cash and restricted cash equivalents		3		15
Restricted cash and cash equivalents						Restricted cash and cash equivalents	3		1
Trade accounts receivable, net	Trade accounts receivable, net	1,138		1,048		Trade accounts receivable, net	1,472		1,148
Inventories	Inventories	972		762		Inventories	1,438		894
Prepaid expenses and other current assets	Prepaid expenses and other current assets	490		323		Prepaid expenses and other current assets	487		447
Total current assets	Total current assets	2,803		2,388		Total current assets	4,325		3,057
Property, plant and equipment, net	Property, plant and equipment, net	2,425		2,212		Property, plant and equipment, net	2,483		2,494
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates	85		88		Investments in unconsolidated affiliates	76		30
Goodwill	Goodwill	20,193		20,184		Goodwill	20,024		20,182
Other intangible assets, net	Other intangible assets, net	23,883		23,968		Other intangible assets, net	23,299		23,856
Other non-current assets	Other non-current assets	901		894		Other non-current assets	1,196		937
Deferred tax assets	Deferred tax assets	40		45		Deferred tax assets	37		42
Total assets	Total assets	$	50,330	$	49,779	Total assets	$	51,440	$	50,598
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	4,072	$	3,740	Accounts payable	$	5,284	$	4,316
Accrued expenses	Accrued expenses	1,121		1,040		Accrued expenses	1,129		1,110
Structured payables	Structured payables	142		153		Structured payables	145		142
Short-term borrowings and current portion of long-term obligations	Short-term borrowings and current portion of long-term obligations	998		2,345		Short-term borrowings and current portion of long-term obligations	—		304
Other current liabilities	Other current liabilities	462		416		Other current liabilities	675		613
Total current liabilities	Total current liabilities	6,795		7,694		Total current liabilities	7,233		6,485
Long-term obligations	Long-term obligations	11,727		11,143		Long-term obligations	11,561		11,578
Deferred tax liabilities	Deferred tax liabilities	5,940		5,993		Deferred tax liabilities	5,745		5,986
Other non-current liabilities	Other non-current liabilities	1,463		1,119		Other non-current liabilities	1,800		1,577
Total liabilities	Total liabilities	25,925		25,949		Total liabilities	26,339		25,626
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued	Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued	—		—		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, 1,417,914,437 and 1,407,260,676 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		14		14
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,416,251,307 and 1,418,119,197 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,416,251,307 and 1,418,119,197 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	14		14
Additional paid-in capital	Additional paid-in capital	21,764		21,677		Additional paid-in capital	21,730		21,785
Retained earnings	Retained earnings	2,621		2,061		Retained earnings	3,367		3,199
Accumulated other comprehensive income		6		77
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(9)		(26)
Total stockholders' equity	Total stockholders' equity	24,405		23,829		Total stockholders' equity	25,102		24,972
Non-controlling interest	Non-controlling interest	—		1		Non-controlling interest	(1)		—
Total equity	Total equity	24,405		23,830		Total equity	25,101		24,972
Total liabilities and equity	Total liabilities and equity	$	50,330	$	49,779	Total liabilities and equity	$	51,440	$	50,598

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		First Nine Months					First Nine Months
(in millions)	(in millions)	2021		2020		(in millions)	2022		2021
Operating activities:	Operating activities:					Operating activities:
Net income attributable to KDP	Net income attributable to KDP	$	1,303	$	897	Net income attributable to KDP	$	983	$	1,303
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	Depreciation expense	304		272		Depreciation expense	301		304
Amortization of intangibles	Amortization of intangibles	101		100		Amortization of intangibles	100		101
Other amortization expense	Other amortization expense	118		118		Other amortization expense	129		118
Provision for sales returns	Provision for sales returns	48		36		Provision for sales returns	38		48
Deferred income taxes	Deferred income taxes	(21)		(27)		Deferred income taxes	(281)		(21)
Employee stock-based compensation expense	Employee stock-based compensation expense	68		62		Employee stock-based compensation expense	43		68
Loss on early extinguishment of debt	Loss on early extinguishment of debt	105		4		Loss on early extinguishment of debt	217		105

Gain on sale of equity method investment						Gain on sale of equity method investment	(50)		—
Gain on disposal of property, plant and equipment	Gain on disposal of property, plant and equipment	(5)		(39)		Gain on disposal of property, plant and equipment	(38)		(5)
Unrealized loss on foreign currency	Unrealized loss on foreign currency	1		14		Unrealized loss on foreign currency	22		1
Unrealized (gain) loss on derivatives		(94)		47
Unrealized loss (gain) on derivatives						Unrealized loss (gain) on derivatives	387		(94)
Settlements of interest rate contracts						Settlements of interest rate contracts	125		—
Equity in loss of unconsolidated affiliates	Equity in loss of unconsolidated affiliates	2		19		Equity in loss of unconsolidated affiliates	6		2
Impairment of intangible assets						Impairment of intangible assets	311		—
Impairment on investments and note receivable of unconsolidated affiliate	Impairment on investments and note receivable of unconsolidated affiliate	—		102		Impairment on investments and note receivable of unconsolidated affiliate	12		—
Other, net	Other, net	10		50		Other, net	22		10
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Trade accounts receivable	Trade accounts receivable	(126)		(1)		Trade accounts receivable	(372)		(126)
Inventories	Inventories	(210)		(175)		Inventories	(552)		(210)
Income taxes receivable and payables, net	Income taxes receivable and payables, net	(11)		(118)		Income taxes receivable and payables, net	(106)		(11)
Other current and non-current assets	Other current and non-current assets	(181)		(387)		Other current and non-current assets	(380)		(181)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	536		500		Accounts payable and accrued expenses	1,014		536
Other current and non-current liabilities	Other current and non-current liabilities	(15)		192		Other current and non-current liabilities	167		(15)
Net change in operating assets and liabilities	Net change in operating assets and liabilities	(7)		11		Net change in operating assets and liabilities	(229)		(7)
Net cash provided by operating activities	Net cash provided by operating activities	1,933		1,666		Net cash provided by operating activities	2,098		1,933
Investing activities:	Investing activities:					Investing activities:

Proceeds from sale of investment in unconsolidated affiliates						Proceeds from sale of investment in unconsolidated affiliates	50		—
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(325)		(356)		Purchases of property, plant and equipment	(260)		(325)
Proceeds from sales of property, plant and equipment	Proceeds from sales of property, plant and equipment	18		203		Proceeds from sales of property, plant and equipment	79		18
Purchases of intangibles	Purchases of intangibles	(31)		(26)		Purchases of intangibles	(19)		(31)
Issuance of related party note receivable	Issuance of related party note receivable	(17)		(6)		Issuance of related party note receivable	(18)		(17)
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates	—		(4)		Investments in unconsolidated affiliates	(48)		—

Other, net	Other, net	5		7		Other, net	3		5
Net cash used in investing activities	Net cash used in investing activities	$	(350)	$	(182)	Net cash used in investing activities	$	(213)	$	(350)

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, CONTINUED)


		First Nine Months					First Nine Months
(in millions)	(in millions)	2021		2020		(in millions)	2022		2021
Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of Notes	Proceeds from issuance of Notes	$	2,150	$	1,500	Proceeds from issuance of Notes	$	3,000	$	2,150
Repayments of Notes	Repayments of Notes	(3,595)		(250)		Repayments of Notes	(3,365)		(3,595)
Proceeds from issuance of commercial paper	Proceeds from issuance of commercial paper	4,756		6,843		Proceeds from issuance of commercial paper	500		4,756
Repayments of commercial paper	Repayments of commercial paper	(3,758)		(7,754)		Repayments of commercial paper	(649)		(3,758)
Proceeds from KDP Revolver		—		1,850
Repayments of KDP Revolver		—		(1,850)
Proceeds from sale of stock by JAB		—		29

Repayments of 2019 KDP Term Loan	Repayments of 2019 KDP Term Loan	(425)		(880)		Repayments of 2019 KDP Term Loan	—		(425)
Proceeds from structured payables	Proceeds from structured payables	112		128		Proceeds from structured payables	114		112
Repayments of structured payables	Repayments of structured payables	(123)		(290)		Repayments of structured payables	(111)		(123)
Cash dividends paid	Cash dividends paid	(687)		(635)		Cash dividends paid	(796)		(687)
Repurchases of common stock						Repurchases of common stock	(88)		—
Proceeds from issuance of common stock	Proceeds from issuance of common stock	140		—		Proceeds from issuance of common stock	—		140
Tax withholdings related to net share settlements	Tax withholdings related to net share settlements	(125)		—		Tax withholdings related to net share settlements	(10)		(125)
Payments on finance leases	Payments on finance leases	(40)		(35)		Payments on finance leases	(65)		(40)
Other, net	Other, net	(35)		(22)		Other, net	(45)		(35)
Net cash used in financing activities	Net cash used in financing activities	(1,630)		(1,366)		Net cash used in financing activities	(1,515)		(1,630)
Cash, cash equivalents, restricted cash, and restricted cash equivalents:
Cash, cash equivalents, and restricted cash and cash equivalents:						Cash, cash equivalents, and restricted cash and cash equivalents:
Net change from operating, investing and financing activities	Net change from operating, investing and financing activities	(47)		118		Net change from operating, investing and financing activities	370		(47)
Effect of exchange rate changes	Effect of exchange rate changes	(5)		(11)		Effect of exchange rate changes	(10)		(5)
Beginning balance	Beginning balance	255		111		Beginning balance	568		255
Ending balance	Ending balance	$	203	$	218	Ending balance	$	928	$	203

Supplemental cash flow disclosures of non-cash investing activities:	Supplemental cash flow disclosures of non-cash investing activities:					Supplemental cash flow disclosures of non-cash investing activities:
Capital expenditures included in accounts payable and accrued expenses	Capital expenditures included in accounts payable and accrued expenses	$	180	$	255	Capital expenditures included in accounts payable and accrued expenses	$	179	$	180
Non-cash acquisition of controlling interest		—		3

Non-cash conversion of note receivable to investment in unconsolidated affiliate						Non-cash conversion of note receivable to investment in unconsolidated affiliate	6		—
Purchases of intangibles						Purchases of intangibles	22		—
Supplemental cash flow disclosures of non-cash financing activities:	Supplemental cash flow disclosures of non-cash financing activities:					Supplemental cash flow disclosures of non-cash financing activities:
Dividends declared but not yet paid	Dividends declared but not yet paid	268		211		Dividends declared but not yet paid	284		268
Finance lease additions		309		30
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Cash paid for interest	Cash paid for interest	284		250		Cash paid for interest	236		284
Cash paid for income taxes	Cash paid for income taxes	408		448		Cash paid for income taxes	566		408

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)


		Common Stock Issued			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)					Total Stockholders' Equity			Non-controlling Interest				Total Equity			Common Stock Issued				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity				Non-controlling Interest				Total Equity
(in millions, except per share data)	(in millions, except per share data)	Shares	Amount										(in millions, except per share data)		Shares						Amount
Balance as of January 1, 2021		1,407.3	$	14			$	21,677					$	2,061				$	77			$	23,829			$	1	$	23,830
Net income		—	—		—				325		—					325			—				325
Other comprehensive income		—	—		—				—		87					87			—				87
Dividends declared, $0.15 per share		—	—		—				(212)		—					(212)			—				(212)
Issuance of common stock		4.3	—		140				—		—					140			—				140
Shares issued under employee stock-based compensation plans and other		5.7	—		—				—		—					—			—				—
Stock-based compensation and stock options exercised		—	—		(99)				—		—					(99)			—				(99)
Balance as of March 31, 2021		1,417.3	14		21,718				2,174		164					24,070			1				24,071
Balance as of January 1, 2022																									Balance as of January 1, 2022	1,418.1		$	14			$	21,785			$	3,199			$	(26)			$	24,972			$	—			$	24,972
Net income	Net income	—	—		—				448		—					448			—				448		Net income	—		—		—				585				—				585				—				585
Other comprehensive income	Other comprehensive income	—	—		—				—		(36)					(36)			—				(36)		Other comprehensive income	—		—		—				—				241				241				—				241
Dividends declared, $0.1875 per share	Dividends declared, $0.1875 per share	—	—		—				(265)		—					(265)			—				(265)		Dividends declared, $0.1875 per share	—		—		—				(266)				—				(266)				—				(266)

Shares issued under employee stock-based compensation plans and other	Shares issued under employee stock-based compensation plans and other	0.1	—		—				—		—					—			—				—		Shares issued under employee stock-based compensation plans and other	0.4		—		—				—				—				—				—				—
Tax withholdings related to net share settlements																									Tax withholdings related to net share settlements	—		—		(5)				—				—				(5)				—				(5)
Stock-based compensation and stock options exercised	Stock-based compensation and stock options exercised	—	—		25				—		—					25			—				25		Stock-based compensation and stock options exercised	—		—		(16)				—				—				(16)				—				(16)
Balance as of June 30, 2021		1,417.4	14		21,743				2,357		128					24,242			1				24,243
Balance as of March 31, 2022																									Balance as of March 31, 2022	1,418.5		14		21,764				3,518				215				25,511				—				25,511
Net income	Net income	—	—		—				530		—					530			(1)				529		Net income	—		—		—				218				—				218				—				218
Other comprehensive income		—	—		—				—		(122)					(122)			—				(122)
Other comprehensive loss																									Other comprehensive loss	—		—		—				—				(10)				(10)				—				(10)
Dividends declared, $0.1875 per share	Dividends declared, $0.1875 per share	—	—		—				(266)		—					(266)			—				(266)		Dividends declared, $0.1875 per share	—		—		—				(265)				—				(265)				—				(265)

Repurchases of common stock																									Repurchases of common stock	(2.5)		—		(88)				—				—				(88)				—				(88)
Shares issued under employee stock-based compensation plans and other	Shares issued under employee stock-based compensation plans and other	0.5	—		—				—		—					—			—				—		Shares issued under employee stock-based compensation plans and other	0.1		—		—				—				—				—				—				—
Tax withholdings related to net share settlements																									Tax withholdings related to net share settlements	—		—		(3)				—				—				(3)				—				(3)
Stock-based compensation and stock options exercised	Stock-based compensation and stock options exercised	—	—		21				—		—					21			—				21		Stock-based compensation and stock options exercised	—		—		28				—				—				28				—				28
Balance as of September 30, 2021		1,417.9	$	14	$	21,764			$	2,621	$	6				$	24,405		$	—			$	24,405
Balance as of June 30, 2022																									Balance as of June 30, 2022	1,416.1		14		21,701				3,471				205				25,391				—				25,391
Net income																									Net income	—		—		—				180				—				180				(1)				179
Other comprehensive loss																									Other comprehensive loss	—		—		—				—				(214)				(214)				—				(214)
Dividends declared, $0.20 per share																									Dividends declared, $0.20 per share	—		—		—				(284)				—				(284)				—				(284)
Shares issued under employee stock-based compensation plans and other																									Shares issued under employee stock-based compensation plans and other	0.2		—		—				—				—				—				—				—
Tax withholdings related to net share settlements																									Tax withholdings related to net share settlements	—		—		(2)				—				—				(2)				—				(2)
Stock-based compensation and stock options exercised																									Stock-based compensation and stock options exercised	—		—		31				—				—				31				—				31
Balance as of September 30, 2022																									Balance as of September 30, 2022	1,416.3		$	14	$	21,730			$	3,367			$	(9)			$	25,102			$	(1)			$	25,101

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED, CONTINUED)

Common Stock Issued Additional
Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Non-controlling Interest Total Equity
(in millions, except per share data) Shares Amount
Balance as of January 1, 2020 1,406.8 $ 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 other 0.3 — — — — — — —
Stock-based compensation and stock options exercised — — 22 — — 22 — 22
Balance as of March 31, 2020 1,407.1 14 21,579 1,527 (480) 22,640 — 22,640
Net income — — — 298 — 298 — 298
Other comprehensive income — — — — 152 152 — 152
Dividends declared, $0.15 per share — — — (212) — (212) — (212)
Proceeds from sale of stock by JAB — — 22 — — 22 — 22
Shares issued under employee stock-based compensation plans and other 0.1 — — — — — — —
Stock-based compensation and stock options exercised — — 23 — — 23 — 23
Balance as of June 30, 2020 1,407.2 14 21,624 1,613 (328) 22,923 — 22,923
Net income — — — 443 — 443 — 443
Other comprehensive loss — — — — 111 111 — 111
Dividends declared, $0.15 per share — — — (211) — (211) — (211)
Proceeds from sale of stock by JAB — — 7 — — 7 — 7
Non-cash acquisition of controlling interest — — 3 — — 3 1 4
Shares issued under employee stock-based compensation plans and other 0.1 — — — — — — —
Stock-based compensation and stock options exercised — — 20 — — 20 — 20
Balance as of September 30, 2020 1,407.3 $ 14 $ 21,654 $ 1,845 $ (217) $ 23,296 $ 1 $ 23,297


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

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

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

Shares issued under employee stock-based compensation plans and other	0.1	—		—		—		—		—		—		—
Stock-based compensation and stock options exercised	—	—		25		—		—		25		—		25
Balance as of June 30, 2021	1,417.4	14		21,743		2,357		128		24,242		1		24,243
Net income	—	—		—		530		—		530		(1)		529
Other comprehensive loss	—	—		—		—		(122)		(122)		—		(122)
Dividends declared, $0.1875 per share	—	—		—		(266)		—		(266)		—		(266)


Shares issued under employee stock-based compensation plans and other	0.5	—		—		—		—		—		—		—
Stock-based compensation and stock options exercised	—	—		21		—		—		21		—		21
Balance as of September 30, 2021	1,417.9	$	14	$	21,764	$	2,621	$	6	$	24,405	$	—	$	24,405

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

Table of Contents

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. General

ORGANIZATION

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

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

BASIS OF PRESENTATION

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

~~Except as otherwise specified, references~~References to the "third quarter" indicate the Company's quarterly periods ended September 30, ~~2021~~2022 and ~~2020.~~2021.

~~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 interest is presented asKDP's significant subsidiary, Maple Parent Holdings Corp., has a separate component within equity in the unaudited Condensed Consolidated Balance Sheets, and net income attributable to the non-controlling interest is 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 KDP with the ability to exercise significant influence over operating and financial policies~~fiscal year end of the ~~investee. Consolidated net income~~last Saturday in December, and its interim fiscal quarters end every thirteenth Saturday. The fiscal year for Maple Parent Holdings Corp. includes ~~KDP's proportionate share of~~53 weeks in 2022 and 52 weeks in 2021. KDP does not adjust for the ~~net income or loss of these companies. Judgment regarding~~difference in fiscal year between KDP and Maple Parent Holdings Corp. when applicable, as the ~~level of influence over each equity method investment includes considering key factors such as ownership interest, representation on~~difference is within 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~~range permitted by the ~~unaudited condensed consolidated financial statements.~~Exchange Act.

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.~~amounts. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and judgments are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.

SIGNIFICANT ACCOUNTING POLICY CHANGES

~~RECLASSIFICATIONS~~Stock-Based Compensation Expense

~~KDP reclassified amounts~~Prior to January 1, 2022, the Company recorded forfeitures as incurred. Effective January 1, 2022, the Company changed its accounting policy election to record expense only for awards expected to vest. Estimated forfeiture rates are based on historical data and are periodically reassessed. The cumulative effect of this change in ~~the Financing Activities section~~accounting policy was recorded effective January 1, 2022. The impact of the unaudited condensed consolidated Statement of Cash Flows for the first nine months of 2020 in order to conform to current year presentation. Refer to Note 2 for additional information about changesforfeitures on stock-based compensation has historically been insignificant to the ~~maturities~~Company.

Repurchases of ~~KDP’s commercial paper.~~Common Stock

~~(in millions)~~

~~Prior Presentation~~

~~First Nine Months of 2020~~

~~Proceeds from commercial paper~~

~~Net (repayment) issuance of commercial paper~~

~~6,843~~

~~Repayments of commercial paper~~

~~Net (repayment) issuance of commercial paper~~

~~(7,754)~~

In 2021, our Board authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock. Shares repurchased under the program are retired, and the excess purchase price over the par value is recorded to additional paid-in capital.

Table of Contents

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~RECENTLY ADOPTED PROVISIONS OF U.S. GAAP~~UNALLOCATED CORPORATE COST ALIGNMENT

~~As of~~Effective January 1, ~~2021,~~2022, the Company ~~adopted~~updated its presentation of certain of KDP's unallocated corporate costs, primarily related to IT, to be aligned among the Company's segments and to more consistently reflect controllable costs at the segment level. Refer to Note 6 for current year presentation. The following table summarizes the revised and prior presentations of income from operations at the segment level:


(in millions)	Third Quarter 2021				First Nine Months 2021
Segment Results – Income from operations	Current Presentation		Prior Presentation		Current Presentation		Prior Presentation
Coffee Systems	$	365	$	334	$	1,088	$	992
Packaged Beverages	291		288		731		721
Beverage Concentrates	287		286		780		778
Latin America Beverages	37		37		95		95
Unallocated corporate costs	(185)		(150)		(525)		(417)
Income from operations	$	795	$	795	$	2,169	$	2,169

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2022, the FASB issued ASU ~~2020-01,~~2022-04, ~~Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)~~Liabilities — Supplier Finance Programs (Subtopic 405-50): ~~Clarifying the Interactions between Topic 321, Topic 323, and Topic 815~~Disclosure of Supplier Finance Program Obligations. The objective of ~~the new standard~~ASU 2022-04 is to ~~clarify~~require entities to disclose information about the ~~interaction~~use of supplier finance programs in connection with the ~~accounting~~purchase of goods and services. ASU 2022-04 is effective for ~~equity securities, investments accounted~~all entities for ~~under~~annual periods beginning after December 15, 2022. The Company is currently evaluating ASU 2022-04 but expects the ~~equity method of accounting and the accounting for certain forward contracts and purchased options accounted for under different topics in U.S. GAAP. The adoption of the standard did not~~ impact ~~KDP's~~to be immaterial to KDP’s current consolidated financial ~~statements.~~statement disclosures.

2. Long-term Obligations and Borrowing Arrangements

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


(in millions)	(in millions)	September 30, 2021		December 31, 2020		(in millions)	September 30, 2022		December 31, 2021
Notes	Notes	$	11,727	$	13,065	Notes	$	11,561	$	11,733

Term loan		—		423
Subtotal		11,727		13,488
Less - current portion		—		(2,345)
Less: current portion of long-term obligations						Less: current portion of long-term obligations	—		(155)
Long-term obligations	Long-term obligations	$	11,727	$	11,143	Long-term obligations	$	11,561	$	11,578

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

(in millions) September 30, 2021 December 31, 2020
Commercial paper notes $ 998 $ —
Revolving credit facilities — —
Current portion of long-term obligations:
Notes — 2,246
Term loan — 99
Short-term borrowings and current portion of long-term obligations $ 998 $ 2,345


(in millions)	September 30, 2022		December 31, 2021
Commercial paper notes	$	—	$	149
Current portion of long-term obligations	—		155
Short-term borrowings and current portion of long-term obligations	$	—	$	304

Table of Contents

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 %)	(in millions, except %)							(in millions, except %)
Issuance	Issuance	Maturity Date	Rate	September 30, 2021		December 31, 2020		Issuance	Maturity Date	Rate	September 30, 2022		December 31, 2021
2021 Merger Notes		May 25, 2021	3.551%	$	—	$	1,750
2021-A Notes		November 15, 2021	3.200%	—		250
2021-B Notes		November 15, 2021	2.530%	—		250
2022 Notes		November 15, 2022	2.700%	—		250
2023 Merger Notes	2023 Merger Notes	May 25, 2023	4.057%	1,000		2,000		2023 Merger Notes	May 25, 2023	4.057%	$	—	$	1,000
2023 Notes	2023 Notes	December 15, 2023	3.130%	500		500		2023 Notes	December 15, 2023	3.130%	500		500
2024 Notes(1)		March 15, 2024	0.750%	1,150		—
2024 Notes								2024 Notes	March 15, 2024	0.750%	1,150		1,150
2025 Merger Notes	2025 Merger Notes	May 25, 2025	4.417%	1,000		1,000		2025 Merger Notes	May 25, 2025	4.417%	529		1,000
2025 Notes	2025 Notes	November 15, 2025	3.400%	500		500		2025 Notes	November 15, 2025	3.400%	500		500
2026 Notes	2026 Notes	September 15, 2026	2.550%	400		400		2026 Notes	September 15, 2026	2.550%	400		400
2027 Notes	2027 Notes	June 15, 2027	3.430%	500		500		2027 Notes	June 15, 2027	3.430%	500		500
2028 Merger Notes	2028 Merger Notes	May 25, 2028	4.597%	2,000		2,000		2028 Merger Notes	May 25, 2028	4.597%	1,112		2,000
2029 Notes								2029 Notes	April 15, 2029	3.950%	1,000		—
2030 Notes	2030 Notes	May 1, 2030	3.200%	750		750		2030 Notes	May 1, 2030	3.200%	750		750
2031 Notes	2031 Notes	March 15, 2031	2.250%	500		—		2031 Notes	March 15, 2031	2.250%	500		500
2032 Notes								2032 Notes	April 15, 2032	4.050%	850		—
2038 Notes	2038 Notes	May 1, 2038	7.450%	125		125		2038 Notes	May 1, 2038	7.450%	—		125
2038 Merger Notes	2038 Merger Notes	May 25, 2038	4.985%	500		500		2038 Merger Notes	May 25, 2038	4.985%	211		500
2045 Notes	2045 Notes	November 15, 2045	4.500%	550		550		2045 Notes	November 15, 2045	4.500%	550		550
2046 Notes	2046 Notes	December 15, 2046	4.420%	400		400		2046 Notes	December 15, 2046	4.420%	400		400
2048 Merger Notes	2048 Merger Notes	May 25, 2048	5.085%	750		750		2048 Merger Notes	May 25, 2048	5.085%	391		750
2050 Notes	2050 Notes	May 1, 2050	3.800%	750		750		2050 Notes	May 1, 2050	3.800%	750		750
2051 Notes	2051 Notes	March 15, 2051	3.350%	500		—		2051 Notes	March 15, 2051	3.350%	500		500
2052 Notes								2052 Notes	April 15, 2052	4.500%	1,150		—
Principal amount	Principal amount			$	11,875	$	13,225	Principal amount			11,743		11,875
Adjustment from principal amount to carrying amount(2)				(148)		(160)
Adjustment from principal amount to carrying amount(1)								Adjustment from principal amount to carrying amount(1)			(182)		(142)
Carrying amount	Carrying amount			$	11,727	$	13,065	Carrying amount			$	11,561	$	11,733

(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 ~~March 15, 2021,~~January 24, 2022, KDP redeemed and retired the remainder of its 2038 Notes. The loss on early extinguishment of the 2038 Notes was approximately $45 million, comprised of the make-whole premium and the write-off of the associated unamortized fair value adjustment related to the DPS Merger.

