UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED ~~September 30, 2022~~March 31, 2023

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

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-33829

Keurig Dr Pepper Inc.

(Exact name of registrant as specified in its charter)


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

53 South Avenue

Burlington, Massachusetts

01803

(Address of principal executive offices)

(781) 418-7000

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock

KDP

The Nasdaq Stock Market LLC

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

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

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

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

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

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

As of ~~October~~April 25, ~~2022,~~2023, there were ~~1,416,251,307~~1,403,776,408 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		7
			1	General	8			1	General	7
			2	Long-Term Obligations and Borrowing Arrangements	9			2	Long-Term Obligations and Borrowing Arrangements	8
			3	Goodwill and Other Intangible Assets	12			3	Goodwill and Other Intangible Assets	10
			4	Derivatives	13			4	Derivatives	11
			5	Leases	17			5	Leases	15
			6	Segments	19			6	Segments	16
			7	Earnings Per Share	20			7	Revenue Recognition	18
			8	Stock-Based Compensation	20			8	Earnings Per Share	18
			9	Restructuring and Integration Costs	21			9	Stock-Based Compensation	19
			10	Revenue Recognition	22			10	Investments	19
			11	Income Taxes	23			11	Income Taxes	19
			12	Investments	24			12	Accumulated Other Comprehensive Income	20
			13	Accumulated Other Comprehensive Income (Loss)	25			13	Other Financial Information	21
			14	Other Financial Information	26			14	Commitments and Contingencies	23
			15	Commitments and Contingencies	27			15	Transactions with Variable Interest Entities	24
			16	Transactions with Variable Interest Entities	29			16	Restructuring Liabilities	25

		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		30		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		26
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk		57		Item 3.	Quantitative and Qualitative Disclosures About Market Risk		41
		Item 4.	Controls and Procedures		58		Item 4.	Controls and Procedures		41

Part II.	Part II.	Other Information				Part II.	Other Information
		Item 1.	Legal Proceedings		58		Item 1.	Legal Proceedings		42
		Item 1A.	Risk Factors		58		Item 1A.	Risk Factors		42
		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42
		Item 6.	Exhibits		59		Item 6.	Exhibits		43

s-i

KEURIG DR PEPPER INC.

MASTER GLOSSARY


Term						Definition


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

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


IRi						Information Resources, Inc.

KDP						Keurig Dr Pepper Inc.

KDP Revolver						The Company's $2,400 million revolving credit facility, which was entered into on February 28, 2018 and terminated on February 23, 2022.
Keurig						Keurig Green Mountain, Inc., a wholly-owned subsidiary of KDP, and the brand of our brewers
LIBOR						London Interbank Offered Rate
LRB						Liquid refreshment beverages
NCB						Non-carbonated beverage
Notes						Collectively, the Company's senior unsecured notes
Nutrabolt						Woodbolt Holdings LLC, d/b/a Nutrabolt, an equity method investment of KDP

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

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

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					First Quarter
(in millions, except per share data)	(in millions, except per share data)	2022		2021		2022		2021		(in millions, except per share data)		2023		2022
Net sales	Net sales	$	3,622	$	3,250	$	10,254	$	9,292	Net sales		$	3,353	$	3,078
Cost of sales	Cost of sales	1,721		1,415		4,927		4,087		Cost of sales		1,609		1,428
Gross profit	Gross profit	1,901		1,835		5,327		5,205		Gross profit		1,744		1,650
Selling, general and administrative expenses	Selling, general and administrative expenses	1,196		1,040		3,418		3,040		Selling, general and administrative expenses		1,165		1,018
Impairment of intangible assets		311		—		311		—