On April 22, 2022, the Company undertook the 2022 Strategic Refinancing and completed the issuance of the ~~2024~~2029 Notes, the ~~2031~~2032 Notes, and the ~~2051~~2052 Notes. The discount associated with these notes was approximately $3$16 million, and the Company incurred ~~$13~~$23 million in debt issuance costs. The ~~net~~ proceeds from the issuance were used to ~~repay~~voluntarily prepay and retire the ~~Company’s 2021-A Notes, 2021-B Notes, 2022 Notes, and approximately $1 billion of the~~remaining 2023 Merger Notes ~~as well as~~and to ~~repay and terminate the 2019 KDP Term Loan as described below. As a result~~tender portions of the ~~repayments of senior unsecured notes,~~2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 2048 Merger Notes. The Company recorded ~~losses~~approximately $169 million of loss on early extinguishment of debt, ~~of $104 million during the first quarter of 2021,~~ comprised of athe tender and make-whole ~~premium, fair market value adjustments~~premiums, the write-off of debt issuance costs, and ~~deferred financing fees written off.~~

~~On May 25, 2021,~~ the ~~Company repaid the 2021 Merger Notes at maturity using commercial paper.~~impact of terminating reverse treasury lock contracts.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

VARIABLE-RATE BORROWING ARRANGEMENTS

Revolving Credit Agreement

On February 23, 2022, KDP terminated the 2021 364-Day Credit Agreement and the KDP Revolver. The ~~KDP Credit Agreements consist~~loss on early extinguishment of these instruments was approximately $3 million, comprised of termination fees and the write-off of the ~~following:~~associated deferred financing fees. There were no amounts drawn upon the 2021 364-Day Credit Agreement or the KDP Revolver prior to termination.

Also on February 23, 2022, KDP entered into the 2022 Revolving Credit Agreement among KDP, as borrower, the lenders from time to time party thereto and JPMorgan Chase, Bank, N.A., as administrative agent. The Company incurred approximately $4 million in deferred financing fees related to the issuance.

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


(in millions)			September 30, ~~2021~~2022						December 31, ~~2020~~2021
Issuance	Maturity Date		~~Available Balances~~Capacity			Carrying Value			Carrying Value
~~2019 KDP Term Loan~~2022 Revolving Credit Agreement(1)	February ~~8, 2023~~23, 2027		$	—4,000		$	—		$	~~425~~
~~KDP Revolver(1)~~	~~February 28, 2023~~		~~2,400~~			—			—
~~2020 364-Day Credit Agreement~~	~~April 13, 2021~~		—			—			0
~~2021 364-Day Credit Agreement~~	~~March 23, 2022~~		~~1,500~~			—			—
~~Principal amount~~						$		—			$	~~425~~
~~Unamortized discounts and debt issuance costs~~		—			~~(2)~~
~~Carrying amount~~						$		—			$	~~423~~

(1)The ~~KDP Revolver~~2022 Revolving Credit Agreement has $200 million letters of credit ~~availability and~~available, none of which were utilized as of September 30, ~~2021.~~2022.

~~As of September 30, 2021,~~ ~~KDP~~ ~~was in compliance with all financial covenant requirements relating to the~~ ~~KDP Credit Agreements~~.

~~2019 KDP Term Loan~~

In March 2021, KDP voluntarily prepaid and terminated the 2019 KDP Term Loan using proceeds from the aforementioned issuance of senior unsecured notes, which resulted in $1 million of loss on early extinguishment of debt for the first nine months of 2021.

~~364-Day Credit Agreements~~

~~In March 2021, KDP terminated its 2020 364-Day~~The 2022 Revolving Credit Agreement ~~which was originally available through April 2021. No amounts were drawn under~~replaced the ~~2020 364-Day Credit Agreement prior to termination.~~

KDP ~~then entered into~~Revolver and the 2021 364-Day Credit Agreement ~~on March 24, 2021 among KDP,~~and the ~~banks party thereto~~proceeds of the credit facility are intended to be used for working capital and ~~Bank~~for other general corporate purposes of ~~America, N.A. as administrative agent, pursuant to which KDP obtained a $1,500 million commitment. The interest rate applicable to borrowings~~KDP.

Borrowings under the ~~2021 364-Day~~2022 Revolving Credit Agreement ~~ranges from~~will bear interest at a rate per annum equal to, ~~LIBOR~~at KDP's option, an adjusted SOFR rate plus a margin of ~~1.000%~~0.875% to ~~1.625%~~1.500% or a base rate plus a margin of 0.000% to ~~0.625%~~0.500%, in each case, depending on the rating of certain index debt of ~~the Company.~~KDP. The ~~2021 364-Day~~2022 Revolving Credit Agreement ~~matures~~contains customary representations and warranties for investment grade financings. The 2022 Revolving Credit Agreement also contains (i) certain customary affirmative covenants, including those that impose certain reporting and/or performance obligations on ~~March 23,~~KDP and its subsidiaries, (ii) certain customary negative covenants that generally limit, subject to various exceptions, KDP and its subsidiaries from taking certain actions, including, without limitation, incurring liens, consummating certain fundamental changes and entering into transactions with affiliates, (iii) a financial covenant in the form of a minimum interest coverage ratio (as defined therein) of 3.25 to 1.00 and (iv) customary events of default (including a change of control) for financings of this type.

As of September 30, 2022, ~~and includes a term-out option which allows~~ KDP was in compliance with its minimum interest coverage ratio relating to ~~extend any outstanding amounts borrowed under~~ the ~~agreement for one year for a fee of 0.750% on the amounts borrowed.~~2022 Revolving Credit Agreement.

Commercial Paper Program

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

Third Quarter First Nine Months
(in millions, except %) 2021 2020 2021 2020
Weighted average commercial paper borrowings $ 1,398 $ 597 $ 781 $ 919
Weighted average borrowing rates 0.26 % 0.31 % 0.26 % 1.38 %

~~In April 2021, KDP began issuing commercial paper notes with maturities greater than 90 days. KDP continues to classify its commercial paper notes as short-term, as maturities do not exceed one year.~~


	Third Quarter						First Nine Months
(in millions, except %)	2022			2021			2022			2021
Weighted average commercial paper borrowings	$	—		$	1,398		$	29		$	781
Weighted average borrowing rates	—		%	0.26		%	0.58		%	0.26		%

Letter of Credit Facility

In addition to the portion of the ~~KDP Revolver~~2022 Revolving Credit Agreement reserved for issuance of letters of credit, KDP has an incremental letter of credit facility. Under this facility, ~~$100~~$150 million is available for the issuance of letters of credit, ~~$44~~$96 million of which was utilized as of September 30, ~~2021~~2022 and ~~$56~~$54 million of which remains available for use.

FAIR VALUE DISCLOSURES

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

The fair values of KDP's Notes are based on current market rates available to KDP and are considered Level 2 within the fair value hierarchy. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date. The fair value of KDP's Notes was ~~$13,268~~$10,253 million and ~~$15,274~~$13,078 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

3. Goodwill and Other Intangible Assets

GOODWILL

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


(in millions)	(in millions)	Coffee Systems		Packaged Beverages		Beverage Concentrates		Latin America Beverages		Total		(in millions)	Coffee Systems		Packaged Beverages		Beverage Concentrates		Latin America Beverages		Total
Balance as of January 1, 2021		$	9,795	$	5,314	$	4,536	$	539	$	20,184
Balance as of January 1, 2022												Balance as of January 1, 2022	$	9,800	$	5,319	$	4,539	$	524	$	20,182
Foreign currency translation	Foreign currency translation	19		3		2		(15)		9		Foreign currency translation	(68)		(59)		(39)		8		(158)

Balance as of September 30, 2021		$	9,814	$	5,317	$	4,538	$	524	$	20,193
Balance as of September 30, 2022												Balance as of September 30, 2022	$	9,732	$	5,260	$	4,500	$	532	$	20,024

INTANGIBLE ASSETS OTHER THAN GOODWILL

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


(in millions)	(in millions)	September 30, 2021		December 31, 2020		(in millions)	September 30, 2022		December 31, 2021
Brands(1)	Brands(1)	$	19,858	$	19,874	Brands(1)	$	19,370	$	19,865
Trade names	Trade names	2,480		2,480		Trade names	2,480		2,480
Contractual arrangements	Contractual arrangements	123		123		Contractual arrangements	122		123
Distribution rights(2)	Distribution rights(2)	85		57		Distribution rights(2)	96		85
Total	Total	$	22,546	$	22,534	Total	$	22,068	$	22,553

(1)The decrease ~~of $16 million~~ in brands with indefinite lives was ~~due to~~driven by the impairment of the Bai brand asset of $311 million and foreign currency translation of $184 million during the first nine months of ~~2021.~~2022. Refer to Impairment Testing below for further information about the impairment charge.

(2)The Company executed ~~nine~~five agreements to acquire distribution rights during the first nine months of ~~2021,~~2022, which resulted in an increase of ~~$28~~approximately $11 million.

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


		September 30, 2021						December 31, 2020							September 30, 2022						December 31, 2021
(in millions)	(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount		(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Acquired technology	Acquired technology	$	1,146	$	(383)	$	763	$	1,146	$	(328)	$	818	Acquired technology	$	1,146	$	(456)	$	690	$	1,146	$	(401)	$	745
Customer relationships	Customer relationships	638		(160)		478		638		(135)		503		Customer relationships	637		(194)		443		638		(169)		469
Trade names	Trade names	128		(82)		46		127		(69)		58		Trade names	127		(97)		30		128		(86)		42
Contractual arrangements	Contractual arrangements	24		(7)		17		24		(5)		19		Contractual arrangements	24		(10)		14		24		(8)		16
Brands(1)	Brands(1)	21		(7)		14		21		(5)		16		Brands(1)	51		(11)		40		21		(8)		13
Distribution rights	Distribution rights	29		(10)		19		26		(6)		20		Distribution rights	29		(15)		14		29		(11)		18

Total	Total	$	1,986	$	(649)	$	1,337	$	1,982	$	(548)	$	1,434	Total	$	2,014	$	(783)	$	1,231	$	1,986	$	(683)	$	1,303

(1)During the third quarter of 2022, the Company closed on the acquisition of Atypique, which was recorded as a definite-lived brand asset of $30 million with an estimated useful life of five years.

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


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Amortization expense	Amortization expense	$	34	$	34	$	101	$	100	Amortization expense	$	33	$	34	$	100	$	101

Amortization expense of these intangible assets over the remainder of ~~2021~~2022 and the next five years is expected to be as follows:


		Remainder of 2021		For the Years Ending December 31,											Remainder of 2022		For the Years Ending December 31,
(in millions)	(in millions)			2022		2023		2024		2025		2026		(in millions)			2023		2024		2025		2026		2027
Expected amortization expense	Expected amortization expense	$	34	$	134	$	132	$	124	$	109	$	105	Expected amortization expense	$	36	$	138	$	130	$	116	$	111	$	95

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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 on October 1, 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 September 30, ~~2021~~2022 to ~~ensure that there were no additional~~evaluate whether any triggering events ~~which~~ occurred during the quarter. Management identified specific performance and margin challenges for Bai, an indefinite lived brand asset, and performed a Step 1 quantitative discounted cash flow analysis using the income approach. As a result of ~~these analyses, management did not identify any indications that~~this analysis, KDP recorded an impairment charge of $311 million in the ~~carrying amount~~Packaged Beverages segment for the Bai brand in the third quarter of ~~any~~2022. No other triggering events impacting goodwill or ~~any~~indefinite lived intangible ~~asset may not be recoverable.~~assets were identified during the period.

4. ~~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 primarily recorded within SG&A expenses on the income statement and are held primarily within unallocated corporate costs.

~~DPS INTEGRATION 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 in 2021. The restructuring and integration program resulted in cumulative pre-tax charges of approximately $732 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through September 30, 2021. Restructuring and integration charges on the DPS Integration Program were as follows:

Third Quarter First Nine Months
(in millions) 2021 2020 2021 2020
Restructuring and integration charges $ 53 $ 38 $ 145 $ 143

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 for the DPS Integration Program, all of which were workforce reduction costs, were as follows for the period presented:


~~(in millions)~~	~~Restructuring Liabilities~~
~~Balance as of January 1, 2021~~	$	14
~~Charges to expense~~	30
~~Cash payments~~	~~(25)~~

~~Balance as of September 30, 2021~~	$	19

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~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

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

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

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

INTEREST RATES

Economic Hedges

KDP is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate ~~swaps~~contracts to provide predictability in the Company's overall cost structure and to manage the balance of fixed-rate and variable-rate debt. KDP primarily enters into receive-fixed, pay-variable and receive-variable, pay-fixed swaps and swaption contracts. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the unaudited Condensed Consolidated Statements of Income. As of September 30, ~~2021,~~2022, economic interest rate derivative instruments have maturities ranging from ~~December 2021~~January 2027 to ~~May 2028.~~April 2032.

Additionally, during the quarter ended June 30, 2022, KDP entered into reverse treasury lock contracts in order to manage the interest rate risk related to changes in value of the tender offers in the 2022 Strategic Refinancing prior to the pricing date. These contracts terminated during the quarter ended June 30, 2022, and the realized losses associated with these contracts are reported in loss on early extinguishment of debt in the unaudited Condensed Consolidated Statements of Income.

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~~

In April 2022, concurrently with the 2022 Strategic Refinancing, KDP terminated $1.5 billion of notional amount of the forward starting ~~swaps are planned~~swaps. Upon termination, KDP received $125 million to settle the contracts with the counterparties, which will be ~~unwound at~~amortized to interest expense over the ~~issuance~~respective terms of ~~long-term debt.~~the issued Notes.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

On September 30, 2022, KDP de-designated $500 million of notional amount of the forward starting swaps. As the forecasted debt transaction is still probable to occur, the fair value of the these instruments as of September 30, 2022 was recorded in AOCI. Changes in fair value of the these instruments from the point of de-designation will be recorded as unrealized gains or losses in interest expense in the unaudited Condensed Consolidated Statements of Income. As of September 30, ~~2021,~~2022, the remaining forward starting swaps designated as cash flow hedges have a mandatory termination ~~dates ranging from June 2022 to~~date in May 2025.

FOREIGN EXCHANGE

KDP is exposed to foreign exchange risk in its international subsidiaries, which may transact in currencies that are different from the functional currencies of those subsidiaries. The balance sheets of each of these businesses are also subject to exposure from movements in exchange rates.

Economic Hedges

~~During the third quarter and first nine months of 2021 and 2020,~~ KDP ~~held~~holds 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. As of September 30, ~~2021,~~2022, these FX contracts have maturities ranging from October ~~2021~~2022 to September 2024.

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

Cash Flow Hedges

~~During 2020,~~ KDP ~~began to designate~~designates 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. These designated FX forward contracts relate to either forecasted inventory purchases in U.S. dollars of the Canadian and Mexican businesses or forecasted capital expenditures of certain equipment in euros for KDP’s U.S. manufacturing facilities. The intent of these FX contracts is to provide predictability in the Company's overall cost structure. As of September 30, ~~2021,~~2022, these FX contracts have maturities ranging from October ~~2021~~2022 to ~~March 2023.~~October 2024.

COMMODITIES

Economic Hedges

KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts. ~~During the third quarter and first nine months~~The Company generally holds some combination of ~~2021 and 2020, the Company held forward,~~ future, swap and option contracts that economically ~~hedged~~hedge certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying ~~items.~~items or as an offset to certain costs of production. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's 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. As of September 30, ~~2021,~~2022, these commodity contracts have maturities ranging from October ~~2021~~2022 to February ~~2023.~~2024.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

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


(in millions)	(in millions)	September 30, 2021		December 31, 2020		(in millions)	September 30, 2022		December 31, 2021
Interest rate contracts	Interest rate contracts					Interest rate contracts
Forward starting swaps, designated as cash flow hedges	Forward starting swaps, designated as cash flow hedges	$	2,500	$	—	Forward starting swaps, designated as cash flow hedges	$	500	$	2,500
Receive-variable, pay-fixed interest rate swaps, not designated as hedging instruments		450		450
Forward starting swaps, not designated as hedging instruments						Forward starting swaps, not designated as hedging instruments	1,000		—

Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments	Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments	250		—		Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments	1,900		400
Swaptions, not designated as hedging instruments	Swaptions, not designated as hedging instruments	1,500		—		Swaptions, not designated as hedging instruments	500		—
FX contracts	FX contracts					FX contracts
Forward contracts, not designated as hedging instruments	Forward contracts, not designated as hedging instruments	499		476		Forward contracts, not designated as hedging instruments	517		463
Forward contracts, designated as cash flow hedges	Forward contracts, designated as cash flow hedges	380		333		Forward contracts, designated as cash flow hedges	545		385
Commodity contracts, not designated as hedging instruments		440		450
Commodity contracts, not designated as hedging instruments(1)						Commodity contracts, not designated as hedging instruments(1)	435		529

(1)Notional value for commodity contracts is calculated as the expected volume times strike price per unit on a gross basis.

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 or SOFR 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.

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

Not Designated as Hedging Instruments

The following table summarizes 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. All such instruments are ~~designated~~considered level 2 within the fair value hierarchy.


(in millions)	(in millions)	Balance Sheet Location	September 30, 2021		December 31, 2020		(in millions)	Balance Sheet Location	September 30, 2022		December 31, 2021
Assets:	Assets:						Assets:
Interest rate contracts	Interest rate contracts	Prepaid expenses and other current assets	$	2	$	—	Interest rate contracts	Prepaid expenses and other current assets	$	—	$	2
FX contracts	FX contracts	Prepaid expenses and other current assets	2		—		FX contracts	Prepaid expenses and other current assets	11		3
Commodity contracts	Commodity contracts	Prepaid expenses and other current assets	144		45		Commodity contracts	Prepaid expenses and other current assets	17		133
Interest rate contracts	Interest rate contracts	Other non-current assets	2		—		Interest rate contracts	Other non-current assets	49		—

FX contracts							FX contracts	Other non-current assets	1		—
Commodity contracts	Commodity contracts	Other non-current assets	15		12		Commodity contracts	Other non-current assets	1		2

Liabilities:	Liabilities:						Liabilities:
Interest rate contracts	Interest rate contracts	Other current liabilities	$	4	$	2	Interest rate contracts	Other current liabilities	$	41	$	—
FX contracts	FX contracts	Other current liabilities	2		6		FX contracts	Other current liabilities	1		2
Commodity contracts	Commodity contracts	Other current liabilities	25		5		Commodity contracts	Other current liabilities	69		28
Interest rate contracts	Interest rate contracts	Other non-current liabilities	1		7		Interest rate contracts	Other non-current liabilities	209		5
FX contracts	FX contracts	Other non-current liabilities	13		9		FX contracts	Other non-current liabilities	—		9
Commodity contracts	Commodity contracts	Other non-current liabilities	1		2		Commodity contracts	Other non-current liabilities	1		1

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Designated as Hedging Instruments

The following table summarizes 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. All such instruments are designated level 2 within the fair value hierarchy.


(in millions)	(in millions)	Balance Sheet Location	September 30, 2021		December 31, 2020		(in millions)	Balance Sheet Location	September 30, 2022		December 31, 2021
Assets:	Assets:						Assets:
FX contracts	FX contracts	Prepaid expenses and other current assets	$	4	$	—	FX contracts	Prepaid expenses and other current assets	$	22	$	6
FX contracts	FX contracts	Other non-current assets	1		—		FX contracts	Other non-current assets	4		1

Interest rate contracts	Interest rate contracts	Prepaid expenses and other current assets	1		—		Interest rate contracts	Other non-current assets	73		—

Liabilities:	Liabilities:						Liabilities:
FX contracts	FX contracts	Other current liabilities	$	3	$	12	FX contracts	Other current liabilities	$	4	$	1

Interest rate contracts	Interest rate contracts	Other non-current liabilities	99		—		Interest rate contracts	Other current liabilities	—		8
FX contracts							FX contracts	Other non-current liabilities	2		—
Interest rate contracts							Interest rate contracts	Other non-current liabilities	—		128

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

The following table presents the amount of (gains) losses, net, 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.

Third Quarter First Nine Months
(in millions) Income Statement Location 2021 2020 2021 2020
Interest rate contracts Interest expense $ (7) $ — $ (20) $ 9
FX contracts Cost of sales (4) 5 5 (15)
FX contracts Other expense (income), net (7) 7 4 (5)
Commodity contracts Cost of sales (71) (45) (127) 6
Commodity contracts SG&A expenses — 5 (56) 41

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~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~


		Third Quarter				First Nine Months
(in millions)	Income Statement Location	2022		2021		2022		2021
Interest rate contracts	Interest expense	$	96	$	(7)	$	219	$	(20)
Interest rate contracts	Loss on early extinguishment of debt	—		—		31		—
FX contracts	Cost of sales	(7)		(4)		(9)		5
FX contracts	Other expense (income), net	(10)		(7)		(9)		4
Commodity contracts	Cost of sales	29		(71)		33		(127)
Commodity contracts	SG&A expenses	24		—		(39)		(56)

IMPACT OF CASH FLOW HEDGES

The following table presents the amount of (gains) losses, net, reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income related to derivative instruments designated as cash flow hedging instruments during the periods presented:


			Third Quarter				First Nine Months						Third Quarter				First Nine Months
(in millions)	(in millions)	Income Statement Location	2021		2020		2021		2020		(in millions)	Income Statement Location	2022		2021		2022		2021
Interest rate contracts	Interest rate contracts	Interest expense	$	—	$	—	$	—	$	—	Interest rate contracts	Interest expense	$	(2)	$	—	$	(4)	$	—
FX contracts	FX contracts	Cost of sales	6		(1)		15		(2)		FX contracts	Cost of sales	—		6		5		15

KDP expects to reclassify approximately $3$8 million and $16 million of pre-tax net ~~losses~~gains from AOCI into net income during the next twelve months related to ~~its FX contracts. KDP expects to reclassify $1 million of pre-tax net losses from AOCI into net income during the next twelve months related to its~~ interest rate ~~contracts.~~contracts and FX contracts, respectively.

~~6. Leases~~

KDP 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 endTable of ~~the lease term.~~ ~~KDP has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.~~Contents

~~KDP's lease agreements do not contain any material residual value guarantees or restrictive covenants, except for leases of certain manufacturing properti~~es and of our Frisco headquarters, which contain residual value guarantees at the end of the respective lease terms that approximate a percentage of the cost of the asset as of the inception of the lease. The Company considers the possibility of incurring costs associated with the residual value guarantees to be remote.KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

5. Leases

The following table presents the components of lease cost:


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	29	$	28	$	92	$	84	Operating lease cost	$	34	$	29	$	101	$	92
Finance lease cost	Finance lease cost									Finance lease cost
Amortization of right-of-use assets	Amortization of right-of-use assets	15		12		45		34		Amortization of right-of-use assets	19		15		57		45
Interest on lease liabilities	Interest on lease liabilities	5		3		12		10		Interest on lease liabilities	6		5		17		12
Variable lease cost(1)	Variable lease cost(1)	8		6		23		19		Variable lease cost(1)	9		8		26		23
Short-term lease cost	Short-term lease cost	—		—		—		1		Short-term lease cost	1		—		1		—
Sublease income	Sublease income	—		—		(1)		(1)		Sublease income	(1)		—		(1)		(1)
Total lease cost	Total lease cost	$	57	$	49	$	171	$	147	Total lease cost	$	68	$	57	$	201	$	171

(1)Variable lease cost primarily consists of common area maintenance costs, property taxes, and adjustments for inflation.

The following table presents supplemental cash flow and other information about the Company's leases:


		First Nine Months					First Nine Months
(in millions)	(in millions)	2021		2020		(in millions)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	84	$	75	Operating cash flows from operating leases	$	92	$	84
Operating cash flows from finance leases	Operating cash flows from finance leases	12		11		Operating cash flows from finance leases	17		12
Financing cash flows from finance leases	Financing cash flows from finance leases	40		35		Financing cash flows from finance leases	65		40
Right-of-use assets obtained in exchange for lease obligations:						Right-of-use assets obtained in exchange for lease obligations:
Operating leases						Operating leases	245		224
Finance leases						Finance leases	84		306

The following table presents information about the Company's weighted average discount rate and remaining lease term:


	September 30, 2022		December 31, 2021
Weighted average discount rate
Operating leases	4.3	%	4.3	%
Finance leases	3.6	%	3.6	%
Weighted average remaining lease term
Operating leases	10 years		12 years
Finance leases	9 years		10 years

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~The following table presents information about the Company's weighted average discount rate and remaining lease term:~~

September 30, 2021 December 31, 2020
Weighted average discount rate
Operating leases 4.2 % 4.3 %
Finance leases 4.0 % 4.4 %
Weighted average remaining lease term
Operating leases 11 years 12 years
Finance leases 11 years 11 years

Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2021~~2022 were as follows:


(in millions)	(in millions)	Operating Leases		Finance Leases		(in millions)	Operating Leases		Finance Leases
Remainder of 2021		$	20	$	18
2022		96		89
Remainder of 2022						Remainder of 2022	$	23	$	30
2023	2023	83		88		2023	129		118
2024	2024	79		83		2024	122		111
2025	2025	71		79		2025	114		106
2026	2026	60		101		2026	104		144
2027						2027	83		57
Thereafter	Thereafter	387		281		Thereafter	485		288
Total future minimum lease payments	Total future minimum lease payments	796		739		Total future minimum lease payments	1,060		854
Less: imputed interest	Less: imputed interest	(158)		(128)		Less: imputed interest	(209)		(135)
Present value of minimum lease payments	Present value of minimum lease payments	$	638	$	611	Present value of minimum lease payments	$	851	$	719

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of September 30, ~~2021,~~2022, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately ~~$296~~$205 million. These leases are expected to commence between the fourth quarter of ~~2021~~2022 and ~~the third quarter of 2022,~~2025, with initial lease terms ranging from 54 years to 10 years.

ASSET SALE-LEASEBACK TRANSACTION

The Company entered into a sale-leaseback transaction with the Veyron SPEs during the first nine months of 2022. The following table presents details of the transaction. The gain on the sale-leaseback is recorded in Other operating (income) expense, net, and the leaseback is accounted for as an operating lease.


(in millions)	Sale Proceeds		Carrying Value		Gain on Sale
March 31, 2022(1)	$	77	$	39	$	38

(1)The sale-leaseback transaction included one manufacturing property and one distribution property.

The initial term of the leaseback is 15 years, with 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 on the Company remaining investment grade and no change-in-control as of the end of the lease term. The leaseback has a RVG. Refer to Note 16 for additional information about the RVG associated with the asset sale-leaseback transaction.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

7.6. 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,~~single-serve brewers, K-Cup pods and ~~brewers.~~other coffee products.

•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.

Effective January 1, 2022, the Company updated its presentation of certain of KDP's corporate costs, primarily related to IT, to be aligned among the Company's segments and to more consistently reflect controllable costs at the segment level. The prior period segment disclosures reflect the revised presentation.

Information about the Company's operations by reportable segment is as follows:

Third Quarter First Nine Months
(in millions) 2021 2020 2021 2020
Segment Results – Net sales
Coffee Systems $ 1,155 $ 1,097 $ 3,398 $ 3,113
Packaged Beverages 1,547 1,447 4,352 4,056
Beverage Concentrates 392 352 1,095 967
Latin America Beverages 156 124 447 361
Net sales $ 3,250 $ 3,020 $ 9,292 $ 8,497


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Segment Results – Net sales										Segment Results – Net sales
Coffee Systems										Coffee Systems	$	1,209	$	1,155	$	3,497	$	3,398
Packaged Beverages										Packaged Beverages	1,756		1,547		4,925		4,352
Beverage Concentrates										Beverage Concentrates	459		392		1,278		1,095
Latin America Beverages										Latin America Beverages	198		156		554		447
Net sales										Net sales	$	3,622	$	3,250	$	10,254	$	9,292

Segment Results – Income from operations	Segment Results – Income from operations									Segment Results – Income from operations
Coffee Systems	Coffee Systems	$	334	$	320	$	992	$	882	Coffee Systems	$	295	$	365	$	878	$	1,088
Packaged Beverages	Packaged Beverages	288		260		721		657		Packaged Beverages	10		291		728		731
Beverage Concentrates	Beverage Concentrates	286		262		778		679		Beverage Concentrates	347		287		915		780
Latin America Beverages	Latin America Beverages	37		25		95		73		Latin America Beverages	39		37		114		95
Unallocated corporate costs	Unallocated corporate costs	(150)		(114)		(417)		(511)		Unallocated corporate costs	(297)		(185)		(703)		(525)
Income from operations	Income from operations	$	795	$	753	$	2,169	$	1,780	Income from operations	$	394	$	795	$	1,932	$	2,169

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

8.7. Earnings Per Share

The following table presents the Company's basic and diluted EPS and shares outstanding. Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

Third Quarter First Nine Months
(in millions, except per share data) 2021 2020 2021 2020
Net income attributable to KDP $ 530 $ 443 $ 1,303 $ 897
Weighted average common shares outstanding 1,417.6 1,407.3 1,414.9 1,407.2
Dilutive effect of stock-based awards 10.9 15.6 12.6 14.3
Weighted average common shares outstanding and common stock equivalents 1,428.5 1,422.9 1,427.5 1,421.5
Basic EPS $ 0.37 $ 0.31 $ 0.92 $ 0.64
Diluted EPS 0.37 0.31 0.91 0.63


	Third Quarter				First Nine Months
(in millions, except per share data)	2022		2021		2022		2021
Net income attributable to KDP	$	180	$	530	$	983	$	1,303

Weighted average common shares outstanding	1,416.1		1,417.6		1,417.3		1,414.9
Dilutive effect of stock-based awards	11.1		10.9		11.5		12.6
Weighted average common shares outstanding and common stock equivalents	1,427.2		1,428.5		1,428.8		1,427.5

Basic EPS	$	0.13	$	0.37	$	0.69	$	0.92
Diluted EPS	0.13		0.37		0.69		0.91

9.8. Stock-Based Compensation

~~Stock-based compensation expense is recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income.~~ The components of stock-based compensation expense are presented below:


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Total stock-based compensation expense(1)	Total stock-based compensation expense(1)	$	20	$	20	$	68	$	62	Total stock-based compensation expense(1)	$	31	$	20	$	43	$	68
Income tax benefit	Income tax benefit	(4)		(3)		(12)		(11)		Income tax benefit	(5)		(4)		(6)		(12)
Stock-based compensation expense, net of tax	Stock-based compensation expense, net of tax	$	16	$	17	$	56	$	51	Stock-based compensation expense, net of tax	$	26	$	16	$	37	$	56

(1)Effective January 1, 2022, the Company changed its accounting policy for stock-based compensation expense with respect to forfeitures. The cumulative effect of this change resulted in a one-time reduction in stock-based compensation expense of $40 million recognized in the first quarter of 2022. Refer to Note 1 for additional information.

RESTRICTED SHARE 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)			RSUs	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2020		26,688,304	$	19.66	2.0	$	854
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	18,808,491	$	25.74	2.2	$	693
Granted	Granted	4,458,353	28.68					Granted	3,519,474	35.86
Vested and released	Vested and released	(9,799,213)	10.76			330		Vested and released	(1,030,244)	24.61			38
Forfeited	Forfeited	(1,910,582)	25.43					Forfeited	(984,576)	27.12
Outstanding as of September 30, 2021		19,436,862	$	25.64	2.4	$	664
Outstanding as of September 30, 2022								Outstanding as of September 30, 2022	20,313,145	$	27.48	1.8	$	728

As of September 30, ~~2021,~~2022, there was ~~$318~~$230 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of ~~2.3~~3.2 years.

~~Total payments~~

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

9. Restructuring and Integration Costs

DPS INTEGRATION 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. Although the program was initially expected to be completed in 2021, as a result of delays due to COVID-19, KDP will continue to recognize expenditures for certain initiatives which began during the integration period and are expected to be completed in 2022. The restructuring and integration program resulted in cumulative pre-tax charges of approximately $881 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through September 30, 2022. Restructuring and integration charges on the DPS Integration Program were as follows:


	Third Quarter				First Nine Months
(in millions)	2022		2021		2022		2021
Restructuring and integration charges	$	33	$	53	$	91	$	145

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 for the ~~employees' tax obligations to the relevant taxing authorities~~DPS Integration Program, all of which were ~~$125 million~~workforce reduction costs, were as follows for the first nine months 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 nine months of 2020. This payment is reflected as a financing activity within the unaudited Condensed Consolidated Statements of Cash Flows.period presented:


(in millions)	Restructuring Liabilities
Balance as of January 1, 2022	$	19
Charges to expense	16
Cash payments	(20)

Balance as of September 30, 2022	$	15

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

10. Revenue Recognition

KDP recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Branded product sales, which include CSDs, NCBs, K-Cup pods and appliances, occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration that KDP expects to receive in exchange for transferring goods. The amount of consideration KDP receives and revenue KDP recognizes varies with changes in customer incentives that KDP 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 KDP's revenue by portfolio:


(in millions)	(in millions)	Coffee Systems		Packaged Beverages		Beverage Concentrates		Latin America Beverages		Total		(in millions)	Coffee Systems		Packaged Beverages		Beverage Concentrates		Latin America Beverages		Total
For the third quarter of 2021:
For the third quarter of 2022:												For the third quarter of 2022:
CSD(1)	CSD(1)	$	—	$	728	$	386	$	115	$	1,229	CSD(1)	$	—	$	825	$	452	$	147	$	1,424
NCB(1)												NCB(1)	—		827		4		51		882
K-Cup pods(2)	K-Cup pods(2)	848		—		—		—		848		K-Cup pods(2)	913		—		—		—		913
NCB(1)		—		705		2		41		748
Appliances	Appliances	243		—		—		—		243		Appliances	225		—		—		—		225
Other	Other	64		114		4		—		182		Other	71		104		3		—		178
Net sales	Net sales	$	1,155	$	1,547	$	392	$	156	$	3,250	Net sales	$	1,209	$	1,756	$	459	$	198	$	3,622

For the third quarter of 2020:
For the third quarter of 2021:												For the third quarter of 2021:
CSD(1)	CSD(1)	$	—	$	658	$	345	$	89	$	1,092	CSD(1)	$	—	$	728	$	386	$	115	$	1,229
NCB(1)												NCB(1)	—		705		2		41		748
K-Cup pods(2)	K-Cup pods(2)	812		—		—		—		812		K-Cup pods(2)	848		—		—		—		848
Appliances												Appliances	243		—		—		—		243
Other												Other	64		114		4		—		182
Net sales												Net sales	$	1,155	$	1,547	$	392	$	156	$	3,250

For the first nine months of 2022:												For the first nine months of 2022:
CSD(1)												CSD(1)	$	—	$	2,319	$	1,260	$	400	$	3,979
NCB(1)	NCB(1)	—		689		4		35		728		NCB(1)	—		2,289		10		154		2,453
K-Cup pods(2)												K-Cup pods(2)	2,675		—		—		—		2,675
Appliances	Appliances	230		—		—		—		230		Appliances	621		—		—		—		621
Other	Other	55		100		3		—		158		Other	201		317		8		—		526
Net sales	Net sales	$	1,097	$	1,447	$	352	$	124	$	3,020	Net sales	$	3,497	$	4,925	$	1,278	$	554	$	10,254

For the first nine months of 2021:	For the first nine months of 2021:											For the first nine months of 2021:
CSD(1)	CSD(1)	$	—	$	2,063	$	1,077	$	324	$	3,464	CSD(1)	$	—	$	2,063	$	1,077	$	324	$	3,464
NCB(1)												NCB(1)	—		1,959		9		123		2,091
K-Cup pods(2)	K-Cup pods(2)	2,582		—		—		—		2,582		K-Cup pods(2)	2,582		—		—		—		2,582
NCB(1)		—		1,959		9		123		2,091
Appliances	Appliances	627		—		—		—		627		Appliances	627		—		—		—		627
Other	Other	189		330		9		—		528		Other	189		330		9		—		528
Net sales	Net sales	$	3,398	$	4,352	$	1,095	$	447	$	9,292	Net sales	$	3,398	$	4,352	$	1,095	$	447	$	9,292

For the first nine months of 2020:
CSD(1)		$	—	$	1,842	$	951	$	262	$	3,055
K-Cup pods(2)		2,433		—		—		—		2,433
NCB(1)		—		1,913		8		98		2,019
Appliances		530		—		—		—		530
Other		150		301		8		1		460
Net sales		$	3,113	$	4,056	$	967	$	361	$	8,497

(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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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

11. Income Taxes

The Company’s effective tax rates were as follows:


		Third Quarter				First Nine Months					Third Quarter				First Nine Months
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021		2022		2021
Effective tax rate	Effective tax rate	22.0	%	24.1	%	22.9	%	24.9	%	Effective tax rate	2.2	%	22.0	%	15.4	%	22.9	%

~~For the third quarter~~The following is a reconciliation of ~~2021,~~ the provision for income taxes ~~was lower than~~computed at the U.S. federal statutory tax rate to the provision for income taxes reported in the unaudited Condensed Consolidated Statements of Income:


	Third Quarter				First Nine Months
(in millions)	2022		2021		2022		2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%	21.0	%
State income taxes, net	1.7	%	3.0	%	3.3	%	3.5	%
Impact of non-U.S. operations(1)	(5.9)	%	0.3	%	(1.7)	%	—	%
Tax credits(1)	(11.7)	%	(1.7)	%	(3.2)	%	(1.5)	%

U.S. taxation of foreign earnings(1)	11.2	%	1.7	%	3.1	%	1.3	%
Deferred rate change(2)	(18.5)	%	(0.7)	%	(7.8)	%	(0.1)	%
Uncertain tax positions	0.4	%	(0.2)	%	0.1	%	0.1	%

Excess tax deductions on stock-based compensation(3)	—	%	(0.1)	%	(0.1)	%	(1.7)	%
Other	4.0	%	(1.3)	%	0.7	%	0.3	%
Total provision for income taxes	2.2	%	22.0	%	15.4	%	22.9	%

(1)For the third quarter and first nine months of ~~2020, which was~~2022, primarily driven by the ~~decrease on~~Company’s incremental income in low tax jurisdictions.

(2)For the third quarter and first nine months of 2022, primarily driven by the revaluation of state deferred tax liabilities due to state legislative ~~and apportionment changes in 2021, as well as the benefit received from U.S. provision-to-return adjustments.~~changes.

(3)For the first nine months of ~~2021, the provision for income taxes was lower than the first nine months of 2020, which was~~2022, primarily driven by the ~~tax benefit received from~~unfavorable comparison to the excess tax deductions that were generated from the vesting of RSUs during the first nine months of ~~2021, as well as the benefits received from the Company’s election~~2021.

Table of ~~the high-tax exception to the GILTI calculation and U.S. provision-to-return adjustments.~~Contents

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

12. Investments ~~in Unconsolidated Affiliates~~

The following table summarizes investments in unconsolidated affiliates as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(in millions)	(in millions)	Ownership Interest		September 30, 2021		December 31, 2020		(in millions)	Ownership Interest		September 30, 2022		December 31, 2021
BodyArmor		12.5	%	$	53	$	51

Bedford								Bedford	30.0	%	$	—	$	—
Tractor								Tractor	19.2	%	50		—
Dyla LLC	Dyla LLC	12.4	%	12		12		Dyla LLC	12.4	%	12		12
Force Holdings LLC(1)	Force Holdings LLC(1)	33.3	%	5		5		Force Holdings LLC(1)	33.3	%	4		5
Beverage startup companies(2)	Beverage startup companies(2)	(various)		10		15		Beverage startup companies(2)	(various)		5		8
Other	Other	(various)		5		5		Other	(various)		5		5
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates			$	85	$	88	Investments in unconsolidated affiliates			$	76	$	30

(1)Force Holdings LLC has a 14.1% ownership interest in Dyla LLC.

(2)Beverage startup companies represent equity method investments in development stage entities and may include entities which are pre-revenue, in test markets, or in early operations.

TRACTOR INVESTMENT

In May 2022, the Company invested $44 million in exchange for equity interests in Tractor. The Company also issued a $6 million convertible note to Tractor with an annual interest rate of LIBOR + 5% and a term of six months. The convertible note was converted into equity interests during the second quarter of 2022, increasing the Company’s total ownership in Tractor to 19.2%.

BEDFORD INVESTMENT

In December 2021, Bedford began procedures to wind down the company. As part of the wind down procedures, KDP and ABI agreed to together fund a $68 million credit agreement to Bedford. KDP will fund 30% of this loan, in line with the Company’s ownership percentage in Bedford. Approximately $14 million of the Company’s responsibility under this credit agreement has been funded through September 30, 2022. The Company recorded no impairment losses related to this credit agreement in the third quarter of 2022 and $12 million in the first nine months of 2022.

BODYARMOR INVESTMENT

In January 2022, KDP agreed to a $350 million payment from BodyArmor for a full settlement of all of the claims under the litigation against BodyArmor and in complete satisfaction of the holdback amount owed to ABC in association with the sale of ABC’s equity interest in BodyArmor in 2021. ABC received the settlement payment in January 2022 and the lawsuit was dismissed.

The Company allocated approximately $300 million of the settlement for resolution of the prior litigation, of which $299 million was recorded to Gain on litigation settlement and $1 million was applied against outstanding receivables from BodyArmor. Approximately $28 million of the $299 million gain on litigation settlement was held in unallocated corporate costs as a recovery of legal fees incurred during the litigation process, with the remaining $271 million of the $299 million recorded to our Packaged Beverages segment.

Approximately $50 million of the $350 million payment was allocated to the settlement of the holdback liability, which was recorded to Gain on the sale of our equity method investment.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

13. Accumulated Other Comprehensive Income (Loss)

The following table provides a summary of changes in AOCI, net of taxes:


(in millions)	Foreign Currency Translation Adjustments		Pension and Post-Retirement Benefit Liabilities		Cash Flow Hedges		Accumulated Other Comprehensive Income (Loss)
For the third quarter of 2022:
Beginning balance	$	47	$	(7)	$	165	$	205
Other comprehensive (loss) income	(249)		—		36		(213)
Amounts reclassified from AOCI	—		—		(1)		(1)
Total other comprehensive (loss) income	(249)		—		35		(214)
Balance as of September 30, 2022	$	(202)	$	(7)	$	200	$	(9)

For the third quarter of 2021:
Beginning balance	$	223	$	(4)	$	(91)	$	128
Other comprehensive (loss) income	(137)		—		10		(127)
Amounts reclassified from AOCI	—		—		5		5
Total other comprehensive (loss) income	(137)		—		15		(122)
Balance as of September 30, 2021	$	86	$	(4)	$	(76)	$	6

For the first nine months of 2022:
Beginning balance	$	81	$	(4)	$	(103)	$	(26)
Other comprehensive (loss) income	(283)		(3)		302		16
Amounts reclassified from AOCI	—		—		1		1
Total other comprehensive (loss) income	(283)		(3)		303		17
Balance as of September 30, 2022	$	(202)	$	(7)	$	200	$	(9)

For the first nine months of 2021:
Beginning balance	$	95	$	(4)	$	(14)	$	77
Other comprehensive (loss) income	(9)		—		(74)		(83)
Amounts reclassified from AOCI	—		—		12		12
Total other comprehensive (loss) income	(9)		—		(62)		(71)
Balance as of September 30, 2021	$	86	$	(4)	$	(76)	$	6

The following table presents the amount of (gains) losses reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income:


		Third Quarter				First Nine Months
(in millions)	Income Statement Caption	2022		2021		2022		2021
Cash Flow Hedges:
Interest rate contracts	Interest expense	$	(2)	$	—	$	(4)	$	—
FX contracts	Cost of sales	—		6		5		15
Total		(2)		6		1		15
Income tax (benefit) expense		1		(1)		—		(3)
Total, net of tax		$	(1)	$	5	$	1	$	12

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~13.~~14. Other Financial Information

~~CASH AND CASH EQUIVALENTS~~SELECTED BALANCE SHEET INFORMATION

The ~~carrying value~~tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:


	September 30,		December 31,
(in millions)	2022		2021
Inventories:
Raw materials	$	432	$	330
Work-in-progress	7		6
Finished goods	1,026		577
Total	1,465		913
Allowance for excess and obsolete inventories	(27)		(19)
Total Inventories	$	1,438	$	894
Prepaid expenses and other current assets:
Other receivables	$	144	$	112
Prepaid income taxes	27		5
Customer incentive programs	57		21
Derivative instruments	50		144
Prepaid marketing	28		12
Spare parts	83		72

Income tax receivable	15		14
Other	83		67
Total prepaid expenses and other current assets	$	487	$	447
Other non-current assets:
Operating lease right-of-use assets	$	832	$	673
Customer incentive programs	50		59
Derivative instruments	128		3

Equity securities(1)	45		58
Equity securities without readily determinable fair values	1		1


Other	140		143
Total other non-current assets	$	1,196	$	937

(1)Equity securities are comprised of ~~cash, cash equivalents, restricted cash and restricted cash equivalents is valued~~assets held in a rabbi trust in connection with a non-qualified defined contribution plan, as well as our ownership interest in Vita Coco. Fair values of these equity securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, ~~equating fair value~~ and are 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) September 30, 2021 December 31, 2020
Cash and cash equivalents $ 200 $ 240
Restricted cash and restricted cash equivalents(1)
3 15
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows $ 203 $ 255

~~(1)~~Restricted cash and cash equivalents as of September 30, 2021 primarily represent amounts held in escrow in connection with the acquisitions of Core Nutrition LLC and Big Red Group Holdings, LLC, which have a corresponding holdback liability recorded in other current liabilities, as shown below. The decrease during the first nine months of 2021 was primarily driven by the release of $10 million from escrow in April 2021 related to the 2017 acquisition of Bai Brands LLC.

~~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~~



~~Balance as of December 31, 2020~~	$	21
~~Provision (reversal) for allowance for expected credit losses~~	~~(12)~~
~~Write-offs and adjustments~~	—
~~Balance as of September 30, 2021~~	$	9

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)


	September 30,		December 31,
(in millions)	2022		2021
Accrued expenses:
Accrued customer trade	$	364	$	446
Accrued compensation	188		227
Insurance reserve	62		33
Accrued interest	146		55
Accrued professional fees	10		19
Other accrued expenses	359		330
Total accrued expenses	$	1,129	$	1,110
Other current liabilities:
Dividends payable	$	284	$	265
Income taxes payable	59		144
Operating lease liability	97		76
Finance lease liability	95		79
Derivative instruments	115		39

Other	25		10
Total other current liabilities	$	675	$	613
Other non-current liabilities:
Operating lease liability	$	754	$	608
Finance lease liability	624		621
Pension and post-retirement liability	41		40
Insurance reserves	66		75


Derivative instruments	212		143
Deferred compensation liability	30		43
Other	73		47
Total other non-current liabilities	$	1,800	$	1,577

ACCOUNTS PAYABLE

KDP has agreements with third party administrators which allow 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 through this program with the financial institutions. KDP's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted. KDP has been informed by the third party administrators that as of September 30, ~~2021~~2022 and December 31, ~~2020, $3,027~~2021, $3,923 million and ~~$2,578~~$3,194 million, respectively, of KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

~~SELECTED BALANCE SHEET INFORMATION~~

~~The tables below provide selected financial information from the unaudited Condensed Consolidated Balance Sheets:~~

September 30, December 31,
(in millions) 2021 2020
Inventories:
Raw materials $ 335 $ 260
Work-in-progress 6 6
Finished goods 651 520
Total 992 786
Allowance for excess and obsolete inventories (20) (24)
Total Inventories $ 972 $ 762
Prepaid expenses and other current assets:
Other receivables $ 109 $ 85
Customer incentive programs 49 34
Derivative instruments 153 45
Prepaid marketing 23 15
Spare parts 66 55
Income tax receivable 14 11
Assets held for sale — 2
Other 76 76
Total prepaid expenses and other current assets $ 490 $ 323
Other non-current assets:
Operating lease right-of-use assets $ 627 $ 645
Customer incentive programs 68 70
Derivative instruments 18 12
Equity securities(1)
41 41
Equity securities without readily determinable fair values 1 1
Related party notes receivable(2)
15 —
Other 131 125
Total other non-current assets $ 901 $ 894

~~(1)~~Fair values of these equity 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 $41 million and $41 million as of September 30, 2021 and December 31, 2020, respectively.