Gain on litigation settlement	Gain on litigation settlement	—		—		(299)		—		Gain on litigation settlement		—		(299)
Other operating income, net	Other operating income, net	—		—		(35)		(4)		Other operating income, net		(5)		(35)
Income from operations	Income from operations	394		795		1,932		2,169		Income from operations		584		966
Interest expense	Interest expense	207		116		570		381		Interest expense		23		188
Loss on early extinguishment of debt	Loss on early extinguishment of debt	—		—		217		105		Loss on early extinguishment of debt		—		48
Gain on sale of equity method investment	Gain on sale of equity method investment	—		—		(50)		—		Gain on sale of equity method investment		—		(50)
Impairment of investments and note receivable	Impairment of investments and note receivable	—		—		12		—		Impairment of investments and note receivable		—		6
Other expense (income), net		4		1		22		(6)
Other (income) expense, net										Other (income) expense, net		(20)		9
Income before provision for income taxes	Income before provision for income taxes	183		678		1,161		1,689		Income before provision for income taxes		581		765
Provision for income taxes	Provision for income taxes	4		149		179		387		Provision for income taxes		114		180
Net income including non-controlling interest	Net income including non-controlling interest	179		529		982		1,302		Net income including non-controlling interest		467		585
Less: Net loss attributable to non-controlling interest	Less: Net loss attributable to non-controlling interest	(1)		(1)		(1)		(1)		Less: Net loss attributable to non-controlling interest		—		—
Net income attributable to KDP	Net income attributable to KDP	$	180	$	530	$	983	$	1,303	Net income attributable to KDP		$	467	$	585

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.13	$	0.37	$	0.69	$	0.92	Basic		$	0.33	$	0.41
Diluted	Diluted	0.13		0.37		0.69		0.91		Diluted		0.33		0.41
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	1,416.1		1,417.6		1,417.3		1,414.9		Basic		1,406.2		1,418.2
Diluted	Diluted	1,427.2		1,428.5		1,428.8		1,427.5		Diluted		1,417.0		1,429.7

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					First Quarter
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)		2023		2022
Net income including non-controlling interest	Net income including non-controlling interest	$	179	$	529	$	982	$	1,302	Net income including non-controlling interest		$	467	$	585
Other comprehensive (loss) income	Other comprehensive (loss) income									Other comprehensive (loss) income
Foreign currency translation adjustments	Foreign currency translation adjustments	(249)		(137)		(283)		(9)		Foreign currency translation adjustments		108		99
Net change in pension and post-retirement liability, net of tax of $—, $—, $— and $—, respectively		—		—		(3)		—
Net change in cash flow hedges, net of tax of $12, $4, $98 and $(22), respectively		35		15		303		(62)
Total other comprehensive (loss) income		(214)		(122)		17		(71)
Net change in pension and post-retirement liability, net of tax of $0 and $0, respectively										Net change in pension and post-retirement liability, net of tax of $0 and $0, respectively		—		—
Net change in cash flow hedges, net of tax of $21 and $(48), respectively										Net change in cash flow hedges, net of tax of $21 and $(48), respectively		(82)		142
Total other comprehensive income										Total other comprehensive income		26		241
Comprehensive income including non-controlling interest	Comprehensive income including non-controlling interest	(35)		407		999		1,231		Comprehensive income including non-controlling interest		493		826
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 (loss) income attributable to KDP		$	(35)	$	407	$	999	$	1,231
Comprehensive income attributable to KDP										Comprehensive income attributable to KDP		$	493	$	826

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,			March 31,		December 31,
(in millions, except share and per share data)	(in millions, except share and per share data)	2022		2021		(in millions, except share and per share data)	2023		2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	925	$	567	Cash and cash equivalents	$	204	$	535
Restricted cash and cash equivalents		3		1