~~(2)Refer to Note 16 for additional information about the Company's related party note receivable from Bedford.~~

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~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

September 30, December 31,
(in millions) 2021 2020
Accrued expenses:
Customer rebates & incentives $ 375 $ 382
Accrued compensation 211 215
Insurance reserve 39 35
Accrued interest 143 57
Accrued professional fees 15 21
Other accrued expenses 338 330
Total accrued expenses $ 1,121 $ 1,040
Other current liabilities:
Dividends payable $ 268 $ 212
Income taxes payable 17 39
Operating lease liability 77 72
Finance lease liability 56 44
Derivative instruments 34 25
Holdback liabilities 2 15
Other 8 9
Total other current liabilities $ 462 $ 416
Other non-current liabilities:
Pension and post-retirement liability $ 38 $ 38
Insurance reserves 74 72
Operating lease liability 561 580
Finance lease liability 555 298
Derivative instruments 114 18
Deferred compensation liability 41 41
Other 80 72
Total other non-current liabilities $ 1,463 $ 1,119

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~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

~~14. Accumulated Other Comprehensive Income (Loss)~~

~~The following table provides a summary of changes in AOCI, net of taxes:~~

(in millions) Foreign Currency Translation Adjustments Pension and Post-Retirement Benefit Liabilities Cash Flow Hedges Accumulated Other Comprehensive Income (Loss)
For the third quarter of 2021:
Beginning balance $ 223 $ (4) $ (91) $ 128
Other comprehensive income (loss) (137) — 10 (127)
Amounts reclassified from AOCI — — 5 5
Other comprehensive income, net (137) — 15 (122)
Balance as of September 30, 2021 $ 86 $ (4) $ (76) $ 6
For the third quarter of 2020:
Beginning balance $ (328) $ (1) $ 1 $ (328)
Other comprehensive income (loss) 111 (1) 1 111
Balance as of September 30, 2020 $ (217) $ (2) $ 2 $ (217)
For the first nine months of 2021:
Beginning balance $ 95 $ (4) $ (14) $ 77
Other comprehensive income (loss) (9) — (74) (83)
Amounts reclassified from AOCI — — 12 12
Other comprehensive income, net (9) — (62) (71)
Balance as of September 30, 2021 $ 86 $ (4) $ (76) $ 6
For the first nine months of 2020:
Beginning balance $ 104 $ — $ — $ 104
Other comprehensive income (loss) (321) (2) 2 (321)
Balance as of September 30, 2020 $ (217) $ (2) $ 2 $ (217)

~~The following table presents the amount of losses reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income:~~

Third Quarter First Nine Months
(in millions) Income Statement Caption 2021 2020 2021 2020
Cash Flow Hedges:
Interest rate contracts Interest expense $ — $ — $ — $ —
FX contracts Cost of sales 6 — 15 —
Total 6 — 15 —
Income tax benefit (1) — (3) —
Total, net of tax $ 5 $ — $ 12 $ —

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~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

15. Commitments and Contingencies

~~LEGAL MATTERS~~

KDP is ~~involved from time~~occasionally subject to ~~time in various claims, proceedings, and litigation. KDP establishes reserves~~litigation or other legal proceedings. Reserves are recorded 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. As of September 30, 2022 and December 31, 2021, the Company had litigation reserves of $10 million and $14 million, respectively. KDP has also identified certain other legal matters where ~~the Company believes~~we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. The Company does not believe that the outcome of these, or any other, pending legal matters, individually or collectively, will have a material adverse effect on the results of operations, financial condition or liquidity of KDP.

~~Antitrust Litigation~~ANTITRUST LITIGATION

In February 2014, TreeHouse Foods, Inc. and certain affiliated entities filed suit against KDP’s wholly-owned subsidiary, Keurig, 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)~~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 treble monetary damages, declaratory relief, injunctive relief and attorneys’ fees. In March 2014, JBR, Inc. filed suit against Keurig 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.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Beginning in ~~March~~ 2014, ~~twenty-seven~~a number of putative class actions asserting similar claims and seeking similar relief to the matters described above were filed on behalf of purported direct ~~and indirect~~ purchasers of Keurig’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,~~suits, were transferred to a single judicial district for coordinated ~~or consolidated~~ pre-trial proceedings (the “Multidistrict Antitrust Litigation”). ~~Consolidated~~A consolidated putative class action ~~complaints~~complaint by direct purchaser ~~and indirect purchaser~~ plaintiffs ~~were~~was 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 Keurig (McLane Company, Inc. v. Keurig Green Mountain, Inc.) in the SDNY asserting similar claims and was also ~~was~~ 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 concluded in 2021, with plaintiffs collectively claiming more than $5 billion of monetary damages. Keurig strongly disputes the merits of the claims and the calculation of damages. As a result, Keurig has fully briefed a summary judgment motion that, if successful, would end the cases entirely. Keurig has also fully briefed other significant motions, including challenges to the validity of plaintiffs’ damages calculations. Keurig is also pursuing its opposition to direct purchaser plaintiffs’ motion for class certification.

In July 2021, BJ’s Wholesale Club, Inc. filed suit against Keurig (BJ’s Wholesale Club, Inc. v. Keurig Green Mountain, Inc.) in the U.S. District Court for the Eastern District of New York (“EDNY”) asserting similar claims and also was 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.~~ In August 2021, Winn-Dixie Stores, Inc. and Bi-Lo Holding LLC filed suit against Keurig (Winn-Dixie Stores, Inc. ~~et.~~et al. v. Keurig Green Mountain, Inc. ~~et.~~et al.) in the EDNY asserting similar claims and was also transferred into the Multidistrict Antitrust ~~Litigation;~~Litigation. These cases remain in the ~~complaint in this litigation has not been served.~~early stages of discovery.

~~Separately, a statement~~A number of ~~claim was~~putative class actions asserting similar claims and seeking similar relief were previously filed ~~in September 2014 against Keurig and Keurig Canada Inc. in Ontario, Canada by Club Coffee L.P., a Canadian manufacturer~~on behalf of ~~single serve beverage pods, asserting a breach~~purported indirect purchasers of ~~competition law and false and misleading statements by Keurig.~~

Keurig’s products. In July 2020, Keurig 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 Keurig and not for purposes of resale, Keurig manufactured or licensed single serve beverage portion packs during the applicable class period (beginning in September 2010 for most states). The court granted preliminary approval of the settlement in December 2020, and the Company paid the settlement amount in January 2021. ~~Final~~In June 2021, the Court granted final approval of the settlement, entered final judgment, and dismissed the indirect purchasers’ claims.

Separate from the U.S. actions described above, a statement of claim was ~~granted~~filed in September 2014 against Keurig and Keurig Canada Inc. in Ontario, Canada, by ~~the court in June 2021.~~Club Coffee L.P., a Canadian manufacturer of single serve beverage pods, asserting a breach of competition law and false and misleading statements by Keurig. To date, this plaintiff has not taken substantive action to prosecute its claims.

KDP intends to vigorously defend the remaining lawsuits described above. 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. Accordingly, the Company has not accrued for a loss contingency. Additionally, as the timelines in these cases may be beyond our control, we cannot assure you if or when there will be material developments in these matters.

~~Proposition~~PROPOSITION 65 ~~Litigation~~LITIGATION

In May 2011, CERT 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 Keurig, and certain other defendants who manufacture, package, distribute or sell coffee, failed to warn persons in California that Keurig's coffee products expose persons to the chemical acrylamide in violation of Proposition 65.

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

Keurig, as part of a joint defense group organized to defend against the lawsuit, disputed CERT's claims and asserted multiple affirmative defenses. The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees, but such trial did not occur in light of 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 litigation continued based on, among other items, CERT’s contentions that the regulation is legally invalid and, alternatively, cannot be applied to its pending claims. In August 2020, the court granted the defendants' motion for summary judgment, effectively ending CERT's Proposition 65 litigation at the trial court level. CERT ~~has filed its appeal brief,~~appealed the trial court’s ruling, and the ~~Company intends to continue vigorously defending itself~~California Court of Appeals affirmed the trial court’s ruling in ~~this action. However, the~~October 2022. The Company believes that the likelihood that it will incur a material loss in connection with the CERT litigation is remote and accordingly, no loss contingency has been recorded.

~~16. Related Parties~~

~~JAB AND ITS AFFILIATES~~

JAB holds a significant but non-controlling interest in KDP. As of September 30, 2021, JAB beneficially owned approximately 33% of KDP's outstanding common stock. JAB and its affiliates also 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.

~~INVESTMENTS IN BRAND OWNERSHIP COMPANIES~~

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.

On July 15, 2021, KDP issued a convertible promissory note for $15 million to Bedford at an interest rate of 0.12% per year. The outstanding principal and any unpaid accrued interest will automatically convert to equity interests in Bedford during the fourth quarter of 2021.

~~Refer to Note 12 for additional information about KDP's investments in brand ownership companies.~~

~~17. Subsequent Event~~

On October 25, 2021, the Company acquired an ownership interest in Vita Coco for $20 million. The investment in equity securities will be recorded within the Other non-current assets caption of the unaudited Condensed Consolidated Balance Sheets, and unrealized gains and losses related to the investment will be recorded in Other non-operating expense (income, net).

2728

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

16. Transactions with Variable Interest Entities

The Company has a number of leasing arrangements and one licensing arrangement with special purpose entities associated with the same sponsor, which are referred to as the Veyron SPEs. The Veyron SPEs are VIEs for which KDP is not the primary beneficiary.

LEASING ARRANGEMENTS

As of September 30, 2022, the Company has entered into twelve lease transactions with the Veyron SPEs, eleven of which were associated with asset sale-leaseback transactions. Refer to Note 5 for additional information about the current period asset sale-leaseback transactions. Each lease has a RVG based on a percentage of Veyron SPEs’s purchase price; however, the Company concluded it was not probable that the Company will owe an amount at the end of each individual lease term, as the fair values of the properties are not expected to fall below the RVGs at the end of each individual lease term. As such, the Company recorded each lease obligation excluding the associated RVG. The aggregate maximum undiscounted RVG associated with the leasing arrangements as of September 30, 2022 and December 31, 2021 were $602 million and $549 million, respectively. This aggregate maximum value assumes that the fair value of each property at the end of either the original lease term or renewal term is equal to zero, which the Company has concluded is not probable.

The following table provides the carrying amounts of the right-to-use assets and lease obligations recorded on the Company’s Consolidated Balance Sheets associated with these leasing arrangements related to the VIEs as of September 30, 2022 and December 31, 2021.


(in millions)	September 30, 2022(1)		December 31, 2021(2)
Current assets	$	21	$	19
Non-current assets	346		312
Current liabilities	21		13
Non-current liabilities	359		323

(1)The leasing agreements included as of September 30, 2022 include eight manufacturing sites, three distribution centers and our Frisco, Texas headquarters.

(2)The leasing agreements included as of December 31, 2021 include seven manufacturing sites, two distribution centers and our Frisco, Texas headquarters.

LICENSING ARRANGEMENT

ABC, a wholly-owned subsidiary of KDP, has provided a guarantee in connection with its distribution agreement with the Veyron SPEs to be paid only in the event the Veyron SPEs sell specific distribution rights and the value of those distribution rights does not exceed $142 million, which is the maximum undiscounted amount that KDP could pay under the guarantee. All obligations with respect to the guarantee will cease upon termination of the distribution agreement, which would occur upon notice by ABC not to renew the distribution agreement, KDP no longer being investment grade at the end of the term, or the sale of the distribution rights by the Veyron SPEs. As of September 30, 2022, KDP has not recorded a liability as it is not probable that the Company will have to make any payments required under the residual value guarantee, as the fair value of the distribution rights is not expected to fall below $142 million over the term of the agreement.

As of September 30, 2022, KDP had $102 million in fixed service fee commitments related to the 15-year distribution agreement which was effective on December 28, 2020, with Veyron SPEs. These commitments were used to assist the Veyron SPEs in obtaining financing. Such fixed service fee payments began on January 1, 2021.

Fixed service fees over the next five years are expected to be as follows:


	Remainder of 2022		For the Years Ending December 31,
(in millions)	Remainder of 2022		2023		2024		2025		2026		2027
Fixed service fees	$	2	$	8	$	8	$	8	$	8	$	8

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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 25, 2021.~~Report.

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 the impact of the global COVID-19 pandemic, inflation, future events, future financial performance, plans, strategies, expectations, prospects, competitive environment, regulation, labor matters, supply chain issues 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 “outlook,” “guidance,” “anticipate,” “expect,” “believe,” “could,” “estimate,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will,” “would,” and similar words, phrases or expressions and variations or negatives of these words 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, 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~~our key brands include Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Mott's, Core, Green Mountain and The Original Donut Shop. ~~KDP has~~We have 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~~We offer 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.~~systems. KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, ~~pure-play~~ e-commerce retailers, office superstores, vending machines, grocery and ~~office superstores;~~drug stores, and convenience stores; 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 halfreportable segments consist of the ~~year due to the holiday shopping season.~~following:

~~Table of Contents~~•

~~COFFEE SYSTEMS~~

~~Our~~The Coffee Systems segment ~~is primarily a producer of innovative single serve brewers and specialty coffee~~reflects sales in the U.S. and ~~Canada. We manufacture over 75%~~Canada of the ~~pods in the single-serve K-Cup pod format in the U.S. We~~ manufacture and ~~sell 100%~~distribution of ~~the~~finished goods relating to our single-serve brewers, K-Cup pods ~~of the following brands to 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 manufacture and sell K-Cup pods for the following brands to our partners, who in turn sell them to retailers: Starbucks, Smuckers, Peet's, Dunkin', Folgers, Newman’s Own Organics, Caribou Coffee, Eight O’Clock, Maxwell House, and Tim Hortons, as well as private label arrangements. Generally, we are able to sell these brands to our away from home channel participants and end-use consumers. We also have 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, 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 brewers, where we then utilize third-party contract manufacturers located in various countries in Asia for brewer appliance manufacturing. We distribute our brewers using third-party distributors, retail partners and through our website at www.keurig.com.products.

~~PACKAGED BEVERAGES~~

~~Our~~•The 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 partiesreflects sales in the U.S. and ~~Canada.~~

~~The larger CSD brands in this segment include Dr Pepper,~~ Canada Dry, A&W, 7UP, Sunkist, Squirt, Big Red, RC Cola, and Vernors. The larger NCB brands in this segment include Snapple, Mott's, Bai, Clamato, Hawaiian Punch, Core, Yoo-Hoo, ReaLemon, evian, Vita Coco and Mr and Mrs T mixers.

~~The majority of our Packaged Beverages net sales come~~ from the ~~manufacturing~~manufacture and distribution of finished beverages and other products, including sales of our own brands and ~~the contract manufacturing of certain private label and emerging brand beverages. We also recognize net sales in this segment from the distribution of our partner~~third-party brands, such as evian, Vita Coco, Peet's RTD Coffee, A Shoc energy drinks, Runa energy 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 ofthrough both 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 through our~~ DSD and ~~our~~ WD ~~systems, or by third party distributors, to all major retail channels.~~systems.

~~BEVERAGE CONCENTRATES~~

~~Our~~•The Beverage Concentrates segment ~~is principally a brand ownership business where we manufacture and sell beverage concentrates~~reflects sales primarily in the U.S. and ~~Canada.~~Canada of our branded concentrates to third-party bottlers and our syrup to fountain foodservice customers. Most of the brands in this segment are ~~CSD~~carbonated soft drink 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 the fourth quarter of 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 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 through our FFS operating segment. Dr Pepper represents most of our FFS volume.

~~Our Beverage Concentrates brands are sold by our bottlers through all major retail channels.~~

~~LATIN AMERICA BEVERAGES~~

~~Our~~•The Latin America Beverages segment ~~is a brand ownership, manufacturing~~reflects sales primarily in Mexico and the Caribbean from the manufacture and distribution ~~business, with operations in Mexico representing approximately 90%~~ of ~~the segment's 2020 net sales. This segment participates mainly in the carbonated mineral water, flavored CSD, bottled water~~concentrates, syrup and ~~vegetable juice categories. The largest brands include Peñafiel, Clamato, Squirt, Aguafiel and Crush.~~finished beverages.

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~~VOLUME~~

~~In evaluating our performance, we consider different volume measures depending on whether we sell beverage concentrates, finished beverages, K-Cup pods or brewers.~~

~~Coffee Systems K-Cup Pod and Appliance Sales Volume~~

~~In our Coffee Systems segments, we measure our sales volume as the number of appliances and the number of individual K-Cup pods sold to our 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.

~~Beverage Concentrates Sales Volume~~

In our Beverage Concentrates segment, we measure our sales volume as concentrate case sales for concentrates sold by us to our bottlers and distributors. A concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage, 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.~~comparability and the impact of foreign currency. 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.

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EXECUTIVE SUMMARY

Financial Overview - Third Quarter of ~~2021~~2022 as compared to Third Quarter of ~~2020~~2021

As Reported, in millions (except EPS)

As Adjusted, in millions (except EPS)

Key Events During and Subsequent to the Third Quarter of ~~2021~~2022

~~During~~We filed a shelf registration statement with the ~~third quarter~~SEC on August 19, 2022, which allows us to issue an indeterminate number or amount of ~~2021, we made net repayments~~common stock, preferred stock, debt securities and warrants from time to time in one or more offerings at the direction of our ~~Notes,~~Board.

On September 1, 2022, we closed our ~~commercial paper and our other credit agreements~~acquisition of ~~$325~~the global rights to the non-alcoholic, ready-to-drink cocktail brand Atypique for $30 million.

On September 14, ~~2021, our Board of Directors declared a regular quarterly dividend of $0.1875 per share, which was paid on October 15, 2021 to shareholders of record as of October 1, 2021.~~

~~On October 1, 2021,~~2022, we announced that our Board approved a 6.7% increase in our annualized dividend rate to $0.80 per share, from the current annualized rate of ~~Directors authorized~~$0.75 per share, effective with the regularly quarterly cash dividend announced on the same day.

As a ~~share repurchase program of up to $4 billion~~result of our ~~outstanding common stock, beginning on January 1, 2022, enabling us~~quarterly triggering events assessment, we recorded a non-cash impairment charge of $311 million in the Packaged Beverages segment for the Bai brand in the third quarter of 2022. Refer to ~~opportunistically return value~~Note 3 of the Notes to ~~shareholders.~~our Unaudited Condensed Consolidated Financial Statements for further information.

On October ~~25, 2021,~~6, 2022, we ~~acquired an ownership interest~~announced a strategic partnership with Red Bull, the iconic global energy brand, to sell and distribute Red Bull Energy Drink products in ~~Vita Coco for $20 million.~~Mexico, which is expected to begin during the fourth quarter of 2022.

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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. Refer to Item 1A, "Risk Factors", of our Annual Report, ~~combined with the~~ ~~Uncertainties and Trends Affecting Liquidity~~ ~~section below,~~ for more information about risks and uncertainties facing us.

Some of these items, such as the ongoing COVID-19 pandemic and ~~its~~the invasion of Ukraine by Russia, and the resulting impacts on the global economy, including supply chain constraints and labor shortages, have led to inflation in input costs, logistics, manufacturing and labor costs. During the ~~third quarter~~first nine months of ~~2021,~~2022, we have experienced supply chain disruptions and a significant inflationary impact compared to the prior year period. These impacts have created headwinds for our products that we expect to continue ~~during~~through the remainder of ~~2021 and into 2022.~~the year.

As a result of these inflationary pressures, we have increased the pricing on a number of our ~~products. As a result of these price increases,~~products across our portfolio. Consequently, we may incur a reduction of volume or net sales, ~~and~~which, combined with the inflationary pressures, could impact our margins and operating results.

~~Table of Contents~~

Refer to Note 54 of the Notes to our Unaudited Condensed Consolidated Financial Statements ~~and Item 3,~~ ~~Quantitative and Qualitative Disclosures About Market Risk~~for ~~management's~~our discussion of how we manage our exposure to commodity risk.

Impact of COVID-19 on our Financial Statements

The following table sets forth our reconciliation of significant COVID-19-related expenses. Employee compensation expense and employee protection costs, which impact our SG&A expenses and cost of sales, are included as the COVID-19 item affecting comparability and are 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)											Items Affecting Comparability(1)
(in millions)	(in millions)	Employee Compensation Expense(2)		Employee Protection Costs(3)		Allowances for Expected Credit Losses(4)		Inventory Write-Downs(5)		Total		(in millions)	Employee Compensation Expense(2)		Employee Protection Costs(3)		Allowances for Expected Credit Losses(4)		Total
For the third quarter of 2022:												For the third quarter of 2022:
Coffee Systems												Coffee Systems	$	—	$	3	$	—	$	3
Packaged Beverages												Packaged Beverages	1		1		—		2
Beverage Concentrates												Beverage Concentrates	—		—		—		—
Latin America Beverages												Latin America Beverages	—		—		—		—
Total												Total	$	1	$	4	$	—	$	5

For the third quarter of 2021:	For the third quarter of 2021:											For the third quarter of 2021:
Coffee Systems	Coffee Systems	$	1	$	1	$	—	$	—	$	2	Coffee Systems	$	1	$	1	$	—	$	2
Packaged Beverages	Packaged Beverages	1		1		—		—		2		Packaged Beverages	1		1		—		2
Beverage Concentrates	Beverage Concentrates	—		—		—		—		—		Beverage Concentrates	—		—		—		—
Latin America Beverages	Latin America Beverages	—		—		—		—		—		Latin America Beverages	—		—		—		—
Total	Total	$	2	$	2	$	—	$	—	$	4	Total	$	2	$	2	$	—	$	4

For the third quarter of 2020:
For the first nine months of 2022:												For the first nine months of 2022:
Coffee Systems	Coffee Systems	$	7	$	5	$	—	$	—	$	12	Coffee Systems	$	1	$	6	$	—	$	7
Packaged Beverages	Packaged Beverages	32		4		—		—		36		Packaged Beverages	3		3		—		6
Beverage Concentrates	Beverage Concentrates	—		—		—		—		—		Beverage Concentrates	—		—		—		—
Latin America Beverages	Latin America Beverages	—		1		—		—		1		Latin America Beverages	—		1		—		1
Total	Total	$	39	$	10	$	—	$	—	$	49	Total	$	4	$	10	$	—	$	14

For the first nine months of 2021:	For the first nine months of 2021:											For the first nine months of 2021:
Coffee Systems	Coffee Systems	$	3	$	14	$	(2)	$	—	$	15	Coffee Systems	$	3	$	14	$	(2)	$	15
Packaged Beverages	Packaged Beverages	7		6		(8)		—		5		Packaged Beverages	7		6		(8)		5
Beverage Concentrates	Beverage Concentrates	—		—		(3)		—		(3)		Beverage Concentrates	—		—		(3)		(3)
Latin America Beverages	Latin America Beverages	—		1		—		—		1		Latin America Beverages	—		1		—		1
Total	Total	$	10	$	21	$	(13)	$	—	$	18	Total	$	10	$	21	$	(13)	$	18

For the first nine months of 2020:
Coffee Systems		$	14	$	7	$	2	$	8	$	31
Packaged Beverages		73		22		8		—		103
Beverage Concentrates		—		—		4		—		4
Latin America Beverages		—		1		—		—		1
Total		$	87	$	30	$	14	$	8	$	139

(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, amounts~~Amounts include 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, amounts 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)InReflects reversal of allowances initially recorded in 2020 ~~allowances reflected~~specifically related to the ~~expected impact of the economic uncertainty caused~~COVID-19 pandemic, driven by ~~COVID-19, leveraging estimates of credit worthiness, default and recovery rates for certain of our customers. In 2021, reversals of those previously recorded allowances reflect~~ improving economic ~~conditions. Impacts SG&A expenses.~~

~~(5)Impacts cost of sales.~~conditions during 2021.