Trade accounts receivable, net	Trade accounts receivable, net	1,472		1,148		Trade accounts receivable, net	1,451		1,484
Inventories	Inventories	1,438		894		Inventories	1,391		1,314
Prepaid expenses and other current assets	Prepaid expenses and other current assets	487		447		Prepaid expenses and other current assets	540		471
Total current assets	Total current assets	4,325		3,057		Total current assets	3,586		3,804
Property, plant and equipment, net	Property, plant and equipment, net	2,483		2,494		Property, plant and equipment, net	2,480		2,491
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates	76		30		Investments in unconsolidated affiliates	1,009		1,000
Goodwill	Goodwill	20,024		20,182		Goodwill	20,117		20,072
Other intangible assets, net	Other intangible assets, net	23,299		23,856		Other intangible assets, net	23,273		23,183
Other non-current assets	Other non-current assets	1,196		937		Other non-current assets	1,160		1,252
Deferred tax assets	Deferred tax assets	37		42		Deferred tax assets	35		35
Total assets	Total assets	$	51,440	$	50,598	Total assets	$	51,660	$	51,837
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	5,284	$	4,316	Accounts payable	$	4,947	$	5,206
Accrued expenses	Accrued expenses	1,129		1,110		Accrued expenses	1,046		1,153
Structured payables	Structured payables	145		142		Structured payables	137		137
Short-term borrowings and current portion of long-term obligations	Short-term borrowings and current portion of long-term obligations	—		304		Short-term borrowings and current portion of long-term obligations	2,310		895
Other current liabilities	Other current liabilities	675		613		Other current liabilities	687		685
Total current liabilities	Total current liabilities	7,233		6,485		Total current liabilities	9,127		8,076
Long-term obligations	Long-term obligations	11,561		11,578		Long-term obligations	9,929		11,072
Deferred tax liabilities	Deferred tax liabilities	5,745		5,986		Deferred tax liabilities	5,739		5,739
Other non-current liabilities	Other non-current liabilities	1,800		1,577		Other non-current liabilities	1,763		1,825
Total liabilities	Total liabilities	26,339		25,626		Total liabilities	26,558		26,712
Commitments and contingencies	Commitments and contingencies					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, 1,416,251,307 and 1,418,119,197 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		14		14
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,403,720,858 and 1,408,394,293 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,403,720,858 and 1,408,394,293 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	14		14
Additional paid-in capital	Additional paid-in capital	21,730		21,785		Additional paid-in capital	21,210		21,444
Retained earnings	Retained earnings	3,367		3,199		Retained earnings	3,724		3,539
Accumulated other comprehensive loss		(9)		(26)
Accumulated other comprehensive income						Accumulated other comprehensive income	155		129
Total stockholders' equity	Total stockholders' equity	25,102		24,972		Total stockholders' equity	25,103		25,126
Non-controlling interest	Non-controlling interest	(1)		—		Non-controlling interest	(1)		(1)
Total equity	Total equity	25,101		24,972		Total equity	25,102		25,125
Total liabilities and equity	Total liabilities and equity	$	51,440	$	50,598	Total liabilities and equity	$	51,660	$	51,837

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		First Nine Months					First Quarter
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Operating activities:	Operating activities:					Operating activities:
Net income attributable to KDP	Net income attributable to KDP	$	983	$	1,303	Net income attributable to KDP	$	467	$	585
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	301		304		Depreciation expense	107		106
Amortization of intangibles	Amortization of intangibles	100		101		Amortization of intangibles	34		34
Other amortization expense	Other amortization expense	129		118		Other amortization expense	45		42
Provision for sales returns	Provision for sales returns	38		48		Provision for sales returns	10		12
Deferred income taxes	Deferred income taxes	(281)		(21)		Deferred income taxes	—		8
Employee stock-based compensation expense	Employee stock-based compensation expense	43		68		Employee stock-based compensation expense	29		(15)
Loss on early extinguishment of debt	Loss on early extinguishment of debt	217		105		Loss on early extinguishment of debt	—		48

Gain on sale of equity method investment	Gain on sale of equity method investment	(50)		—		Gain on sale of equity method investment	—		(50)
Gain on disposal of property, plant and equipment	Gain on disposal of property, plant and equipment	(38)		(5)		Gain on disposal of property, plant and equipment	(5)		(38)
Unrealized loss on foreign currency		22		1
Unrealized loss (gain) on derivatives		387		(94)
Settlements of interest rate contracts		125		—
Equity in loss of unconsolidated affiliates		6		2
Impairment of intangible assets		311		—
Unrealized gain on foreign currency						Unrealized gain on foreign currency	(2)		(11)
Unrealized gain on derivatives						Unrealized gain on derivatives	(95)		—

Equity in (earnings) loss of unconsolidated affiliates						Equity in (earnings) loss of unconsolidated affiliates	(9)		3

Impairment on investments and note receivable of unconsolidated affiliate	Impairment on investments and note receivable of unconsolidated affiliate	12		—		Impairment on investments and note receivable of unconsolidated affiliate	—		6
Other, net	Other, net	22		10		Other, net	(4)		13
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Trade accounts receivable	Trade accounts receivable	(372)		(126)		Trade accounts receivable	28		(73)
Inventories	Inventories	(552)		(210)		Inventories	(74)		(147)
Income taxes receivable and payables, net	Income taxes receivable and payables, net	(106)		(11)		Income taxes receivable and payables, net	60		135
Other current and non-current assets	Other current and non-current assets	(380)		(181)		Other current and non-current assets	(151)		(284)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	1,014		536		Accounts payable and accrued expenses	(391)		151
Other current and non-current liabilities	Other current and non-current liabilities	167		(15)		Other current and non-current liabilities	22		138
Net change in operating assets and liabilities	Net change in operating assets and liabilities	(229)		(7)		Net change in operating assets and liabilities	(506)		(80)
Net cash provided by operating activities	Net cash provided by operating activities	2,098		1,933		Net cash provided by operating activities	71		663
Investing activities:	Investing activities:					Investing activities:

Proceeds from sale of investment in unconsolidated affiliates	Proceeds from sale of investment in unconsolidated affiliates	50		—		Proceeds from sale of investment in unconsolidated affiliates	—		50
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(260)		(325)		Purchases of property, plant and equipment	(62)		(109)
Proceeds from sales of property, plant and equipment	Proceeds from sales of property, plant and equipment	79		18		Proceeds from sales of property, plant and equipment	7		78
Purchases of intangibles	Purchases of intangibles	(19)		(31)		Purchases of intangibles	(51)		(10)
Issuance of related party note receivable	Issuance of related party note receivable	(18)		(17)		Issuance of related party note receivable	—		(6)
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates	(48)		—		Investments in unconsolidated affiliates	—		(3)

Other, net	Other, net	3		5		Other, net	1		3
Net cash used in investing activities		$	(213)	$	(350)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	$	(105)	$	3

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 Quarter
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of Notes		$	3,000	$	2,150

Repayments of Notes	Repayments of Notes	(3,365)		(3,595)		Repayments of Notes	$	—	$	(201)
Proceeds from issuance of commercial paper	Proceeds from issuance of commercial paper	500		4,756		Proceeds from issuance of commercial paper	3,523		—
Repayments of commercial paper	Repayments of commercial paper	(649)		(3,758)		Repayments of commercial paper	(3,258)		(149)

Repayments of 2019 KDP Term Loan		—		(425)

Proceeds from structured payables	Proceeds from structured payables	114		112		Proceeds from structured payables	34		38
Repayments of structured payables	Repayments of structured payables	(111)		(123)		Repayments of structured payables	(32)		(37)
Cash dividends paid	Cash dividends paid	(796)		(687)		Cash dividends paid	(281)		(265)
Repurchases of common stock	Repurchases of common stock	(88)		—		Repurchases of common stock	(231)		—
Proceeds from issuance of common stock		—		140

Tax withholdings related to net share settlements	Tax withholdings related to net share settlements	(10)		(125)		Tax withholdings related to net share settlements	(31)		(5)
Payments on finance leases	Payments on finance leases	(65)		(40)		Payments on finance leases	(24)		(20)
Other, net	Other, net	(45)		(35)		Other, net	(3)		(5)
Net cash used in financing activities	Net cash used in financing activities	(1,515)		(1,630)		Net cash used in financing activities	(303)		(644)
Cash, cash equivalents, and restricted cash and 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	370		(47)		Net change from operating, investing and financing activities	(337)		22
Effect of exchange rate changes	Effect of exchange rate changes	(10)		(5)		Effect of exchange rate changes	6		4
Beginning balance	Beginning balance	568		255		Beginning balance	535		568
Ending balance	Ending balance	$	928	$	203	Ending balance	$	204	$	594

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	$	179	$	180	Capital expenditures included in accounts payable and accrued expenses	$	222	$	139
Non-cash conversion of note receivable to investment in unconsolidated affiliate		6		—
Purchases of intangibles		22		—
Transaction costs included in accounts payable and accrued expenses						Transaction costs included in accounts payable and accrued expenses	8		—

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	284		268		Dividends declared but not yet paid	282		266

Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Cash paid for interest	Cash paid for interest	236		284		Cash paid for interest	39		27
Cash paid for income taxes	Cash paid for income taxes	566		408		Cash paid for income taxes	49		37

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

Table of Contents

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)


		Common Stock Issued			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)					Total Stockholders' Equity			Non-controlling Interest				Total Equity			Common Stock Issued				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Income				Total Stockholders' Equity				Non-controlling Interest				Total Equity
(in millions, except per share data)	(in millions, except per share data)	Shares	Amount										(in millions, except per share data)		Shares						Amount
Balance as of January 1, 2022		1,418.1	$	14			$	21,785					$	3,199				$	(26)			$	24,972			$	—	$	24,972
Balance as of January 1, 2023																									Balance as of January 1, 2023	1,408.4		$	14			$	21,444			$	3,539			$	129			$	25,126			$	(1)			$	25,125
Net income	Net income	—	—		—				585		—					585			—				585		Net income	—		—		—				467				—				467				—				467
Other comprehensive income	Other comprehensive income	—	—		—				—		241					241			—				241		Other comprehensive income	—		—		—				—				26				26				—				26
Dividends declared, $0.1875 per share		—	—		—				(266)		—					(266)			—				(266)