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RESULTS OF OPERATIONS

We eliminate from our financial results all applicable 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~~ ~~Non-GAAP Financial Measures~~ ~~for more information, including reconciliations to the corresponding U.S. GAAP measures.~~

Third Quarter of ~~2021~~2022 Compared to Third Quarter of ~~2020~~2021

Consolidated Operations

The following table sets forth our unaudited condensed consolidated results of operations for the third quarter of ~~2021~~2022 and ~~2020:~~2021:


		Third Quarter						Dollar		Percentage			Third Quarter						Dollar		Percentage
($ in millions, except per share amounts)	($ in millions, except per share amounts)	2021			2020			Change		Change		($ in millions, except per share amounts)	2022			2021			Change		Change
Net sales	Net sales	$	3,250		$	3,020		$	230	7.6	%	Net sales	$	3,622		$	3,250		$	372	11.4	%
Cost of sales	Cost of sales	1,415			1,316			99		7.5		Cost of sales	1,721			1,415			306		21.6
Gross profit	Gross profit	1,835			1,704			131		7.7		Gross profit	1,901			1,835			66		3.6
Selling, general and administrative expenses	Selling, general and administrative expenses	1,040			949			91		9.6		Selling, general and administrative expenses	1,196			1,040			156		15.0
Other operating expense (income), net		—			2			(2)		NM
Impairment of intangible assets												Impairment of intangible assets	311			—			311		NM
Other operating income, net												Other operating income, net	—			—			—		NM
Income from operations	Income from operations	795			753			42		5.6		Income from operations	394			795			(401)		(50.4)
Interest expense	Interest expense	116			148			(32)		(21.6)		Interest expense	207			116			91		78.4
Loss on early extinguishment of debt												Loss on early extinguishment of debt	—			—			—		NM

Impairment of investments and note receivable		—			16			(16)		NM
Other expense (income), net	Other expense (income), net	1			5			(4)		NM		Other expense (income), net	4			1			3		NM
Income before provision for income taxes	Income before provision for income taxes	678			584			94		16.1		Income before provision for income taxes	183			678			(495)		(73.0)
Provision for income taxes	Provision for income taxes	149			141			8		5.7		Provision for income taxes	4			149			(145)		NM
Net income including non-controlling interest	Net income including non-controlling interest	529			443			86		19.4		Net income including non-controlling interest	179			529			(350)		(66.2)
Less: Net loss attributable to non-controlling interest	Less: Net loss attributable to non-controlling interest	(1)			—			(1)		NM		Less: Net loss attributable to non-controlling interest	(1)			(1)			—		NM
Net income attributable to KDP	Net income attributable to KDP	$	530		$	443		87		19.6		Net income attributable to KDP	$	180		$	530		(350)		(66.0)

Earnings per common share:	Earnings per common share:											Earnings per common share:
Basic	Basic	$	0.37		$	0.31		$	0.06	19.4	%	Basic	$	0.13		$	0.37		$	(0.24)	(64.9)	%
Diluted	Diluted	0.37			0.31			0.06		19.4		Diluted	0.13			0.37			(0.24)		(64.9)

Gross margin	Gross margin	56.5		%	56.4		%			10 bps		Gross margin	52.5		%	56.5		%			(400) bps
Operating margin	Operating margin	24.5		%	24.9		%			(40) bps		Operating margin	10.9		%	24.5		%			NM
Effective tax rate	Effective tax rate	22.0		%	24.1		%			(210) bps		Effective tax rate	2.2		%	22.0		%			NM

Sales Volume. The following table ~~sets forth changes~~provides the percentage change in sales ~~volume~~volumes for the third quarter of ~~2021~~2022 compared to the prior year period:


	Percentage Change
K-Cup pod volume	~~6.3~~3.5	%
Brewer volume	~~2.2~~ (15.3)
CSD sales volume	~~2.8~~ (0.3)
NCB sales volume	~~(6.4)~~4.7

~~Table of Contents~~

Net Sales. Net sales increased ~~$230~~$372 million, or ~~7.6%~~11.4%, to ~~$3,250~~$3,622 million for the third quarter of ~~2021~~2022 compared ~~with $3,020~~to $3,250 million in the prior year period. This performance reflected ~~higher~~favorable net price realization ~~of 3.6%~~across all segments totaling 12.1%, ~~volume/mix growth of 3.2% and favorable~~primarily driven by price increases, slightly offset by unfavorable FX translation of ~~0.8%~~0.4% and unfavorable volume/mix of 0.3%.

Gross Profit. Gross profit increased ~~$131~~$66 million, or 3.6%, to $1,901 million for the third quarter of ~~2021~~2022 compared ~~with~~to $1,835 million in the prior year period. This performance primarily reflected ~~higher net price realization,~~ the ~~impact of~~strong growth in ~~volume/mix, the benefit of productivity and merger synergies, favorable FX impacts, including both transaction and translation, and lower COVID-19-related expenses. These benefits were~~net sales, partially offset by ~~higher manufacturing costs, due to both~~the impacts of broad-based inflation and ~~the growth in volume/mix,~~ an unfavorable change in unrealized commodity mark-to-market ~~impacts, and increased costs to achieve productivity.~~expense. Gross margin ~~increased 10~~decreased 400 bps versus the year ago period to ~~56.5%, driven by our Beverage Concentrates segment.~~52.5%.

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Selling, General and Administrative Expenses. SG&A expenses increased ~~$91~~$156 million, or ~~9.6%~~15.0%, to ~~$1,040~~$1,196 million for the third quarter of ~~2021~~2022 compared ~~with $949~~to $1,040 million in the prior year period. The increase was driven by ~~increases in logistics, due to both~~the impact of broad-based inflation, ~~and volume/mix, higher marketing expense,~~ an unfavorable ~~comparison~~change in unrealized commodity mark-to-market ~~on commodities, higher expenses~~impacts, increased marketing and other operating costs.

Impairment of Intangible Assets. Impairment of intangible assets reflected a non-cash impairment charge of $311 million in the third quarter of 2022 associated with ~~restructuring and integration projects and unfavorable FX impacts. These increases were partially offset by reduced expenses related~~Bai, an indefinite lived brand asset. Refer to Note 3 of the ~~COVID-19 pandemic and the benefit of productivity and merger synergies.~~Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Income from Operations. Income from operations ~~increased $42~~decreased $401 million, or 50.4%, to ~~$795~~$394 million for the third quarter of ~~2021~~2022 compared to ~~$753~~$795 million in the prior year period, ~~due to~~primarily driven by the ~~increase in gross profit, partially offset by~~impairment of Bai of $311 million and increased SG&A expenses. ~~Operating margin decreased 40 bps versus the year ago period to 24.5%.~~

Interest Expense. Interest expense ~~decreased $32~~increased $91 million, or ~~21.6%~~78.4%, to ~~$116~~$207 million for the third quarter of ~~2021~~2022 compared with ~~$148~~$116 million in the prior year period. This change was primarily driven by unfavorable unrealized mark-to-market losses of $113 million on interest rate contracts, which were partially offset by the favorable comparison to realized gains on certain interest rate contracts and our strategic refinancing ~~initiatives, continued deleveraging, and realized gains on interest rate contracts.~~

~~Impairment of Investments and Note Receivable.~~ ~~Impairment of investments and note receivable reflected a favorable comparison to a non-cash impairment charge of $16 million in the prior year period associated with our LifeFuels investment.~~initiatives.

Effective Tax Rate. The effective tax rate ~~decreased 210 bps to 22.0%~~was 2.2% for the third quarter of ~~2021,~~2022, compared to ~~24.1%~~22.0% in the prior year period, ~~which was~~ primarily driven by ~~the decrease on~~ the revaluation of state deferred tax liabilities due to state legislative ~~and apportionment changes in 2021, as well as the benefit received from U.S. provision-to-return adjustments.~~changes.

Net Income Attributable to KDP. Net income ~~increased $87~~decreased $350 million, or 66.0%, to ~~$530~~$180 million for the third quarter of ~~2021~~2022 as compared to ~~$443~~$530 million in the prior year period, driven by ~~improved~~lower income from operations ~~reduced~~and increased interest expense, ~~and~~partially offset by the ~~favorable comparison to the impairment of~~decrease in our ~~LifeFuels investment in the prior year period.~~effective tax rate.

Diluted EPS. Diluted EPS ~~increased 19.4%~~decreased 64.9% to ~~$0.37~~$0.13 per diluted share for the third quarter of ~~2021~~2022 as compared to ~~$0.31 in the prior year period.~~

~~Adjusted Results of Operations~~

~~The following table sets forth certain unaudited condensed consolidated adjusted results of operations for the third quarter of 2021 and 2020:~~

Third Quarter Dollar Percent
(in millions, except per share amounts) 2021 2020 Change Change
Adjusted income from operations $ 931 $ 874 $ 57 6.5 %
Adjusted interest expense 110 139 (29) (20.9)
Adjusted provision for income taxes 190 173 17 9.8
Adjusted net income attributable to KDP 631 557 74 13.3
Adjusted diluted EPS 0.44 0.39 0.05 12.8
Adjusted operating margin 28.6 % 28.9 % (30) bps
Adjusted effective tax rate 23.2 % 23.7 % (50) bps

~~Adjusted Income from Operations.~~ Adjusted income from operations increased $57 million, or 6.5%, to $931 million for the third quarter of 2021 as compared to Adjusted income from operations of $874 million in the prior year period. Driving this performance in the quarter were the growth in net sales and the benefits of productivity and merger synergies. These benefits were partially offset by higher manufacturing costs, due to both the growth in volume/mix and inflation, and higher marketing expense. Adjusted operating margin declined 30 bps versus the year ago period to 28.6%.

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~~Adjusted Interest Expense.~~ Adjusted interest expense decreased $29 million, or 20.9%, to $110 million for the third quarter of 2021 compared to Adjusted interest expense of $139 million in the prior year period. This benefit was primarily the result of our ~~reduced interest rates resulting from our strategic refinancing initiatives, continued deleveraging, and realized gains on interest rate contracts.~~

~~Adjusted Effective Tax Rate.~~ The Adjusted effective tax rate decreased 50 bps to 23.2% for the third quarter of 2021, compared to the Adjusted effective tax rate of 23.7% in the prior year period. This decrease was primarily driven by the benefit received from U.S. provision-to-return adjustments.

~~Adjusted Net Income Attributable to KDP.~~ Adjusted net income attributable to KDP increased 13.3% to $631 million for the third quarter of 2021 as compared to Adjusted net income attributable to KDP of $557 million in the prior year period, driven by the growth in Adjusted income from operations and the decreased in Adjusted interest expense.

~~Adjusted Diluted EPS.~~ ~~Adjusted diluted EPS increased 12.8% to $0.44 per diluted share for the third quarter of 2021 as compared to Adjusted diluted EPS of $0.39 per diluted share~~$0.37 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 third quarter of ~~2021~~2022 and ~~2020,~~2021, as well as ~~the~~ other amounts necessary to reconcile our ~~total~~ segment results to our consolidated results presented in accordance with U.S. ~~GAAP:~~GAAP.

Third Quarter
(in millions) 2021 2020
Segment Results — Net sales
Coffee Systems $ 1,155 $ 1,097
Packaged Beverages 1,547 1,447
Beverage Concentrates 392 352
Latin America Beverages 156 124
Net sales $ 3,250 $ 3,020
Third Quarter
(in millions) 2021 2020
Segment Results — Income from operations
Coffee Systems $ 334 $ 320
Packaged Beverages 288 260
Beverage Concentrates 286 262
Latin America Beverages 37 25
Unallocated corporate costs (150) (114)
Income from operations $ 795 $ 753
Effective January 1, 2022, the Company updated its presentation of certain of KDP's corporate costs, primarily related to IT, to be aligned among the Company's segments and to more consistently reflect controllable costs at the segment level. The prior period segment disclosures reflect the revised presentation.


	Third Quarter
(in millions)	2022		2021
Segment Results — Net sales
Coffee Systems	$	1,209	$	1,155
Packaged Beverages	1,756		1,547
Beverage Concentrates	459		392
Latin America Beverages	198		156
Net sales	$	3,622	$	3,250

	Third Quarter
(in millions)	2022		2021
Segment Results — Income from operations
Coffee Systems	$	295	$	365
Packaged Beverages	10		291
Beverage Concentrates	347		287
Latin America Beverages	39		37
Unallocated corporate costs	(297)		(185)
Income from operations	$	394	$	795

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COFFEE SYSTEMS

The following table provides selected information about our Coffee Systems segment's results:

Third Quarter Dollar Percent
(in millions) 2021 2020 Change Change
Net sales $ 1,155 $ 1,097 $ 58 5.3 %
Income from operations 334 320 14 4.4
Operating margin 28.9 % 29.2 % (30) bps
Adjusted income from operations $ 377 $ 373 4 1.1 %
Adjusted operating margin 32.6 % 34.0 % (140) bps

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	Third Quarter						Dollar		Percent
(in millions)	2022			2021			Change		Change
Net sales	$	1,209		$	1,155		$	54	4.7	%
Income from operations	295			365			(70)		(19.2)
Operating margin	24.4		%	31.6		%			(720) bps

Sales Volume. ~~Volume growth for the Coffee Systems segment included~~ K-Cup pod volume ~~growth~~grew 3.5% in the third quarter of ~~6.3%,~~2022 compared to the prior year period, reflecting ~~growth~~continued improvement following the completion of our coffee recovery program in ~~at-home pod shipments and improvement in our away-from-home businesses, which continues to be well below pre-pandemic levels.~~the second quarter of 2022. Brewer volume ~~increased 2.2% in the quarter, as~~decreased 15.3% compared to ~~33.7%~~the prior year period, as continuing improvements in ~~the year ago period.~~consumer mobility resulted in brewer shipments returning to more normalized levels.

Net Sales. Net sales increased ~~5.3%~~4.7% to ~~$1,155~~$1,209 million for the third quarter of ~~2021~~2022 compared to net sales of ~~$1,097~~$1,155 million in the prior year period, reflecting ~~volume/mix growth of 5.7% and~~ favorable ~~FX translation of 0.7%, which was partially offset by lower~~ net price realization of ~~1.1%~~7.8%, partially offset by volume/mix declines of 2.6% and unfavorable FX translation of 0.5%.

Income from Operations. Income from operations ~~increased $14~~decreased $70 million, or ~~4.4%~~19.2%, to ~~$334~~$295 million for the third quarter of ~~2021,~~2022, compared to ~~$320~~$365 million for the prior year period, ~~driven by~~reflecting the ~~continued benefit~~impacts of ~~productivity~~broad-based inflation, particularly in green coffee, unfavorable volume/mix, and ~~merger synergies, which impacted both cost of sales and SG&A, the benefit of volume/mix growth, and a favorable comparison to COVID-19-related expenses~~increases in ~~the prior year period. These impacts were~~other operating costs, partially offset by ~~inflation, strategic~~the benefits of pricing ~~initiatives~~actions taken and ~~increased marketing expense.~~productivity. Operating margin ~~decreased 30~~declined 720 bps versus the year ago period to ~~28.9%.~~

~~Adjusted Income from Operations.~~ Adjusted income from operations increased $4 million, or 1.1%, to $377 million for the third quarter of 2021, compared with Adjusted income from operations of $373 million for the prior year period, driven by the continued benefit of productivity and merger synergies, which impacted both cost of sales and SG&A, and the benefit of volume/mix growth. These impacts were partially offset by inflation, strategic pricing initiatives and increased marketing expense. Adjusted operating margin decreased 140 bps versus the year ago period to 32.6%24.4%.

PACKAGED BEVERAGES

The following table provides selected information about our Packaged Beverages segment's results:


		Third Quarter						Dollar		Percent			Third Quarter						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	1,547		$	1,447		$	100	6.9	%	Net sales	$	1,756		$	1,547		$	209	13.5	%
Income from operations	Income from operations	288			260			28		10.8		Income from operations	10			291			(281)		(96.6)
Operating margin	Operating margin	18.6		%	18.0		%			60 bps		Operating margin	0.6		%	18.8		%			NM
Adjusted income from operations		$	312		$	304		8		2.6	%
Adjusted operating margin		20.2		%	21.0		%			(80) bps

Sales Volume. Sales volume for the third quarter of ~~2021 increased 0.1%,~~2022 decreased 0.8% compared to the prior year period, as ~~strength~~the benefits of volume growth in ~~CSDs, which benefited from the expansion of our route to market network, as well as increases in Polar~~Snapple, Hawaiian Punch and ~~Mott’s,~~Core were ~~mostly~~more than offset by ~~declines~~reductions in ~~Snapple and Hawaiian Punch.~~contract manufacturing.

Net Sales. Net sales increased ~~6.9%~~13.5% to ~~$1,547~~$1,756 million for the third quarter of ~~2021,~~2022, compared ~~with net sales of $1,447~~to $1,547 million in the prior year period, driven by ~~higher~~favorable net price realization of ~~5.3%~~13.6%, ~~due to the impact of lower trade~~with volume / mix relatively flat, reflecting strong in-market execution, and ~~price increases, volume/mix growth of 1.5% and favorable~~unfavorable FX translation of 0.1%.

Income from Operations. Income from operations ~~increased $28~~decreased $281 million, or ~~10.8%~~96.6%, to ~~$288~~$10 million for the third quarter of ~~2021,~~2022, compared ~~with $260~~to $291 million for the prior year period, primarily driven by ~~higher~~the $311 million non-cash impairment charge for Bai. Other drivers of the change included the benefit of strong net ~~price realization, the favorable comparison to COVID-19-related expenses in the prior year period, the benefits of productivity and merger synergies, and volume/mix growth. These~~sales growth, ~~drivers were~~ partially offset by broad-based inflation, higher operating costs, and increased ~~costs due to higher volumes, driven by an expansion of our route to market network, expenses associated with productivity projects, higher~~ marketing ~~expense and increases in other operating costs. Operating margin grew 60 bps versus the year ago period to 18.6%.~~

~~Adjusted Income from Operations.~~Adjusted income from operations increased $8 million, or 2.6%, to $312 million for the third quarter of 2021, compared with Adjusted income from operations of $304 million for the prior year period, driven by higher net price realization, the benefits of productivity and merger synergies, and volume/mix growth. These growth drivers were partially offset by inflation, increased costs due to higher volumes, driven by an expansion of our route to market network, higher marketing expense and increases in other operating costs. Adjusted operating margin declined 80 bps versus the year ago period to 20.2%.expenses.

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BEVERAGE CONCENTRATES

The following table provides selected information about our Beverage Concentrates segment's results:


		Third Quarter						Dollar		Percent			Third Quarter						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	392		$	352		$	40	11.4	%	Net sales	$	459		$	392		$	67	17.1	%
Income from operations	Income from operations	286			262			24		9.2		Income from operations	347			287			60		20.9
Operating margin	Operating margin	73.0		%	74.4		%			(140) bps		Operating margin	75.6		%	73.2		%			240 bps
Adjusted income from operations		$	289		$	265		24		9.1	%
Adjusted operating margin		73.7		%	75.3		%			(160) bps

Sales volume. Sales volume for the third quarter of ~~2021 declined 0.6%,~~2022 remained relatively flat compared to the prior year period, as ~~improving trends~~increases in ~~our fountain foodservice business, which services restaurants~~Dr Pepper and ~~hospitality,~~Crush were ~~more than~~ offset by declines in ~~our branded concentrates business, primarily driven by a shift in sales from concentrates to finished goods in our Packaged Beverages segment.~~Schweppes and A&W.

Net Sales. Net sales increased ~~11.4%~~17.1% to ~~$392~~$459 million ~~for~~in the third quarter of ~~2021~~2022, compared to ~~$352~~$392 million for the prior year period, reflecting higher net price realization of ~~11.4%, driven by the impact~~16.6% and volume/mix growth of ~~our annual price increases and lower trade, as well as favorable FX translation of 0.6%, partially~~0.7%. These benefits were slightly offset by unfavorable ~~volume/mix~~FX translation impacts of ~~0.6%~~0.2%.

Income from Operations. Income from operations increased ~~$24~~$60 million, or ~~9.2%~~20.9%, to ~~$286~~$347 million for the third quarter of ~~2021~~2022 compared to ~~$262~~$287 million ~~for~~in the prior year ~~period, driven by~~period. This performance reflected the ~~impact~~benefits of ~~higher~~strong net sales growth and lower marketing expense, partially offset by ~~higher marketing expense.~~broad-based inflation. Operating margin ~~declined 140 bps from versus the year ago period to 73.0%.~~

~~Adjusted Income from Operations.~~ ~~Adjusted income from operations~~ increased $24 million, or 9.1%, to $289 million for the third quarter of 2021 compared with Adjusted income from operations of $265 million for the prior year period, driven by the impact of higher net sales, partially offset by higher marketing expense. Adjusted operating margin declined 160240 bps versus the year ago period to ~~73.7%~~75.6%.

LATIN AMERICA BEVERAGES

The following table provides selected information about our Latin America Beverages segment's results:


		Third Quarter						Dollar		Percent			Third Quarter						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	156		$	124		$	32	25.8	%	Net sales	$	198		$	156		$	42	26.9	%
Income from operations	Income from operations	37			25			12		48.0		Income from operations	39			37			2		5.4
Operating margin	Operating margin	23.7		%	20.2		%			350 bps		Operating margin	19.7		%	23.7		%			(400) bps
Adjusted income from operations		$	37		$	25		12		48.0	%
Adjusted operating margin		23.7		%	20.2		%			350 bps

Sales Volume. Sales volume for the third quarter of ~~2021~~2022 increased ~~5.3%~~10.3% compared to the prior year period, ~~driven primarily~~led by Peñafiel and Squirt, ~~and Clamato.~~driven by strong in-market execution.

Net Sales. Net sales ~~increased 25.8%~~grew 26.9% to ~~$156~~$198 million for the third quarter of ~~2021~~2022, compared to ~~$124~~$156 million ~~for~~in the prior year period, ~~driven by~~reflecting favorable ~~FX translation of 11.3%, favorable volume/mix of 10.5% and higher~~ net price realization of ~~4.0%~~17.3% and volume/mix growth of 11.5%, partially offset by unfavorable FX translation impacts of 1.9%.

Income from Operations. Income from operations increased ~~48.0%~~$2 million, or 5.4%, to ~~$37~~$39 million for the third quarter of ~~2021~~2022 compared to ~~$25~~$37 million in the prior year period, ~~driven by favorable volume/mix, favorable FX effects, including both transaction and translation, higher~~reflecting the benefit of net ~~pricing, and the benefits of productivity,~~sales growth, partially offset by the impacts of broad-based inflation, higher costs associated with increased volumes, and higher marketing ~~investments and increased operating costs due to higher volumes.~~expense. Operating margin ~~increased 350~~decreased 400 bps versus the year ago period to ~~23.7%.~~

~~Adjusted Income from Operations.~~ Adjusted income from operations increased 48.0% to $37 million for the third quarter of 2021 compared to $25 million in the prior year period, driven by favorable volume/mix, favorable FX effects, including both transaction and translation, higher net pricing, and the benefits of productivity, partially offset by inflation, higher marketing investments and increased operating costs due to higher volumes. Adjusted operating margin grew 350 bps versus the prior year period to 23.7%19.7%.