Shares issued under employee stock-based compensation plans and other		0.4	—		—				—		—					—			—				—
Tax withholdings related to net share settlements		—	—		(5)				—		—					(5)			—				(5)
Stock-based compensation and stock options exercised		—	—		(16)				—		—					(16)			—				(16)
Balance as of March 31, 2022		1,418.5	14		21,764				3,518		215					25,511			—				25,511
Net income		—	—		—				218		—					218			—				218
Other comprehensive loss		—	—		—				—		(10)					(10)			—				(10)
Dividends declared, $0.1875 per share		—	—		—				(265)		—					(265)			—				(265)
Dividends declared, $0.20 per share																									Dividends declared, $0.20 per share	—		—		—				(282)				—				(282)				—				(282)

Repurchases of common stock	Repurchases of common stock	(2.5)	—		(88)				—		—					(88)			—				(88)		Repurchases of common stock	(6.6)		—		(232)				—				—				(232)				—				(232)
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	1.9		—		—				—				—				—				—				—
Tax withholdings related to net share settlements	Tax withholdings related to net share settlements	—	—		(3)				—		—					(3)			—				(3)		Tax withholdings related to net share settlements	—		—		(31)				—				—				(31)				—				(31)
Stock-based compensation and stock options exercised	Stock-based compensation and stock options exercised	—	—		28				—		—					28			—				28		Stock-based compensation and stock options exercised	—		—		29				—				—				29				—				29
Balance as of June 30, 2022		1,416.1	14		21,701				3,471		205					25,391			—				25,391
Net income		—	—		—				180		—					180			(1)				179
Other comprehensive loss		—	—		—				—		(214)					(214)			—				(214)
Dividends declared, $0.20 per share		—	—		—				(284)		—					(284)			—				(284)
Shares issued under employee stock-based compensation plans and other		0.2	—		—				—		—					—			—				—
Tax withholdings related to net share settlements		—	—		(2)				—		—					(2)			—				(2)
Stock-based compensation and stock options exercised		—	—		31				—		—					31			—				31
Balance as of September 30, 2022		1,416.3	$	14	$	21,730			$	3,367	$	(9)				$	25,102		$	(1)			$	25,101
Balance as of March 31, 2023																									Balance as of March 31, 2023	1,403.7		$	14	$	21,210			$	3,724			$	155			$	25,103			$	(1)			$	25,102

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

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

(~~UNAUDITED, CONTINUED~~)


		Common Stock Issued			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)					Total Stockholders' Equity			Non-controlling Interest				Total Equity			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
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		—	—		—				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	Net income	—	—		—				530		—					530			(1)				529		Net income	—		—		—				585				—				585				—				585
Other comprehensive loss	Other comprehensive loss	—	—		—				—		(122)					(122)			—				(122)		Other comprehensive loss	—		—		—				—				241				241								241
Dividends declared, $0.1875 per share	Dividends declared, $0.1875 per share	—	—		—				(266)		—					(266)			—				(266)		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	0.5	—		—				—		—					—			—				—		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	—	—		21				—		—					21			—				21		Stock-based compensation and stock options exercised	—		—		(16)				—				—				(16)				—				(16)
Balance as of September 30, 2021		1,417.9	$	14	$	21,764			$	2,621	$	6				$	24,405		$	—			$	24,405
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

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.

References to the ~~"third~~"first quarter" indicate the Company's quarterly periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~

KDP's significant subsidiary, Maple Parent Holdings Corp., has a fiscal year end of the last Saturday in December, and its interim fiscal quarters end every thirteenth Saturday. The fiscal year for Maple Parent Holdings Corp. includes 53 weeks in 2022 and 52 weeks in 2021. KDP does not adjust for the difference in fiscal year between KDP and Maple Parent Holdings Corp. when applicable, as the difference is within the range permitted by the Exchange Act.2022.