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First Nine Months of ~~2021~~2022 Compared to First Nine Months of ~~2020~~2021

Consolidated Operations

The following table sets forth our unaudited condensed consolidated results of operations for the first nine months of ~~2021~~2022 and ~~2020:~~2021:


		First Nine Months						Dollar		Percentage			First Nine Months						Dollar		Percentage
($ in millions, except per share amounts)	($ in millions, except per share amounts)	2021			2020			Change		Change		($ in millions, except per share amounts)	2022			2021			Change		Change
Net sales	Net sales	$	9,292		$	8,497		$	795	9.4	%	Net sales	$	10,254		$	9,292		$	962	10.4	%
Cost of sales	Cost of sales	4,087			3,779			308		8.2		Cost of sales	4,927			4,087			840		20.6
Gross profit	Gross profit	5,205			4,718			487		10.3		Gross profit	5,327			5,205			122		2.3
Selling, general and administrative expenses	Selling, general and administrative expenses	3,040			2,978			62		2.1		Selling, general and administrative expenses	3,418			3,040			378		12.4
Other operating expense (income), net		(4)			(40)			36		NM
Impairment of intangible assets												Impairment of intangible assets	311			—			311		NM
Gain on litigation settlement												Gain on litigation settlement	(299)			—			(299)		NM
Other operating income, net												Other operating income, net	(35)			(4)			(31)		NM
Income from operations	Income from operations	2,169			1,780			389		21.9		Income from operations	1,932			2,169			(237)		(10.9)
Interest expense	Interest expense	381			458			(77)		(16.8)		Interest expense	570			381			189		49.6
Loss on early extinguishment of debt	Loss on early extinguishment of debt	105			4			101		NM		Loss on early extinguishment of debt	217			105			112		NM
Gain on sale of equity method investment												Gain on sale of equity method investment	(50)			—			(50)		NM
Impairment of investments and note receivable	Impairment of investments and note receivable	—			102			(102)		NM		Impairment of investments and note receivable	12			—			12		NM
Other expense (income), net	Other expense (income), net	(6)			21			(27)		NM		Other expense (income), net	22			(6)			28		NM
Income before provision for income taxes	Income before provision for income taxes	1,689			1,195			494		41.3		Income before provision for income taxes	1,161			1,689			(528)		(31.3)
Provision for income taxes	Provision for income taxes	387			298			89		29.9		Provision for income taxes	179			387			(208)		(53.7)
Net income including non-controlling interest	Net income including non-controlling interest	1,302			897			405		45.2		Net income including non-controlling interest	982			1,302			(320)		(24.6)
Less: Net loss attributable to non-controlling interest	Less: Net loss attributable to non-controlling interest	(1)			—			(1)		NM		Less: Net loss attributable to non-controlling interest	(1)			(1)			—		NM
Net income attributable to KDP	Net income attributable to KDP	$	1,303		$	897		406		45.3		Net income attributable to KDP	$	983		$	1,303		(320)		(24.6)

Earnings per common share:	Earnings per common share:											Earnings per common share:
Basic	Basic	$	0.92		$	0.64		$	0.28	43.8	%	Basic	$	0.69		$	0.92		$	(0.23)	(25.0)	%
Diluted	Diluted	0.91			0.63			0.28		44.4		Diluted	0.69			0.91			(0.22)		(24.2)

Gross margin	Gross margin	56.0		%	55.5		%			50 bps		Gross margin	52.0		%	56.0		%			(400) bps
Operating margin	Operating margin	23.3		%	20.9		%			240 bps		Operating margin	18.8		%	23.3		%			(450) bps
Effective tax rate	Effective tax rate	22.9		%	24.9		%			(200) bps		Effective tax rate	15.4		%	22.9		%			(750) bps

Sales Volume. The following table provides the percentage ~~increase~~change in sales volumes compared to the prior year period:


	Percentage Change
K-Cup ~~Pods~~pod volume	~~6.6~~0.9	%
~~Brewers~~Brewer volume	~~22.5~~ (8.9)
~~CSDs~~CSD sales volume	~~5.5~~2.1
~~NCBs~~NCB sales volume	~~(7.3)~~2.8

Net Sales. Net sales increased ~~$795~~$962 million, or ~~9.4%~~10.4%, to ~~$9,292~~$10,254 million for the first nine months of ~~2021~~2022 compared to ~~$8,497~~$9,292 million in the prior year period. This performance reflected ~~volume/mix of 6.3%,~~favorable net price realization across all segments totaling 9.7% and volume/mix growth of ~~2.1% and favorable~~0.9%, as expected reductions driven by our coffee recovery program during the first quarter of 2022 moderated volume gains in our other segments. These benefits were slightly offset by unfavorable FX translation of ~~1.0%~~0.2%.

Gross Profit. Gross profit increased ~~$487~~$122 million, or ~~10.3%~~2.3%, to ~~$5,205~~$5,327 million for the first nine months of ~~2021~~2022 compared to ~~$4,718~~$5,205 million in the prior year period. This performance primarily reflected the strong growth in net sales and the benefit of productivity, partially offset by broad-based inflation and ~~merger synergies, and a favorable~~an unfavorable change in unrealized commodity mark-to-market impacts. ~~These benefits were partially offset by higher manufacturing costs, driven by both volume/mix growth and inflation.~~ Gross margin ~~increased 50~~decreased 400 bps versus the year ago period to ~~56.0%~~52.0%.

Selling, General and Administrative Expenses. SG&A expenses increased ~~$62~~$378 million, or ~~2.1%~~12.4%, to ~~$3,040~~$3,418 million for the first nine months of ~~2021~~2022 compared to ~~$2,978~~$3,040 million in the prior year period. The increase was driven by higher logistics costs and increases in ~~logistics, driven by both inflation and higher volumes, higher marketing expense, FX effects and expenses~~other operating expenses.

Impairment of Intangible Assets. Impairment of intangible assets reflected a non-cash impairment charge of $311 million associated with ~~productivity projects. These increases were partially offset by reduced expenses related~~Bai, an indefinite lived brand asset. Refer to Note 3 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

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Gain on litigation settlement. Gain on litigation settlement reflects the portion of the settlement payment from BodyArmor which was allocated to the ~~COVID-19 pandemic~~gain on the full settlement of ~~$97 million, productivity and merger synergies, and a favorable change~~the existing claims against BodyArmor in ~~commodity mark-to-market impacts~~the second quarter of ~~$60 million.~~2022. Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Other Operating Income, net. Other operating income, net ~~had an unfavorable change of $36~~increased $31 million for the first nine months of ~~2021~~2022 compared to the prior year period, ~~largely~~primarily driven by ~~the network optimization program~~a $38 million gain ~~of $42 million~~ on ~~the~~an asset sale-leaseback ~~of four facilities~~transaction related to our strategic asset investment program in the ~~prior year period.~~

~~Table~~first quarter of ~~Contents~~2022.

Income from Operations. Income from operations ~~increased $389~~decreased $237 million, or ~~21.9%~~10.9%, to ~~$2,169~~$1,932 million for the first nine months of ~~2021~~2022 compared to ~~$1,780~~$2,169 million in the prior year period, primarily driven by the ~~increase in gross profit,~~non-cash impairment of Bai of $311 million, which was partially offset by the ~~increase in~~gain on the litigation settlement. Other factors include higher SG&A expenses, ~~and the unfavorable change in other operating income, net.~~partially offset by increased gross profit. Operating margin ~~increased 240~~decreased 450 bps versus the year ago period to ~~23.3%~~18.8%.

Interest Expense. Interest expense ~~decreased $77~~increased $189 million, or ~~16.8%~~49.6%, to ~~$381~~$570 million for the first nine months of ~~2021~~2022 compared to ~~$458~~$381 million for the prior year period. This change was primarily driven by the unfavorable comparison of unrealized mark-to-market losses of $254 million on interest rate contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of ~~the favorable change in unrealized interest rate swap mark-to-market impacts of $35 million, lower interest rates resulting from~~ our strategic refinancing ~~initiatives, and our continued deleveraging.~~initiatives.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt reflected ~~expense~~an unfavorable change of ~~$105~~$112 million, with a loss of $217 million during the first nine months of ~~2021 due~~2022 related to our 2022 Strategic Refinancing and our early retirement of our 2038 Notes, the 2021 364-Day Credit Agreement and the KDP Revolver, as compared to a loss of $105 million in the prior year period associated with our 2021 strategic ~~refinancing initiatives.~~refinancing.

Gain on sale of equity method investment. Gain on sale of equity method investment reflects the portion of the settlement payment from BodyArmor which was allocated to the satisfaction of the holdback amount owed to us in association with the sale of our equity interest in BodyArmor in 2021. Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Impairment of Investments and Note Receivable. Impairment on investments and note receivable reflected a ~~favorable comparison to a~~ non-cash impairment charge of ~~$102~~$12 million in the ~~prior year period~~first nine months of 2022 associated with the wind-down of Bedford. Refer to Note 12 of the Notes to our ~~Bedford and LifeFuels investments.~~Unaudited Condensed Consolidated Financial Statements for further information.

Effective Tax Rate. The effective tax rate decreased ~~200~~750 bps to ~~22.9%~~15.4% for the first nine months of ~~2021,~~2022, compared to ~~24.9%~~22.9% in the prior year period, primarily driven by the revaluation of state deferred tax ~~benefit received from~~liabilities due to state legislative changes and the favorable mix of our incremental income in low tax jurisdictions in the current period, partially offset by the unfavorable comparison to the excess tax deductions that were generated from the vesting of RSUs induring the first nine months of ~~2021, as well as the benefit received from the Company’s election of the high-tax exception to the GILTI calculation and U.S. provision-to-return adjustments.~~2021.

Net Income Attributable to KDP. Net income attributable to KDP ~~increased $406~~decreased $320 million, or ~~45.3%~~24.6%, to ~~$1,303~~$983 million for the first nine months of ~~2021~~2022 as compared to ~~$897~~$1,303 million in the prior year period, driven by improved income from operations and reduced interest expense, as well as the favorable comparison to the impairment on investments and note receivable, partially offset by the loss on early extinguishment of debt in the first nine months of 2021.

~~Diluted EPS.~~ ~~Diluted EPS increased 44.4% to $0.91 per diluted share as compared to $0.63 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 nine months of 2021 and 2020:~~

First Nine Months Dollar Percent
(in millions, except per share amounts) 2021 2020 Change Change
Adjusted income from operations $ 2,511 $ 2,333 $ 178 7.6 %
Adjusted interest expense 368 404 (36) (8.9)
Adjusted provision for income taxes 510 474 36 7.6
Adjusted net income attributable to KDP 1,640 1,434 206 14.4
Adjusted diluted EPS 1.15 1.01 0.14 13.9
Adjusted operating margin 27.0 % 27.5 % (50) bps
Adjusted effective tax rate 23.7 % 24.8 % (110) bps

~~Adjusted Income from Operations.~~ Adjusted income from operations increased $178 million, or 7.6%, to $2,511 million for the first nine months of 2021 compared to Adjusted income from operations of $2,333 million in the prior year period. Driving this performance in the current period were strong growth in net sales, the benefit of productivity and merger synergies, and favorable changes in unrealized commodity mark-to-market impacts, which impacted both SG&A and cost of sales. Partially offsetting these positive drivers were inflation, higher marketing expense, increased operating costs due to higher volumes, and an unfavorable comparison to a network optimization program gain of $42 million on the asset sale-leaseback of four facilities in the prior year period. Adjusted operating margin declined 50 bps versus the year ago period to 27.0%.

~~Adjusted Interest Expense.~~ Adjusted interest expense decreased $36 million, or 8.9%, to $368 million for the first nine months of 2021 compared to Adjusted interest expense of $404 million in the prior year period, driven by reduced interest rates resulting from our strategic refinancing initiatives and continued deleveraging.

~~Adjusted Effective Tax Rate.~~ ~~The Adjusted effective tax rate decreased 110 bps to 23.7% for the~~ ~~first nine months of 2021, compared to 24.8%~~ in the prior year period, primarily driven by lower income from operations, increased interest expense, and the unfavorable change in loss on early extinguishment of debt, partially offset by the decrease in our effective tax ~~benefit received from excess tax deductions that were generated from the vesting of RSUs in the first nine months of 2021, as well as the benefit received from U.S. provision-to-return adjustments.~~rate.

~~Adjusted Net Income Attributable~~Diluted EPS. Diluted EPS decreased 24.2% to ~~KDP.~~ ~~Adjusted net income attributable to KDP increased 14.4% to $1,640 million for the first nine months of 2021~~$0.69 per diluted share as compared to ~~Adjusted net income of $1,434 million~~$0.91 in the prior year period. ~~This performance was driven primarily by strong growth in Adjusted income from operations and the decrease in Adjusted interest expense.~~

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~~Adjusted Diluted EPS.~~ ~~Adjusted diluted EPS increased 13.9% to $1.15 per diluted share as compared to Adjusted diluted EPS of $1.01 per diluted share in the prior year period.~~

Results of Operations by Segment

The following tables provide net sales and income from operations for our reportable segments for the first nine months of ~~2021~~2022 and ~~2020,~~2021, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. ~~GAAP:~~GAAP.

(in millions) First Nine Months
Segment Results — Net sales 2021 2020
Coffee Systems $ 3,398 $ 3,113
Packaged Beverages 4,352 4,056
Beverage Concentrates 1,095 967
Latin America Beverages 447 361
Net sales $ 9,292 $ 8,497
First Nine Months
(in millions) 2021 2020
Segment Results — Income from operations
Coffee Systems $ 992 $ 882
Packaged Beverages 721 657
Beverage Concentrates 778 679
Latin America Beverages 95 73
Unallocated corporate costs (417) (511)
Income from operations $ 2,169 $ 1,780
Effective January 1, 2022, the Company updated its presentation of certain of KDP's corporate costs, primarily related to IT, to be aligned among the Company's segments and to more consistently reflect controllable costs at the segment level. The prior period segment disclosures reflect the revised presentation.


(in millions)	First Nine Months
Net sales	2022		2021
Coffee Systems	$	3,497	$	3,398
Packaged Beverages	4,925		4,352
Beverage Concentrates	1,278		1,095
Latin America Beverages	554		447
Total net sales	$	10,254	$	9,292

Income from operations
Coffee Systems	$	878	$	1,088
Packaged Beverages	728		731
Beverage Concentrates	915		780
Latin America Beverages	114		95
Unallocated corporate costs	(703)		(525)
Total income from operations	$	1,932	$	2,169

COFFEE SYSTEMS

The following table provides selected information about our Coffee Systems segment's results:


		First Nine Months						Dollar		Percent			First Nine Months						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	3,398		$	3,113		$	285	9.2	%	Net sales	$	3,497		$	3,398		$	99	2.9	%
Income from operations	Income from operations	992			882			110		12.5		Income from operations	878			1,088			(210)		(19.3)
Operating margin	Operating margin	29.2		%	28.3		%			90 bps		Operating margin	25.1		%	32.0		%			(690) bps
Adjusted income from operations		1,137			1,083			54		5.0	%
Adjusted operating margin		33.5		%	34.8		%			(130) bps

Sales Volume. ~~Sales~~K-Cup pod volume ~~growth~~increased 0.9% for the first nine months of 2022 compared to the prior year period, as the segment was implementing its coffee recovery program to increase pod manufacturing output and rebuild finished goods inventories to satisfy strong consumer demand and restore customer service levels. Brewer volume decreased 8.9% in the first nine months of ~~2021 compared~~2022, driven by the unfavorable comparison to significant brewer shipment growth of 22.5% in the prior year period for the Coffee Systems segment included K-Cup pod volume growth of 6.6%, reflecting strength in at-home consumption and modest improvement in the away-from-home businesses. Brewer volume increased 22.5% in the first nine months of 2021, as compared to growth of 17.7% in the year-ago period, driven by our successful brewer innovation program.period.

Net Sales. Net sales increased ~~9.2%~~2.9% to ~~$3,398~~$3,497 million for the first nine months of ~~2021~~2022 compared to ~~$3,113~~$3,398 million in the prior year period, driven by ~~volume/mix growth~~favorable net price realization of ~~9.3% and favorable FX translation of 1.0%~~5.6%, partially offset by ~~lower net price realization~~volume/mix declines of ~~1.1%~~2.3% and unfavorable FX translation effects of 0.4%.

Income from Operations. Income from operations ~~increased $110~~decreased $210 million, or ~~12.5%~~19.3%, to ~~$992~~$878 million for the first nine months of ~~2021,~~2022, compared to ~~$882~~$1,088 million in the prior year period, ~~driven by the continued benefit~~as a result of ~~productivity~~broad-based inflation, particularly in green coffee, lower volume/mix, unfavorable mark-to-market impacts and ~~merger synergies, strong volume/mix, reduced~~increased costs associated with ~~our~~ productivity ~~projects, a favorable comparison to an increase in our litigation reserve in the prior year, and favorable FX effects, including both transaction and translation.~~projects. These ~~benefits~~decreases were partially offset by ~~declines due to inflation, strategic~~the benefits of pricing ~~initiatives,~~actions and ~~the unfavorable comparison to a network optimization program gain of $16 million on an asset sale-leaseback of a manufacturing facility in the prior year period.~~productivity. Operating margin ~~grew 90~~declined 690 bps versus the year ago period to ~~29.2%.~~

~~Adjusted Income from Operations.~~ Adjusted income from operations increased $54 million, or 5.0%, to $1,137 million for the first nine months of 2021, compared to $1,083 million in the prior year period, driven by the continued benefit of productivity, strong volume/mix, and favorable FX effects, including both transaction and translation. These benefits were partially offset by declines25.1% due to inflation, strategic pricing initiatives, and the unfavorable comparison to a network optimization program gain of $16 million on an asset sale-leaseback of a manufacturing facility in the prior year period. Adjusted operating margin declined 130 bps versus the year ago period to 33.5%.these inflationary headwinds.

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PACKAGED BEVERAGES

The following table provides selected information about our Packaged Beverages segment's results:


		First Nine Months						Dollar		Percent			First Nine Months						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	4,352		$	4,056		$	296	7.3	%	Net sales	$	4,925		$	4,352		$	573	13.2	%
Income from operations	Income from operations	721			657			64		9.7		Income from operations	728			731			(3)		(0.4)
Operating margin	Operating margin	16.6		%	16.2		%			40 bps		Operating margin	14.8		%	16.8		%			(200) bps
Adjusted income from operations		795			776			19		2.4	%
Adjusted operating margin		18.3		%	19.1		%			(80) bps

Sales Volume. Sales volume for the first nine months of ~~2021~~2022 increased ~~1.4%~~1.1% compared to the prior year period, due primarily to strength in CSDs, ~~driven by our broad flavor portfolio, water,~~Motts, Core, Polar and ~~the addition of Polar to our portfolio of partner brands. This was~~Hawaiian Punch, which were partially offset by ~~declines in Hawaiian Punch and~~ reductions in contract ~~manufacturing.~~manufacturing and Bai.

Net Sales. Net sales increased ~~7.3%~~13.2% to ~~$4,352~~$4,925 million in the first nine months of ~~2021,~~2022, compared to ~~$4,056~~$4,352 million in the prior year period, driven by ~~volume/mix of 4.7%,~~favorable net price realization of ~~2.4%~~11.1% and ~~favorable FX translation~~volume/mix growth of ~~0.2%~~2.1%.

Income from Operations. Income from operations ~~increased $64~~decreased $3 million, or ~~9.7%~~0.4%, to ~~$721~~$728 million for the first nine months of ~~2021~~2022 compared to ~~$657~~$731 million for the prior year period, primarily driven ~~primarily~~ by ~~strong volume/mix growth, higher net price realization,~~ the ~~favorable comparison to COVID-19-related expenses in the prior year period, and the benefit of productivity and merger synergies. These increases were~~$311 million non-cash impairment charge for Bai, which was partially offset by ~~inflation,~~ the ~~unfavorable comparison to a network optimization~~ gain on the settlement of ~~$26 million in~~litigation with BodyArmor of $271 million. Other drivers included the ~~prior year period related to the~~benefits of net sales growth, asset sale-leaseback of three facilities, expenses associated with productivity projects, higher marketing expense and increased operating costs due to higher volumes, driven by an expansion of our route to market network. Operating margin grew 40 bps from the year ago period to 16.6%.

~~Adjusted Income from Operations.Adjusted income from operations increased $19 million, or 2.4%, to $795 million for~~activity in the first nine months of ~~2021 compared~~2022 relating to ~~$776 million for the prior year period, driven primarily by strong volume/mix growth, higher net price realization~~our strategic asset initiative, and ~~the benefit of~~ productivity, ~~and merger synergies. These increases were~~ partially offset by broad-based inflation and higher costs to serve the unfavorable comparison to a network optimization gain of $26 million in the prior year period related to the asset sale-leaseback of three facilities, higher marketing expense and increased operating costs due to higher volumes, driven by an expansion of our route to market network. Adjusted operating margin decreased 80 bps versus the year ago period to 18.3%, primarily reflecting the aforementioned asset sale-leaseback gain in the year-ago period.ongoing strong consumer demand.

BEVERAGE CONCENTRATES

The following table provides selected information about our Beverage Concentrates segment's results:


		First Nine Months						Dollar		Percent			First Nine Months						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	1,095		$	967		$	128	13.2	%	Net sales	$	1,278		$	1,095		$	183	16.7	%
Income from operations	Income from operations	778			679			99		14.6		Income from operations	915			780			135		17.3
Operating margin	Operating margin	71.1		%	70.2		%			90 bps		Operating margin	71.6		%	71.2		%			40 bps
Adjusted income from operations		784			684			100		14.6	%
Adjusted operating margin		71.6		%	70.7		%			90 bps

Sales Volume. Sales volume for the first nine months of ~~2021~~2022 increased ~~2.4%~~1.8% compared to the prior year period, ~~reflecting improving trends in our fountain foodservice component of the business, which services restaurants and hospitality,~~primarily driven by ~~increasing levels of consumer mobility during the first nine months of 2021 compared to the year-ago period.~~Dr Pepper and Canada Dry, partially offset by Schweppes and Crush.

Net Sales. Net sales increased ~~13.2%~~16.7% to ~~$1,095~~$1,278 million in the first nine months of ~~2021,~~2022, compared to ~~$967~~$1,095 million in the prior year period, reflecting higher net price realization of ~~9.7%,~~14.8% and volume/mix growth of ~~3.0% and favorable~~2.1%, slightly offset by unfavorable FX translation effects of ~~0.5%~~0.2%.

Income from Operations. Income from operations increased ~~$99~~$135 million, or ~~14.6%~~17.3%, to ~~$778~~$915 million for the first nine months of ~~2021~~2022 compared to ~~$679~~$780 million in the prior year period. This performance reflected the impact of net sales growth, partially offset by ~~higher marketing expense.~~broad-based inflation. Operating margin increased ~~90 bps versus the year ago period to 71.1%.~~

~~Adjusted Income from Operations.~~ Adjusted income from operations increased $100 million, or 14.6%, to $784 million for the first nine months of 2021 compared to $684 million in the prior year period. This performance reflected the impact of net sales growth, partially offset by higher marketing expense. Adjusted operating margin increased 9040 bps versus the year ago period to 71.6%.

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LATIN AMERICA BEVERAGES

The following table provides selected information about our Latin America Beverages segment's results:


		First Nine Months						Dollar		Percent			First Nine Months						Dollar		Percent
(in millions)	(in millions)	2021			2020			Change		Change		(in millions)	2022			2021			Change		Change
Net sales	Net sales	$	447		$	361		$	86	23.8	%	Net sales	$	554		$	447		$	107	23.9	%
Income from operations	Income from operations	95			73			22		30.1		Income from operations	114			95			19		20.0
Operating margin	Operating margin	21.3		%	20.2		%			110 bps		Operating margin	20.6		%	21.3		%			(70) bps
Adjusted income from operations		97			75			22		29.3	%
Adjusted operating margin		21.7		%	20.8		%			90 bps

Sales Volume. Sales volume for the first nine months of ~~2021~~2022 as compared to the prior year period increased ~~2.6%~~7.9%, led by Squirt and Peñafiel, driven by ~~Peñafiel and Clamato, partially offset by declines in Squirt and Crush.~~strong in-market execution.

Net Sales. Net sales grew ~~23.8%~~23.9% to ~~$447~~$554 million for the first nine months of ~~2021,~~2022, compared to ~~$361~~$447 million in the prior year period, reflecting favorable ~~FX translation~~net price realization of ~~9.1%,~~14.1% and volume/mix growth of ~~8.6% and net price realization~~10.7%, slightly offset by unfavorable FX translation of ~~6.1%~~0.9%.

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Income from Operations. Income from operations increased ~~$22~~$19 million, or ~~30.1%~~20.0%, to ~~$95~~$114 million for the first nine months of ~~2021~~2022 compared to ~~$73~~$95 million in the prior year period, driven by ~~higher~~the benefits of net ~~price realization~~sales growth and ~~favorable volume/mix,~~productivity, partially offset by the impacts of broad-based inflation, higher costs associated with incremental volumes, and ~~higher~~increased marketing expense. Operating margin ~~increased 110~~decreased 70 bps versus the year ago period to ~~21.3%~~20.6%.

NON-GAAP FINANCIAL MEASURES

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented for certain constant currency adjusted or adjusted financial measures for the third quarter and first nine months of 2022 and 2021, 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 non-GAAP financial 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. We use these non-GAAP financial measures, in addition to U.S. GAAP financial measures, to evaluate our operating and financial performance and to compare such performance to that of prior periods and to the performance of our competitors. Additionally, we use these non-GAAP financial measures in making operational and financial decisions and in our budgeting and planning process. We believe that providing these non-GAAP financial measures to investors helps investors evaluate our 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 us. The non-GAAP measures are defined as follows:

Adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability.

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 that do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment; (ii) the amortization associated with definite-lived intangible assets; (iii) the amortization of the deferred financing costs associated with the DPS 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 KDP; (vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes; and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the third quarter and first nine months of 2022, 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; (vi) the gain on the sale of our investment in BodyArmor as a result of the settlement of the associated holdback liability; (vii) the gain on the settlement of our prior litigation with BodyArmor, excluding recoveries of previously incurred litigation expenses which were included in our adjusted results; (viii) losses recognized with respect to our equity method investment in Bedford as a result of funding our share of their wind-down costs; (ix) transaction costs for significant business combinations (completed or abandoned) excluding the DPS Merger; (x) foundational projects, which are transformative and non-recurring in nature; and (xi) impairment recognized on the Bai brand.

For the third quarter and first nine months of 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.

Costs related to significant non-routine legal matters relate to the antitrust litigation. 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.

Constant currency adjusted: Defined as certain financial statement captions and metrics adjusted for certain items affecting comparability, calculated on a constant currency basis by converting our current period local currency financial results using the prior period foreign currency exchange rates.