USE OF ESTIMATES

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

~~SIGNIFICANT ACCOUNTING POLICY CHANGES~~

~~Stock-Based Compensation Expense~~REPORTABLE SEGMENTS

~~Prior to~~As of January 1, ~~2022,~~2023, the Company ~~recorded forfeitures as incurred. Effective January 1, 2022,~~revised its segment structure to align with changes in how the ~~Company changed its accounting policy election~~Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources. This change had no impact on the Company’s consolidated results of operations or financial position. Prior period segment results have been recast to 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 accounting policy was recorded effective January 1, 2022. The impact of forfeitures on stock-based compensation has historically been insignificant toreflect the ~~Company.~~

~~Repurchases of Common Stock~~

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)~~

~~UNALLOCATED CORPORATE COST ALIGNMENT~~

Effective January 1, 2022, the Company 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.Company’s new reportable segments. Refer to Note 6 for ~~current year presentation.~~additional information on the Company’s reportable segments and Note 7 for the Company’s disaggregated revenue portfolio for each reportable segment. The ~~following table summarizes~~change in segment structure also resulted in a change to the ~~revised and prior presentations of income from operations at~~Company’s reporting units. Refer to Note 3 for additional information on 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
Company’s reporting units.

RECENTLY ~~ISSUED~~ADOPTED ACCOUNTING STANDARDS

~~In September 2022,~~As of January 1, 2023, the ~~FASB issued~~Company adopted ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The objective of ASU 2022-04 is to require entities to disclose information about the use of supplier finance programs in connection with the purchase of goods and services. While the adoption of ASU 2022-04 ~~is effective for all entities for annual periods beginning after December 15, 2022.~~did not have a material impact on the Company’s unaudited condensed consolidated financial statements, it did impact the nature of the disclosures. The ~~Company is currently evaluating~~previous disclosure was specific to the amount of KDP’s outstanding payment obligations that were voluntarily elected by the supplier and sold to financial institutions as informed by the third party administrators. ASU 2022-04 ~~but expects~~instead requires disclosure of the ~~impact~~amount of KDP’s outstanding obligations loaded into the supplier finance programs by the Company at each reporting period regardless of whether the outstanding obligation has been elected by the supplier to be ~~immaterial~~sold to ~~KDP’s current consolidated~~ financial ~~statement disclosures.~~

~~2. Long-term Obligations and Borrowing Arrangements~~

~~The following table summarizes~~institutions. Refer to Note 13 for additional information on the ~~Company's long-term obligations:~~

(in millions) September 30, 2022 December 31, 2021
Notes $ 11,561 $ 11,733
Less: current portion of long-term obligations — (155)
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, 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~~

Company’s obligations to participating suppliers.

Table of Contents

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

2. Long-term Obligations and Borrowing Arrangements

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


(in millions)	March 31, 2023		December 31, 2022
Notes	$	11,575	$	11,568
Less: current portion of long-term obligations	(1,646)		(496)
Long-term obligations	$	9,929	$	11,072

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


(in millions)	March 31, 2023		December 31, 2022
Commercial paper notes	$	664	$	399
Current portion of long-term obligations	1,646		496
Short-term borrowings and current portion of long-term obligations	$	2,310	$	895

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, 2022		December 31, 2021		Issuance	Maturity Date	Rate	March 31, 2023		December 31, 2022
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	2024 Notes	March 15, 2024	0.750%	1,150		1,150		2024 Notes	March 15, 2024	0.750%	1,150		1,150
2025 Merger Notes	2025 Merger Notes	May 25, 2025	4.417%	529		1,000		2025 Merger Notes	May 25, 2025	4.417%	529		529
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%	1,112		2,000		2028 Merger Notes	May 25, 2028	4.597%	1,112		1,112
2029 Notes	2029 Notes	April 15, 2029	3.950%	1,000		—		2029 Notes	April 15, 2029	3.950%	1,000		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		500		2031 Notes	March 15, 2031	2.250%	500		500
2032 Notes	2032 Notes	April 15, 2032	4.050%	850		—		2032 Notes	April 15, 2032	4.050%	850		850
2038 Notes		May 1, 2038	7.450%	—		125
2038 Merger Notes	2038 Merger Notes	May 25, 2038	4.985%	211		500		2038 Merger Notes	May 25, 2038	4.985%	211		211
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%	391		750		2048 Merger Notes	May 25, 2048	5.085%	391		391
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		500		2051 Notes	March 15, 2051	3.350%	500		500
2052 Notes	2052 Notes	April 15, 2052	4.500%	1,150		—		2052 Notes	April 15, 2052	4.500%	1,150		1,150
Principal amount	Principal amount			11,743		11,875		Principal amount			11,743		11,743
Adjustment from principal amount to carrying amount(1)	Adjustment from principal amount to carrying amount(1)			(182)		(142)		Adjustment from principal amount to carrying amount(1)			(168)		(175)
Carrying amount	Carrying amount			$	11,561	$	11,733	Carrying amount			$	11,575	$	11,568