For the third quarter and first nine months of 2022 and 2021, the supplemental financial data set forth below includes reconciliations of adjusted and constant currency adjusted financial measures to the applicable financial measure presented in the unaudited condensed consolidated financial statements for the same period.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)


	Cost of sales		Gross profit		Gross margin		Selling, general and administrative expenses		Impairment of intangible assets		Income from operations		Operating margin
For the Third Quarter of 2022
Reported	$	1,721	$	1,901	52.5	%	$	1,196	$	311	$	394	10.9	%
Items Affecting Comparability:
Mark to market	(51)		51				(55)		—		106
Amortization of intangibles	—		—				(33)		—		33


Stock compensation	—		—				(5)		—		5
Restructuring and integration costs	—		—				(33)		—		33
Productivity	(30)		30				(27)		—		57
Impairment of intangible assets	—		—				—		(311)		311


Non-routine legal matters	—		—				(2)		—		2
COVID-19	(3)		3				(2)		—		5




Foundational projects	—		—				(1)		—		1

Adjusted	$	1,637	$	1,985	54.8	%	$	1,038	$	—	$	947	26.1	%
Impact of foreign currency					(0.1)	%							—	%
Constant currency adjusted					54.7	%							26.1	%

For the Third Quarter of 2021
Reported	$	1,415	$	1,835	56.5	%	$	1,040	$	—	$	795	24.5	%
Items Affecting Comparability:
Mark to market	27		(27)				(18)		—		(9)
Amortization of intangibles	—		—				(34)		—		34


Stock compensation	—		—				(3)		—		3
Restructuring and integration costs	—		—				(53)		—		53
Productivity	(21)		21				(23)		—		44



Non-routine legal matters	—		—				(7)		—		7
COVID-19	(3)		3				(1)		—		4


Transaction costs	—		—				(1)		—		1
Malware incident	—		—				1		—		(1)


Adjusted	$	1,418	$	1,832	56.4	%	$	901	$	—	$	931	28.6	%

Refer to page 44 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)


	Interest expense			Other expense (income), net		Income before provision for income taxes		Provision for income taxes		Effective tax rate		Net income attributable to KDP			Diluted earnings per share
For the Third Quarter of 2022
Reported	$	207		$	4	$	183	$	4	2.2	%	$	180		$	0.13
Items Affecting Comparability:
Mark to market	(113)			2		217		54				163			0.11
Amortization of intangibles	—			—		33		8				25			0.02

Amortization of fair value debt adjustment	(5)			—		5		1				4			—
Stock compensation	—			—		5		2				3			—
Restructuring and integration costs	—			—		33		8				25			0.02
Productivity	—			—		57		10				47			0.03
Impairment of intangible assets	—			—		311		77				234			0.16

Loss on early extinguishment of debt	—			—		—		—				—			(0.01)
Non-routine legal matters	—			—		2		—				2			—
COVID-19	—			—		5		1				4			—




Foundational projects	—			—		1		1				—			—
Change in deferred tax liabilities related to goodwill and other intangible assets	—			—		—		31				(31)			(0.02)
Adjusted	$	89		$	6	$	852	$	197	23.1	%	$	656		$	0.46
Impact of foreign currency										—	%
Constant currency adjusted										23.1	%

For the Third Quarter of 2021
Reported	$	116		$	1	$	678	$	149	22.0	%	$	530		$	0.37
Items Affecting Comparability:
Mark to market	—			—		(9)		(3)				(6)			—
Amortization of intangibles	—			—		34		9				25			0.02
Amortization of deferred financing costs	(2)			—		2		2				—			—
Amortization of fair value of debt adjustment	(4)			—		4		1				3			—
Stock compensation	—			—		3		—				3			—
Restructuring and integration costs	—			—		53		13				40			0.03
Productivity	—			—		44		11				33			0.02


Loss on early extinguishment of debt	—			—		—		(1)				1			—
Non-routine legal matters	—			—		7		2				5			—
COVID-19	—			—		4		1				3			—


Transaction costs	—			—		1		—				1			—
Malware incident	—			—		(1)		(1)				—			—

Change in deferred tax liabilities related to goodwill and other intangible assets	—			—		—		7				(7)			—
Adjusted	$	110		$	1	$	820	$	190	23.2	%	$	631		$	0.44

Change - adjusted	(19.1)		%									4.0		%	4.5		%
Impact of foreign currency	—		%									0.3		%	—		%
Change - constant currency adjusted	(19.1)		%									4.3		%	4.5		%

Diluted earnings per common share may not foot due to rounding.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED SEGMENT MEASURES

TO CERTAIN NON-GAAP ADJUSTED AND CURRENCY NEUTRAL ADJUSTED SEGMENT MEASURES

(Unaudited)


(in millions)	Reported		Items Affecting Comparability		Adjusted
For the third quarter of 2022:
Income from operations
Coffee Systems	$	295	$	48	$	343
Packaged Beverages	10		330		340
Beverage Concentrates	347		3		350
Latin America Beverages	39		2		41
Unallocated corporate costs	(297)		170		(127)
Total income from operations	$	394	$	553	$	947

For the third quarter of 2021:
Income from operations
Coffee Systems	$	365	$	43	$	408
Packaged Beverages	291		24		315
Beverage Concentrates	287		3		290
Latin America Beverages	37		—		37
Unallocated corporate costs	(185)		66		(119)
Total income from operations	$	795	$	136	$	931


	Reported		Impact of Foreign Currency		Constant Currency
For the third quarter of 2022:
Net sales
Coffee Systems	4.7	%	0.5	%	5.2	%
Packaged Beverages	13.5		0.1		13.6
Beverage Concentrates	17.1		0.2		17.3
Latin America Beverages	26.9		1.9		28.8
Total net sales	11.4		0.4		11.8


	Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the third quarter of 2022:
Income from operations
Coffee Systems	(15.9)	%	0.2	%	(15.7)	%
Packaged Beverages	7.9		—		7.9
Beverage Concentrates	20.7		0.3		21.0
Latin America Beverages	10.8		2.7		13.5
Total income from operations	1.7		0.3		2.0


	Reported		Items Affecting Comparability		Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the third quarter of 2022:
Operating margin
Coffee Systems	24.4	%	4.0	%	28.4	%	(0.1)	%	28.3	%
Packaged Beverages	0.6		18.8		19.4		—		19.4
Beverage Concentrates	75.6		0.7		76.3		—		76.3
Latin America Beverages	19.7		1.0		20.7		0.2		20.9
Total operating margin	10.9		15.2		26.1		—		26.1

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CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

Third Quarter of 2022 Compared to Third Quarter of 2021

The following discussion of our results for the third quarter of 2022 is presented on a constant currency adjusted basis. These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

Consolidated Operations

Constant Currency Net Sales.Constant currency net sales increased 11.8% in the third quarter of 2022 compared to the prior year period, driven by favorable net price realization of 12.1%, partially offset by decreased volume/mix of 0.3%.

Constant Currency Adjusted Income from Operations.~~Adjusted~~Constant currency adjusted income from operations increased ~~$22 million, or 29.3%~~2.0% compared to the prior year period, primarily driven by strong growth in net sales and the benefit of productivity, partially offset by the impact of broad-based inflation, increases in other operating costs and higher marketing expense.

Constant Currency Adjusted Interest Expense. Constant currency adjusted interest expense decreased 19.1% compared to the prior year period, driven by the favorable comparison to realized gains on certain interest rate contracts.

Constant Currency Adjusted Effective Tax Rate. The constant currency adjusted effective tax rate was relatively flat, with a rate of 23.1% for the third quarter of 2022 compared to 23.2% for the prior year period.

Constant Currency Adjusted Net Income Attributable to KDP.Constant currency adjusted net income attributable to KDP increased 4.3% compared to the prior year period, driven primarily by the impacts of lower interest expense and increased income from operations.

Constant Currency Adjusted Diluted EPS. Constant currency adjusted diluted EPS increased 4.5% in the current period.

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Results of Operations by Segment

COFFEE SYSTEMS

Constant Currency Net Sales.Constant currency net sales increased 5.2%, reflecting higher net price realization of 7.8% and volume/mix declines of 2.6%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations for the third quarter of 2022 decreased 15.7% compared to ~~$97 million~~the prior year period, driven by broad-based inflation, particularly in green coffee, unfavorable volume/mix, and increases in other operating costs, partially offset by the benefit of pricing actions taken and the benefit of productivity.

PACKAGED BEVERAGES

Constant Currency Net Sales.Constant currency net sales increased 13.6%, reflecting favorable net price realization of 13.6%.

Constant Currency Adjusted Income from Operations. Constant currency adjusted income from operations for the third quarter of 2022 increased 7.9% compared to the prior year period, driven primarily by the impact of net sales growth and productivity, partially offset by broad-based inflation, higher operating costs, and increased marketing expenses.

BEVERAGE CONCENTRATES

Constant Currency Net Sales. Constant currency net sales increased 17.3%, reflecting higher net price realization of 16.6% and volume/mix growth of 0.7%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations for the third quarter of 2022 increased 21.0% compared to the prior year period. This performance reflected the benefits of net sales growth and lower marketing expense, partially offset by the impacts of broad-based inflation.

LATIN AMERICA BEVERAGES

Constant Currency Net Sales.Constant currency net sales increased 28.8%, driven by favorable net price realization of 17.3% and volume/mix growth of 11.5%.

Constant Currency Adjusted Income from Operations. Constant currency adjusted income from operations for the third quarter of 2022 increased 13.5% compared to the prior year period, reflecting the benefit of net sales growth, partially offset by the impacts of broad-based inflation, higher costs associated with incremental volumes, and increased marketing expense.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)


	Cost of sales		Gross profit		Gross margin		Selling, general and administrative expenses		Impairment of intangible assets		Gain on litigation settlement		Other operating income, net		Income from operations		Operating margin
For the First Nine Months of 2022
Reported	$	4,927	$	5,327	52.0	%	$	3,418	$	311	$	(299)	$	(35)	$	1,932	18.8	%
Items Affecting Comparability:
Mark to market	(130)		130				(29)		—		—		—		159
Amortization of intangibles	—		—				(100)		—		—		—		100


Stock compensation	—		—				(3)		—		—		—		3
Restructuring and integration costs	—		—				(89)		—		—		(2)		91
Productivity	(86)		86				(73)		—		—		—		159
Impairment of intangible assets	—		—				—		(311)		—		—		311


Non-routine legal matters	—		—				(9)		—		—		—		9
COVID-19	(10)		10				(4)		—		—		—		14
Gain on litigation	—		—				—		—		271		—		(271)

Transaction costs	—		—				(1)		—		—		—		1

Foundational projects	—		—				(3)		—		—		—		3

Adjusted	$	4,701	$	5,553	54.2	%	$	3,107	$	—	$	(28)	$	(37)	$	2,511	24.5	%
Impact of foreign currency					(0.1)	%											—	%
Constant currency adjusted					54.1	%											24.5	%

For the First Nine Months of 2021
Reported	$	4,087	$	5,205	56.0	%	$	3,040	$	—	$	—	$	(4)	$	2,169	23.3	%
Items Affecting Comparability:
Mark to market	53		(53)				32		—		—		—		(85)
Amortization of intangibles	—		—				(101)		—		—		—		101


Stock compensation	—		—				(14)		—		—		—		14
Restructuring and integration costs	—		—				(145)		—		—		—		145
Productivity	(43)		43				(72)		—		—		—		115



Non-routine legal matters	—		—				(23)		—		—		—		23
COVID-19	(22)		22				(9)		—		—		—		31


Transaction costs	—		—				(1)		—		—		—		1
Malware incident	—		—				3		—		—		—		(3)


Adjusted	$	4,075	$	5,217	56.1	%	$	2,710	$	—	$	—	$	(4)	$	2,511	27.0	%

Refer to page 50 for reconciliations of reported net sales to constant currency net sales and adjusted income from operations to constant currency adjusted income from operations.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED ITEMS TO CERTAIN NON-GAAP ADJUSTED ITEMS

(Unaudited, in millions, except per share and percentages)


	Interest expense		Loss on early extinguishment of debt		Gain on sale of equity method investment		Impairment of investments and note receivable		Other expense (income), net		Income before provision for income taxes		Provision for income taxes		Effective tax rate		Net income attributable to KDP		Diluted earnings per share
For the First Nine Months of 2022
Reported	$	570	$	217	$	(50)	$	12	$	22	$	1,161	$	179	15.4	%	$	983	$	0.69
Items Affecting Comparability:
Mark to market	(247)		—		—		—		—		406		101				305		0.21
Amortization of intangibles	—		—		—		—		—		100		25				75		0.05
Amortization of deferred financing costs	(2)		—		—		—		—		2		—				2		—
Amortization of fair value debt adjustment	(14)		—		—		—		—		14		3				11		0.01
Stock compensation	—		—		—		—		—		3		(1)				4		—
Restructuring and integration costs	—		—		—		—		—		91		22				69		0.05
Productivity	—		—		—		—		—		159		32				127		0.09
Impairment of intangible assets	—		—		—		—		—		311		77				234		0.16
Impairment of investment	—		—		—		(12)				12		—				12		0.01
Loss on early extinguishment of debt	—		(217)		—		—		—		217		54				163		0.11
Non-routine legal matters	—		—		—		—		—		9		2				7		—
COVID-19	—		—		—		—		—		14		3				11		0.01
Gain on litigation	—		—		—		—		—		(271)		(68)				(203)		(0.14)
Gain on sale of equity-method investment	—		—		50		—		—		(50)		(12)				(38)		(0.03)
Transaction costs	—		—		—		—		—		1		—				1		—

Foundational projects	—		—		—		—		—		3		1				2		—
Change in deferred tax liabilities related to goodwill and other intangible assets	—		—		—		—		—		—		81				(81)		(0.06)
Adjusted	$	307	$	—	$	—	$	—	$	22	$	2,182	$	499	22.9	%	$	1,684	$	1.18
Impact of foreign currency															—	%
Constant currency adjusted															22.9	%

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

(Unaudited, in millions, except per share and percentages)


	Interest expense			Loss on early extinguishment of debt		Gain on sale of equity method investment		Impairment of investments and note receivable		Other expense (income), net		Income before provision for income taxes		Provision for income taxes		Effective tax rate		Net income attributable to KDP			Diluted earnings per share
For the First Nine Months of 2021
Reported	$	381		$	105	$	—	$	—	$	(6)	$	1,689	$	387	22.9	%	$	1,303		$	0.91
Items Affecting Comparability:
Mark to market	7			—		—		—		—		(92)		(23)				(69)			(0.05)
Amortization of intangibles	—			—		—		—		—		101		26				75			0.05
Amortization of deferred financing costs	(6)			—		—		—		—		6		2				4			—
Amortization of fair value of debt adjustment	(14)			—		—		—		—		14		3				11			0.01
Stock compensation	—			—		—		—		—		14		14				—			—
Restructuring and integration costs	—			—		—		—		—		145		35				110			0.08
Productivity	—			—		—		—		—		115		29				86			0.06


Loss on early extinguishment of debt	—			(105)		—		—		—		105		24				81			0.06
Non-routine legal matters	—			—		—		—		—		23		5				18			0.01
COVID-19	—			—		—		—		—		31		8				23			0.02


Transaction costs	—			—		—		—		—		1		—				1			—
Malware incident	—			—		—		—		—		(3)		(1)				(2)			—

Change in deferred tax liabilities related to goodwill and other intangible assets	—			—		—		—		—		—		1				(1)			—
Adjusted	$	368		$	—	$	—	$	—	$	(6)	$	2,149	$	510	23.7	%	$	1,640		$	1.15

Change - adjusted	(16.6)		%															2.7		%	2.6		%
Impact of foreign currency	—		%															0.3		%	—		%
Change - constant currency adjusted	(16.6)		%															3.0		%	2.6		%

Diluted earnings per common share may not foot due to rounding.

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KEURIG DR PEPPER INC.

RECONCILIATION OF CERTAIN REPORTED SEGMENT MEASURES

TO CERTAIN NON-GAAP ADJUSTED AND CURRENCY NEUTRAL ADJUSTED SEGMENT MEASURES

(Unaudited)


(in millions)	Reported		Items Affecting Comparability		Adjusted
For the first nine months of 2022:
Income from operations
Coffee Systems	$	878	$	153	$	1031
Packaged Beverages	728		94		822
Beverage Concentrates	915		9		924
Latin America Beverages	114		3		117
Unallocated corporate costs	(703)		320		(383)
Total income from operations	$	1,932	$	579	$	2,511

For the first nine months of 2021:
Income from operations
Coffee Systems	$	1,088	$	145	$	1,233
Packaged Beverages	731		74		805
Beverage Concentrates	780		6		786
Latin America Beverages	95		2		97
Unallocated corporate costs	(525)		115		(410)
Total income from operations	$	2,169	$	342	$	2,511


	Reported		Impact of Foreign Currency		Constant Currency
For the first nine months of 2022:
Net sales
Coffee Systems	2.9	%	0.4	%	3.3	%
Packaged Beverages	13.2		—		13.2
Beverage Concentrates	16.7		0.2		16.9
Latin America Beverages	23.9		0.9		24.8
Total net sales	10.4		0.2		10.6


	Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the first nine months of 2022:
Income from operations
Coffee Systems	(16.4)	%	0.2	%	(16.2)	%
Packaged Beverages	2.1		—		2.1
Beverage Concentrates	17.6		0.2		17.8
Latin America Beverages	20.6		1.0		21.6
Total income from operations	—		0.2		0.2


	Reported		Items Affecting Comparability		Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the first nine months of 2022:
Operating margin
Coffee Systems	25.1	%	4.4	%	29.5	%	(0.1)	%	29.4	%
Packaged Beverages	14.8		1.9		16.7		—		16.7
Beverage Concentrates	71.6		0.7		72.3		—		72.3
Latin America Beverages	20.6		0.5		21.1		—		21.1
Total operating margin	18.8		5.7		24.5		—		24.5

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CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

First Nine Months of 2022 Compared to First Nine Months of 2021

The following discussion of our results for the first nine months of ~~2021~~2022 is presented on a constant currency adjusted basis. These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates

Consolidated Operations

Constant Currency Net Sales. Constant currency net sales increased 10.6% in the first nine months of 2022 compared to ~~$75 million in~~ the prior year period, driven by favorable net price realization of 9.7% and volume/mix growth of 0.9%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations increased 0.2% compared to the prior year period, primarily driven by the strong growth in net sales, the benefit of productivity and a $38 million gain on an asset sale-leaseback transaction related to our strategic asset investment program. These benefits were almost entirely offset by the impact of broad-based inflation and increases in other operating costs.

Constant Currency Adjusted Interest Expense.Constant currency adjusted interest expense decreased 16.6% compared to the prior year period, driven by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives.

Constant Currency Adjusted Effective Tax Rate.The constant currency adjusted effective tax rate was 22.9% for the first nine months of 2022 compared to 23.7% for the prior year period, primarily driven by our incremental income in low tax jurisdictions during the first nine months of 2022.

Constant Currency Adjusted Net Income Attributable to KDP. Constant currency adjusted net income attributable to KDP increased 3.0% compared to the prior year period, primarily driven by lower interest expense and the decrease in our effective tax rate.

Constant Currency Adjusted Diluted EPS.Constant currency adjusted diluted EPS increased approximately 2.6% over the prior year period.

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Results of Operations by Segment

COFFEE SYSTEMS

Constant Currency Net Sales.Constant currency net sales increased 3.3%, driven by higher net price realization ~~and favorable volume/mix,~~of 5.6%, partially offset by unfavorable volume/mix of 2.3%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations for the first nine months of 2022 decreased 16.2% compared to the prior year period, as a result of broad-based inflation, particularly in green coffee, and lower volume/mix. These decreases were partially offset by the benefits of pricing actions and increased productivity.

PACKAGED BEVERAGES

Constant Currency Net Sales. Constant currency net sales increased 13.2%, reflecting favorable net price realization of 11.1% and volume/mix growth of 2.1%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations for the first nine months of 2022 increased 2.1% compared to the prior year period, driven by the benefits of net sales growth, increased productivity, and asset sale-leaseback activity in the first nine months of 2022 relating to our strategic asset initiative. These benefits were partially offset by broad-based inflation, higher costs associated with higher volumes and increases in other operating costs.

BEVERAGE CONCENTRATES

Constant Currency Net Sales. Constant currency net sales increased 16.9%, reflecting higher net price realization of 14.8% and volume/mix growth of 2.1%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations for the first nine months of 2022 increased 17.8% compared to the prior year period. This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation.

LATIN AMERICA BEVERAGES

Constant Currency Net Sales.Constant currency net sales increased 24.8%, driven by favorable net price realization of 14.1% and volume/mix growth of 10.7%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations for the first nine months of 2022 increased 21.6% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by the impacts of broad-based inflation, higher costs associated with incremental volumes, and increased marketing expense. ~~Adjusted operating margin improved 90 bps versus the year ago period to 21.7%.~~

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 Part II, Item 7 of our Annual Report.

As of the date of our annual impairment test, performed as of October 1, 2021, certain brands were considered at risk of future impairment in the event of significant unfavorable changes in assumptions including forecasted cash flows along with macro-economic risks such as the continued prolonged weakening of economic conditions and cost inflation or significant unfavorable changes in long-term growth rates and discount rates utilized in the discounted cash flows analyses. Cost inflation for certain inputs could put pressure on achieving cash flow projections and rising interest rates could cause unfavorable changes in the discount rates utilized in the discounted cash flow analyses. During the third quarter of 2022, the Company recorded an impairment charge of $311 million for Bai, an indefinite lived brand asset. Refer to Note 3 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

~~Our~~We believe our financial condition and liquidity remain strong. Net cash provided by operations was $1,933 million for the first nine months of 2021 compared to $1,666 million for the prior year period. Although there is continued uncertainty related to the impact of the ongoing 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 steps we have taken over the course of the pandemic to strengthen our balance sheet leave us well positioned to manage our 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 such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.

~~Table of Contents~~

The following summarizes our cash activity for the first nine months of ~~2021~~2022 and ~~2020:~~2021:

Cash, cash equivalents, restricted cash and restricted cash equivalents ~~decreased $52~~increased $360 million from December 31, ~~2020~~2021 to September 30, ~~2021~~2022 primarily as a result of ~~deleveraging, dividend payments and investments in property, plant and equipment, which outpaced~~proceeds from the cash ~~generated from our operations.~~settlement with BodyArmor.

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 ~~$163~~$435 million and ~~$165~~$216 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Additionally, in April 2022, we chose to undertake a strategic refinancing initiative, issuing approximately $3 billion of senior unsecured notes and using the net proceeds to voluntarily prepay and retire several tranches of existing senior unsecured notes with higher interest rates, which reduced our overall interest payments and our annual cash requirements. As part of this transaction, we additionally unwound approximately $1.5 billion of notional amount of our outstanding designated forward starting swaps and received cash proceeds of approximately $125 million. Refer to Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information about the 2022 strategic refinancing initiative.

Principal Sources of Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our ~~KDP Revolver and 2021 364-Day~~2022 Revolving Credit Agreement. Additionally, we have an uncommitted commercial paper program where we can issue unsecured commercial paper notes on a private placement basis. 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.

Sources of Liquidity - Operations

Net cash provided by operating activities increased ~~$267~~$165 million for the first nine months of ~~2021,~~2022, as compared to the first nine months of ~~2020,~~2021, driven by the increase in net income adjusted for non-cash items, led by the $349 million gain from BodyArmor, partially offset by a decline in working capital.

4353

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Cash Conversion Cycle

Our cash conversion cycle is defined as DIO and DSO less DPO. The calculation of each component of the cash conversion cycle is provided below:


Component						Calculation (on a trailing twelve month basis)
DIO						(Average inventory divided by cost of sales) * Number of days in the period
DSO						(Accounts receivable divided by net sales) * Number of days in the period
DPO						(Accounts payable * Number of days in the period) divided by cost of sales and SG&A expenses

~~Our cash conversion cycle improved 10 days to approximately 66 days as of September 30, 2021 as compared to 56 days in the prior year period.~~ The following table summarizes our cash conversion cycle:


		September 30,			September 30,
		2021	2020		2022	2021
DIO	DIO	58	53	DIO	64	58
DSO	DSO	33	34	DSO	39	33
DPO	DPO	157	143	DPO	174	157
Cash conversion cycle	Cash conversion cycle	(66)	(56)	Cash conversion cycle	(71)	(66)

Accounts Payable Program

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. Excluding our suppliers who require cash at date of purchase or sale, our current payment terms with our suppliers generally range from 10 to 360 days. We also entered into agreements with third party administrators 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 through this program with the financial institutions. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. We have been informed by the third party administrators that as of September 30, ~~2021~~2022 and December 31, ~~2020, $3,027~~2021, $3,923 million and ~~$2,578~~$3,194 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 ~~$2,492~~$2,830 million and ~~$2,022~~$2,492 million for the first nine months of ~~2021~~2022 and ~~2020,~~2021, respectively.

Impact of the ~~Cares~~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 iswas due on January 3, 2022, with the remainder due by January 3, 2023. ~~As of September 30, 2021, we have~~We deferred a total of $59 million in such ~~payments.~~payments since the CARES Act was implemented, and we timely paid approximately $30 million as of January 3, 2022.

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Sources of Liquidity - Financing

In ~~March~~February 2022, we terminated our 2021 364-Day Credit Agreement and our KDP Revolver and replaced them with the 2022 Revolving Credit Agreement, which provides for a $4 billion revolving credit facility.

In April 2022, we undertook a strategic refinancing and issued ~~$2,150 million~~a $3 billion aggregate face value of Notes, consisting of ~~$1,150 million aggregate principal amount of 0.750% 2024~~the 2029 Notes, ~~$500 million aggregate principal amount of 2.250% 2031~~the 2032 Notes, and ~~$500 million aggregate principal amount of 3.350% 2051~~the 2052 Notes. The proceeds from the issuance were used to voluntarily prepay ~~several tranches of our existing~~and retire the remaining 2023 Merger Notes and ~~our 2019 KDP Term Loan in order~~ to ~~take advantage~~tender portions of ~~current market conditions to refinance our debt maturities at more attractive interest rates, while also extending~~ the duration of our debt. 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 extend2025 Merger Notes, the ~~maturity date by converting~~2028 Merger Notes, the ~~facility into a term loan agreement for an additional one-year term.~~

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Additionally, 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, 2021,2038 Merger Notes, 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 connection 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 nine months of 2021.~~2048 Merger Notes.

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,~~19, 2022, 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~~Board.

Sources of ~~Directors.~~Liquidity - Asset Sale-Leaseback Transactions

~~Debt Ratings~~

AsWe have leveraged our strategic asset investment program to create value from certain assets to enable reinvestment in KDP. These transactions are accounted for as sale-leaseback transactions. We received $77 million of ~~September 30, 2021,~~cash proceeds from our ~~credit ratings were as follows:~~

~~Rating Agency~~

~~Long-Term Debt Rating~~

~~Commercial Paper Rating~~

~~Outlook~~

~~Date of Last Change~~

~~Moody's~~

~~Baa2~~

~~P-2~~

~~Stable~~

~~February 26, 2021~~

~~S&P~~

~~BBB~~

~~A-2~~

~~Stable~~

~~May 14, 2018~~

~~These debt~~strategic asset investment program during the first nine months of 2022, which are included in Proceeds from sales of property, plant and ~~commercial paper ratings impact~~equipment in the ~~interest we pay on our financing arrangements. A downgrade~~statement 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 September 30, 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.~~flows.

Principal Uses of Capital Resources

~~Through~~Over the ~~remainder of 2021,~~past several years, our principal uses of our capital resources ~~following the DPS Merger are~~were deleveraging, providing shareholder return to our investors through regular quarterly dividends, and investing in KDP to capture market share and drive growth through innovation and routes to market.

~~On October 1, 2021,~~Now that we ~~announced that~~have met our ~~Board~~post-merger goals, we plan to invest in inorganic value creation through M&A, including portfolio expansion, distribution scale, geographic expansion, and new capabilities. In addition to M&A, we may consider special dividends to our investors and have repurchased shares of ~~Directors~~our outstanding common stock, as described below.

Deleveraging and Other Debt Repayments

During the first nine months of 2022, we made net debt repayments of $514 million, which includes the redemption and retirement of the remainder of our 2023 Merger Notes and 2038 Notes, as well as the tender of portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 2048 Merger Notes.

Regular Quarterly Dividends

For the first nine months of 2022, we have declared total dividends of $0.575 per share.

Repurchases of Common Stock

Our Board authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock ~~beginning on January 1, 2022,~~potentially enabling us to ~~opportunistically~~ return value to shareholders. ~~See~~ ~~Expansion of Our Capital Allocation Strategy~~ ~~below.~~

~~Deleveraging~~We repurchased 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. Since the DPS Merger, we have made net repayments of $4,047retired $88 million of ~~our Notes, our commercial paper and our other credit agreements, including $872 million for~~common stock during the first nine months of ~~2021.~~

~~In May 2021, our 2021 Merger Notes were repaid at maturity, using cash generated from operations and the issuance of commercial paper.~~

~~Regular Quarterly 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 for the second quarter of 2021. For the first nine months of 2021, we have declared total dividends of $0.525 per share.2022.

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Capital Expenditures

We ~~have significantly invested~~are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in ~~new~~ facilities in Newbridge, Ireland; Spartanburg, South Carolina; and Allentown, Pennsylvania, in ~~2021~~2022 and ~~2020,~~2021, in order to optimize our supply chain network through integration and productivity projects and to mitigate risk of business interruption.

Purchases of property, plant and equipment were ~~$325~~$260 million and ~~$356~~$325 million for the first nine months of ~~2021~~2022 and ~~2020,~~2021, respectively.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the first nine months of ~~2021~~2022 and ~~2020~~2021 primarily related to ~~our continued investment in state-of-the-art~~the manufacturing and warehousing ~~facilities.~~facilities discussed above. Capital expenditures included in accounts payable and accrued expenses were ~~$180~~$179 million and ~~$255~~$180 million for the first nine months of ~~2021~~2022 and ~~2020,~~2021, respectively, which primarily related to these investments.

~~As we begin~~Investments in Unconsolidated Affiliates

From time to ~~move past the three-year period after the DPS Merger,~~time, we expect ~~that purchases~~to acquire businesses or brands, invest in emerging companies, or enter into various licensing and distribution agreements to expand our product portfolio. Our investments in emerging companies generally involve acquiring a minority interest in equity securities of ~~property, plant and equipment will be approximately 3%~~a company with a protected path to ownership at our future option. In the second quarter of ~~net sales on an annualized basis.~~2022, we invested $50 million in Tractor for a 19.2% equity interest.

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. From time to time, we additionally acquire brand ownership companies to expand our portfolio. These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the ~~reacquisition~~acquisition of ~~our distribution rights.~~an intangible asset. Purchases of intangible assets were ~~$31~~$41 million and ~~$26~~$31 million for the first nine months of 2022 and 2021, ~~and 2020,~~ respectively.

~~Expansion of Our Capital Allocation Strategy~~

Beginning on January 1, 2022, we intend to expand our capital allocation strategy to include inorganic options to drive total shareholder return. Our primary inorganic option to drive total shareholder return will be through strategic acquisitions. However, to the extent our primary option does not occur, we may employ secondary options, which may include the repurchase of shares or special dividends. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for further information.

Uncertainties and Trends Affecting Liquidity

Disruptions in global financial and credit markets, including those caused by the ongoing COVID-19 pandemic and Russia’s invasion of Ukraine, 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 the risk factors discussed under "Risk Factors" in Part 1, Item 1A of our Annual Report, as well as subsequent filings with the SEC, that could have a material effect on production, delivery and consumption of our products, 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 continued deleveraging through the end of 2021;~~

•~~Our ability to access our committed financing arrangements, including our KDP Revolver and our 2021 364-Day Credit Agreement~~;

•~~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;~~

•~~A significant downgrade in our credit ratings~~could limit i) 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; or ii) our ability to issue debt at terms that are favorable to us;

•~~Our continued payment of regular quarterly dividends;~~

•~~Our continued capital expenditures;~~

•~~Future mergers or acquisitions, which may include brand ownership companies, regional bottling companies, distributors and/or distribution rights to further extend our geographic coverage;~~

•~~Future opportunistic repurchases of our common stock or special dividends to drive total shareholder return;~~

•~~Future equity investments;~~

•~~Seasonality of our operating cash flows, which could impact short-term liquidity; and~~

•~~Fluctuations in our tax obligations.~~

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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 Keurig Dr Pepper Inc. (the “Parent”) and the Guarantors on a combined basis after intercompany eliminations; the Parent and the Guarantors' amounts due from and amounts due to 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 Nine Months of ~~2021~~2022
Net sales	$	~~5,384~~6,133

Income from operations	~~1,149~~889
Net income attributable to KDP	~~1,303~~983


(in millions)	(in millions)	September 30, 2021		December 31, 2020		(in millions)	September 30, 2022		December 31, 2021
Current assets	Current assets	$	1,774	$	1,810	Current assets	$	2,093	$	1,594
Non-current assets	Non-current assets	43,821		43,333		Non-current assets	44,411		43,972
Total assets(1)	Total assets(1)	$	45,595	$	45,143	Total assets(1)	$	46,504	$	45,566

Current liabilities	Current liabilities	$	4,164	$	5,148	Current liabilities	$	3,915	$	3,470
Non-current liabilities	Non-current liabilities	17,026		16,164		Non-current liabilities	17,441		17,125
Total liabilities(2)	Total liabilities(2)	$	21,190	$	21,312	Total liabilities(2)	$	21,356	$	20,595

(1)Includes ~~$133~~$3 million and ~~$423~~$209 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(2)Includes ~~$37~~$115 million and ~~$30~~$40 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 third quarter and first nine months of 2021 and 2020 (i) Adjusted income from operations, (ii) Adjusted interest expense, (iii) Adjusted provision for income taxes, (iv) Adjusted net income attributable to KDP and (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. We use these non-GAAP financial measures, in addition to U.S. GAAP financial measures, to evaluate our operating and financial performance and to compare such performance to that of prior periods and to the performance of our competitors. Additionally, we use these non-GAAP financial measures in making operational and financial decisions and in our budgeting and planning process. We believe that providing these non-GAAP financial measures to investors helps investors evaluate our 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 us.

For the third quarter and first nine months of 2021 and 2020, 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; (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 KDP; (vi) non-cash changes in deferred tax liabilities related to goodwill and other intangible assets as a result of tax rate or apportionment changes; and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the third quarter and first nine 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 non-routine legal matters; (v) the loss on early extinguishment of debt related to the redemption of debt, (vi) incremental costs to our operations related to risks associated with the COVID-19 pandemic and (vii) impairment recognized on our equity method investments with Bedford and LifeFuels.

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 third quarter and first nine months of 2021 and 2020, 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 Third Quarter of 2021~~

~~(Unaudited, in millions, except per share data)~~

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Income from operations Operating margin
Reported $ 1,415 $ 1,835 56.5 % $ 1,040 $ 795 24.5 %
Items Affecting Comparability:
Mark to market 27 (27) (18) (9)
Amortization of intangibles — — (34) 34
Stock compensation — — (3) 3
Restructuring and integration costs — — (53) 53
Productivity (21) 21 (23) 44
Nonroutine legal matters — — (7) 7
COVID-19 (3) 3 (1) 4
Transaction costs — — (1) 1
Malware incident — — 1 (1)
Adjusted $ 1,418 $ 1,832 56.4 % $ 901 $ 931 28.6 %

Interest expense Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share
Reported $ 116 $ 678 $ 149 22.0 % $ 530 $ 0.37
Items Affecting Comparability:
Mark to market — (9) (3) (6) —
Amortization of intangibles — 34 9 25 0.02
Amortization of deferred financing costs (2) 2 2 — —
Amortization of fair value debt adjustment (4) 4 1 3 —
Stock compensation — 3 — 3 —
Restructuring and integration costs — 53 13 40 0.03
Productivity — 44 11 33 0.02
Loss on early extinguishment of debt — — (1) 1 —
Nonroutine legal matters — 7 2 5 —
COVID-19 — 4 1 3 —
Transaction costs — 1 — 1 —
Malware incident — (1) (1) — —
Change in deferred tax liabilities related to goodwill and other intangible assets — — 7 (7) —
Adjusted $ 110 $ 820 $ 190 23.2 % $ 631 $ 0.44

~~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 Third Quarter of 2020~~

~~(Unaudited, in millions, except per share data)~~

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Income from operations Operating margin
Reported $ 1,316 $ 1,704 56.4 % $ 949 $ 753 24.9 %
Items Affecting Comparability:
Mark to market 46 (46) (1) (45)
Amortization of intangibles — — (34) 34
Stock compensation — — (6) 6
Restructuring and integration costs — — (39) 39
Productivity (10) 10 (20) 30
Nonroutine legal matters — — (8) 8
COVID-19 (19) 19 (30) 49
Adjusted $ 1,333 $ 1,687 55.9 % $ 811 $ 874 28.9 %

Interest expense Impairment of investments and note receivable Income before provision for income taxes Provision for income taxes Effective tax rate Net income including non-controlling interest Diluted earnings per share
Reported $ 148 $ 16 $ 584 $ 141 24.1 % $ 443 $ 0.31
Items Affecting Comparability:
Mark to market (1) — (44) (13) (31) (0.02)
Amortization of intangibles — — 34 9 25 0.02
Amortization of deferred financing costs (2) — 2 1 1 —
Amortization of fair value debt adjustment (6) — 6 1 5 —
Stock compensation — — 6 1 5 —
Restructuring and integration costs — — 39 8 31 0.02
Productivity — — 30 8 22 0.02
Impairment on Investment — (16) 16 4 12 0.01
Nonroutine legal matters — — 8 1 7 —
COVID-19 — — 49 12 37 0.03
Adjusted $ 139 $ — $ 730 $ 173 23.7 % $ 557 $ 0.39

~~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 Nine Months of 2021~~

~~(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 $ 4,087 $ 5,205 56.0 % $ 3,040 $ 2,169 23.3 %
Items Affecting Comparability:
Mark to market 53 (53) 32 (85)
Amortization of intangibles — — (101) 101
Stock compensation — — (14) 14
Restructuring and integration costs — — (145) 145
Productivity (43) 43 (72) 115
Nonroutine legal matters — — (23) 23
COVID-19 (22) 22 (9) 31
Transaction costs — — (1) 1
Malware incident — — 3 (3)
Adjusted $ 4,075 $ 5,217 56.1 % $ 2,710 $ 2,511 27.0 %

Interest expense Loss on early extinguishment of debt Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share
Reported $ 381 $ 105 $ 1,689 $ 387 22.9 % $ 1,303 $ 0.91
Items Affecting Comparability:
Mark to market 7 — (92) (23) (69) (0.05)
Amortization of intangibles — — 101 26 75 0.05
Amortization of deferred financing costs (6) — 6 2 4 —
Amortization of fair value debt adjustment (14) — 14 3 11 0.01
Stock compensation — — 14 14 — —
Restructuring and integration costs — — 145 35 110 0.08
Productivity — — 115 29 86 0.06
Loss on early extinguishment of debt — (105) 105 24 81 0.06
Nonroutine legal matters — — 23 5 18 0.01
COVID-19 — — 31 8 23 0.02
Transaction costs — — 1 — 1 —
Malware incident — — (3) (1) (2) —
Change in deferred tax liabilities related to goodwill and other intangible assets — — — 1 (1) —
Adjusted $ 368 $ — $ 2,149 $ 510 23.7 % $ 1,640 $ 1.15

~~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 Nine 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 $ 3,779 $ 4,718 55.5 % $ 2,978 $ 1,780 20.9 %
Items Affecting Comparability:
Mark to market 2 (2) (28) 26
Amortization of intangibles — — (100) 100
Stock compensation — — (21) 21
Restructuring and integration costs — — (143) 143
Productivity (28) 28 (75) 103
Nonroutine legal matters — — (43) 43
COVID-19 (38) 38 (79) 117
Adjusted $ 3,715 $ 4,782 56.3 % $ 2,489 $ 2,333 27.5 %

Interest expense Loss on early extinguishment of debt Impairment of investment and note receivable Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share
Reported $ 458 $ 4 $ 102 $ 1,195 $ 298 24.9 % $ 897 $ 0.63
Items Affecting Comparability:
Mark to market (28) — — 54 13 41 0.03
Amortization of intangibles — — — 100 27 73 0.05
Amortization of deferred financing costs (8) — — 8 2 6 —
Amortization of fair value debt adjustment (18) — — 18 4 14 0.01
Stock compensation — — — 21 4 17 0.01
Restructuring and integration costs — — 143 34 109 0.08
Productivity — — — 103 27 76 0.05
Loss on early extinguishment of debt — (4) — 4 1 3 —
Impairment of investment and note receivable — — (102) 102 25 77 0.05
Nonroutine legal matters — — — 43 10 33 0.02
COVID-19 — — — 117 29 88 0.06
Adjusted $ 404 $ — $ — $ 1,908 $ 474 24.8 % $ 1,434 $ 1.01

~~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 third quarter of 2021:
Income from Operations
Coffee Systems $ 334 $ 43 $ 377
Packaged Beverages 288 24 312
Beverage Concentrates 286 3 289
Latin America Beverages 37 — 37
Unallocated corporate costs (150) 66 (84)
Total income from operations $ 795 $ 136 $ 931
For the third quarter of 2020:
Income from Operations
Coffee Systems $ 320 $ 53 $ 373
Packaged Beverages 260 44 304
Beverage Concentrates 262 3 265
Latin America Beverages 25 — 25
Unallocated corporate costs (114) 21 (93)
Total income from operations $ 753 $ 121 $ 874

~~KEURIG DR PEPPER INC.~~

~~RECONCILIATION OF SEGMENT ITEMS TO CERTAIN NON-GAAP ADJUSTED SEGMENT ITEMS~~

~~(Unaudited)~~

(in millions) Reported Items Affecting Comparability Adjusted GAAP
For the first nine months of 2021:
Income from Operations
Coffee Systems $ 992 $ 145 $ 1,137
Packaged Beverages 721 74 795
Beverage Concentrates 778 6 784
Latin America Beverages 95 2 97
Unallocated corporate costs (417) 115 (302)
Total income from operations $ 2,169 $ 342 $ 2,511
For the first nine months of 2020:
Income from Operations
Coffee Systems $ 882 $ 201 $ 1,083
Packaged Beverages 657 119 776
Beverage Concentrates 679 5 684
Latin America Beverages 73 2 75
Unallocated corporate costs (511) 226 (285)
Total income from operations $ 1,780 $ 553 $ 2,333

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

~~We are exposed~~There have been no material changes to the disclosures on 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 lossesrisk made in our income statement as incurred. As of September 30, 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 $42 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 September 30, 2021, we had derivative contracts outstanding with a notional value of $879 million maturing at various dates through September 25, 2024.

~~INTEREST RATE RISK~~

We centrally manage our debt portfolio through the use of interest rate contracts and monitor our mix of fixed-rate and variable-rate debt. As of September 30, 2021, the carrying value of our fixed-rate debt, excluding lease obligations, was $11,727 million and our variable-rate debt was $998 million, comprised entirely of commercial paper. Additionally, as of September 30, 2021, the total notional value of receive-variable, pay-fixed interest rate swaps was $450 million and the total notional value of receive-fixed, pay-variable interest rate swaps was $250 million. Our variable-rate instruments are generally based on LIBOR and a credit spread.

We estimate that the potential impact to our interest rate expense associated with variable rate debt and derivative instruments resulting from a hypothetical interest rate change of 1%, based on variable-rate debt and derivative instrument levels as of September 30, 2021, would be an increase of approximately $8 million or decrease of approximately $3 million. Our estimate of the annual impact to interest expense reflects our assumption that LIBOR will not fall below 0%.

~~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, sucrose and natural gas (for use in processing and packaging).

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 September 30, 2021, we had derivative contracts outstanding with a notional value of $440 million maturing at various dates through February 24, 2023. The fair market value of these contracts as of September 30, 2021 was a net asset of $133 million.

~~As a result of the current inflationary environment, described above in Item 2.~~ ~~Management’s Discussion and Analysis~~, we have fully utilized the aforementioned derivative instruments and supplier pricing agreements to minimize the further risk of inflation in the fourth quarter of 2021. As of September 30, 2021, we believe the impact of a 10% change (up or down) in market prices for these commodities would be minimal to our income from operations for the remainder of the year ending December 31, 2021.Annual Report.

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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 September 30, ~~2021,~~2022, 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 September 30, ~~2021~~2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

We are occasionally subject to litigation or other legal proceedings relating to our business. See Note 15 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 asserted claims for breach of contract and promissory estoppel against~~ ~~BodyArmor~~ ~~and asserted a claim for tortious interference against Mr. Repole, in each case in connection with~~ ~~BodyArmor'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. 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.

ITEM 1A. Risk Factors

There have been no material changes from the risk factors set forth in Part I, Item 1A in our Annual Report.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 1, 2021, our Board ~~of Directors~~ authorized a share repurchase program of up to $4 billion of our outstanding common stock, enabling us to opportunistically return value to shareholders. The $4 billion authorization is effective for four years, beginning on January 1, 2022 and expiring on December 31, 2025, and does not require the purchase of any minimum number of shares. We did not repurchase any shares under this program during the third quarter of 2022.

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ITEM 6. Exhibits


3.1			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).
3.2			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).
3.3			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).
3.4			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~~incorporated herein by reference).
3.5			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.~~
~~4.1~~			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).
~~4.2~~			~~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).~~
~~4.3~~			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).
~~4.4~~			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).
~~4.5~~			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).
~~4.6~~			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).
~~4.7~~			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).
~~4.8~~			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).
~~4.9~~			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).
~~4.10~~			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).
~~4.11~~			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).
~~4.12~~			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).
~~4.13~~			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).
~~4.14~~			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).
~~4.15~~			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).

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~~4.16~~			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).
~~4.17~~			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).
~~4.18~~			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).
~~4.19~~			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).
~~4.20~~			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).
~~4.21~~			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).
~~4.22~~			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).
~~4.24~~			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).
~~4.25~~			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).
~~4.26~~			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).
~~4.27~~			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).
~~4.28~~			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).
~~4.29~~			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).
~~4.30~~			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).
~~4.31~~			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).
~~4.32~~			~~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).~~
~~4.33~~			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).
~~4.34~~			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 March 15, 2021, 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 March 15, 2021) and incorporated herein by reference).
10.1			~~Amended and Restated Employment~~Letter Agreement ~~dated as of July 2, 2018,~~ by and between ~~Keurig Green Mountain, Inc.~~the Company 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). ++~~

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~~10.2~~			~~Employment Agreement,~~Mauricio Leyva 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). ++
~~10.3~~			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). ++
~~10.4~~			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). ++
~~10.5~~			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). ++
~~10.6~~			~~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).++~~
~~10.7~~			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).++
~~10.8~~			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).++
~~10.9~~			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).++
~~10.10~~			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).
~~10.11~~			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).++
~~10.12~~			Credit Agreement, dated as of February 28, 2018, among Maple Parent Holdings Corp., the banks and issuers of letters of credit party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K (filed on July ~~9, 2018) and incorporated herein by reference).~~
~~10.13~~*			Suspension of Rights Agreement, dated September 10, 2021, among Keurig Dr Pepper Inc. (f/k/a Dr Pepper Snapple Group, Inc.), JPMorgan Chase Bank, N.A., as administrative agent, and the lenders and issuing banks party thereto.*
~~10.14~~			~~Credit Agreement, dated as of March 24, 2021, among Keurig Dr Pepper Inc., the lenders party thereto, and Bank of America, N.A., as administrative agent~~15, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on ~~March 26, 2021)~~July 19, 2022) and incorporated herein by reference). ++
~~10.15~~10.2			~~Separation and Release~~Letter Agreement ~~dated September 24, 2021,~~ by and between the Company and ~~Fernando Cortes~~Ozan Dokmecioglu dated July 25, 2022 (filed as Exhibit ~~10.1~~10.3 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K~~10-Q (filed on ~~September 24, 2021)~~July 28, 2022) and incorporated herein by reference). ++++
10.3			Keurig Dr Pepper Inc. Executive Severance Plan, effective as of July 29, 2022 (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (filed on July 28, 2022) and incorporated herein by reference).++
31.1*			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.
31.2*			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.
32.1**			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.
32.2**			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 September 30, ~~2021,~~2022, formatted in 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~~George Lagoudakis

	Name:	~~Ozan Dokmecioglu~~George Lagoudakis
	Title:	Interim Chief Financial Officer ~~& President, International~~
		(Principal Financial Officer)
Date: October ~~28, 2021~~27, 2022


	Interest expense		Loss on early extinguishment of debt		Impairment of investment and note receivable		Income before provision for income taxes		Provision for income taxes		Effective tax rate		Net income attributable to KDP		Diluted earnings per share
Reported	$	458	$	4	$	102	$	1,195	$	298	24.9	%	$	897	$	0.63
Items Affecting Comparability:
Mark to market	(28)		—		—		54		13				41		0.03
Amortization of intangibles	—		—		—		100		27				73		0.05
Amortization of deferred financing costs	(8)		—		—		8		2				6		—
Amortization of fair value debt adjustment	(18)		—		—		18		4				14		0.01
Stock compensation	—		—		—		21		4				17		0.01
Restructuring and integration costs			—		—		143		34				109		0.08
Productivity	—		—		—		103		27				76		0.05
Loss on early extinguishment of debt	—		(4)		—		4		1				3		—
Impairment of investment and note receivable	—		—		(102)		102		25				77		0.05
Nonroutine legal matters	—		—		—		43		10				33		0.02
COVID-19	—		—		—		117		29				88		0.06
Adjusted	$	404	$	—	$	—	$	1,908	$	474	24.8	%	$	1,434	$	1.01