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

On 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 2029 Notes, the 2032 Notes, and the 2052 Notes. The discount associated with these notes was approximately $16 million, and the Company incurred $23 million in debt issuance costs. The proceeds from the issuance were used to voluntarily prepay and retire the remaining 2023 Merger Notes and to tender portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 2048 Merger Notes. The Company recorded approximately $169 million of loss on early extinguishment of debt, comprised of the tender and make-whole premiums, the write-off of debt issuance costs, and the impact of terminating reverse treasury lock contracts.

108

Table of Contents

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 loss on early extinguishment of these instruments was approximately $3 million, comprised of termination fees and the write-off of the 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, 2022~~March 31, 2023

December 31, ~~2021~~2022

Issuance

Maturity Date

Capacity

Carrying Value

2022 Revolving Credit Agreement(1)

February 23, 2027

4,000

—

(1)The 2022 Revolving Credit Agreement has $200 million letters of credit available, none of which were utilized as of ~~September 30, 2022.~~March 31, 2023.

The 2022 Revolving Credit Agreement replaced the KDP Revolver and the 2021 364-Day Credit Agreement and the proceeds of the credit facility are intended to be used for working capital and for other general corporate purposes of KDP.

Borrowings under the 2022 Revolving Credit Agreement will bear interest at a rate per annum equal to, at KDP's option, an adjusted SOFR rate plus a margin of 0.875% to 1.500% or a base rate plus a margin of 0.000% to 0.500%, in each case, depending on the rating of certain index debt of KDP. The 2022 Revolving Credit Agreement 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 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,~~March 31, 2023, KDP was in compliance with its minimum interest coverage ratio relating to the 2022 Revolving Credit Agreement.

Commercial Paper Program

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


		Third Quarter						First Nine Months							First Quarter
(in millions, except %)	(in millions, except %)	2022			2021			2022			2021			(in millions, except %)		2023			2022
Weighted average commercial paper borrowings	Weighted average commercial paper borrowings	$	—		$	1,398		$	29		$	781		Weighted average commercial paper borrowings		$	506		$	45
Weighted average borrowing rates	Weighted average borrowing rates	—		%	0.26		%	0.58		%	0.26		%	Weighted average borrowing rates		4.86		%	0.30		%

Letter of Credit Facility

In addition to the portion of the 2022 Revolving Credit Agreement reserved for issuance of letters of credit, KDP has an incremental letter of credit facility. Under this facility, $150 million is available for the issuance of letters of credit, ~~$96~~$68 million of which was utilized as of ~~September 30, 2022~~March 31, 2023 and ~~$54~~$82 million of which remains available for use.

FAIR VALUE DISCLOSURES

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

The fair values of KDP's Notes are based on current market rates available to KDP and are considered Level 2 within the fair value hierarchy. The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date. The fair value of KDP's Notes was ~~$10,253~~$10,777 million and ~~$13,078~~$10,495 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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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)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
Balance as of January 1, 2022		$	9,800	$	5,319	$	4,539	$	524	$	20,182
Balance as of January 1, 2023												Balance as of January 1, 2023	$	8,714	$	8,622	$	2,736	$	20,072
Foreign currency translation	Foreign currency translation	(68)		(59)		(39)		8		(158)		Foreign currency translation	—		—		45		45

Balance as of September 30, 2022		$	9,732	$	5,260	$	4,500	$	532	$	20,024
Balance as of March 31, 2023												Balance as of March 31, 2023	$	8,714	$	8,622	$	2,781	$	20,117

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, 2022		December 31, 2021		(in millions)	March 31, 2023		December 31, 2022
Brands(1)	Brands(1)	$	19,370	$	19,865	Brands(1)	$	19,363	$	19,291
Trade names	Trade names	2,480		2,480		Trade names	2,480		2,480
Contractual arrangements	Contractual arrangements	122		123		Contractual arrangements	122		122
Distribution rights(2)	Distribution rights(2)	96		85		Distribution rights(2)	151		100
Total	Total	$	22,068	$	22,553	Total	$	22,116	$	21,993

(1)The ~~decrease~~change in brands with indefinite lives was primarily driven by ~~the impairment of the Bai brand asset of $311 million and~~ foreign currency translation of ~~$184~~$72 million during the first ~~nine months~~quarter of ~~2022. Refer to~~ ~~Impairment Testing~~ ~~below for further information about the impairment charge.~~2023.

(2)The Company ~~executed five agreements to acquire~~acquired certain distribution rights from Nutrabolt during the first ~~nine months~~quarter of ~~2022, which resulted in an increase of~~2023 for approximately ~~$11~~$51 million.

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

September 30, 2022 December 31, 2021
(in millions) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount
Acquired technology $ 1,146 $ (456) $ 690 $ 1,146 $ (401) $ 745
Customer relationships 637 (194) 443 638 (169) 469
Trade names 127 (97) 30 128 (86) 42
Contractual arrangements 24 (10) 14 24 (8) 16
Brands(1)
51 (11) 40 21 (8) 13
Distribution rights 29 (15) 14 29 (11) 18
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.~~


	March 31, 2023						December 31, 2022
(in millions)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Acquired technology	$	1,146	$	(494)	$	652	$	1,146	$	(475)	$	671
Customer relationships	638		(212)		426		638		(204)		434
Trade names	127		(104)		23		127		(101)		26
Brands	51		(20)		31		51		(19)		32
Contractual arrangements	24		(10)		14		24		(10)		14
Distribution rights	29		(18)		11		29		(16)		13

Total	$	2,015	$	(858)	$	1,157	$	2,015	$	(825)	$	1,190

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


		Third Quarter				First Nine Months					First Quarter
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)		2023		2022
Amortization expense	Amortization expense	$	33	$	34	$	100	$	101	Amortization expense		$	34	$	34

Amortization expense of these intangible assets over the remainder of ~~2022~~2023 and the next five years is expected to be as follows:


		Remainder of 2022		For the Years Ending December 31,											Remainder of 2023		For the Years Ending December 31,
(in millions)	(in millions)			2023		2024		2025		2026		2027		(in millions)			2024		2025		2026		2027		2028
Expected amortization expense	Expected amortization expense	$	36	$	138	$	130	$	116	$	111	$	95	Expected amortization expense	$	101	$	127	$	115	$	111	$	95	$	87

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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. Changes to the Company’s operating segments effective January 1, 2023, as described in Note 6, resulted in a change to the Company’s reporting units. The Company’s reporting units are as follows:


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

Management performed a step 0 analysis as of the effective date of the goodwill for the impacted reporting units. The Company also performed an analysis as of ~~September 30, 2022~~March 31, 2023 to ~~evaluate whether any~~ensure that there were no additional 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 ~~this analysis, KDP recorded an impairment charge~~these analyses, management did not identify any indications that the carrying amount of ~~$311 million in the Packaged Beverages segment for the Bai brand in the third quarter of 2022. No other triggering events impacting~~any goodwill or ~~indefinite lived~~any intangible ~~assets were identified during the period.~~asset may not be recoverable.

4. Derivatives

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

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

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

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

INTEREST RATES

Economic Hedges

KDP is exposed to interest rate risk related to its borrowing arrangements and obligations. The Company enters into interest rate contracts to provide predictability in the Company's overall cost structure and to manage the balance of fixed-rate and variable-rate debt. KDP primarily enters into receive-fixed, pay-variable and receive-variable, pay-fixed swaps and swaption contracts. A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are generally reported in interest expense in the unaudited Condensed Consolidated Statements of Income. As of ~~September 30, 2022,~~March 31, 2023, economic interest rate derivative instruments have maturities ranging from ~~January 2027~~February 2033 to ~~April 2032.~~December 2036.

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.

~~In April 2022, concurrently with~~ During the ~~2022 Strategic Refinancing,~~first quarter of 2023, KDP terminated ~~$1.5 billion of notional amount of~~ the remaining forward starting ~~swaps. Upon termination, KDP received $125 million to settle the contracts with the counterparties,~~swaps which ~~will be amortized to interest expense over the respective terms of the issued Notes.~~

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~~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.~~were designated as cash flow hedges. As the forecasted debt transaction ~~is still~~associated with the terminated forward starting swaps was no longer considered probable, ~~to occur,~~ the ~~fair value of~~realized gains associated with the ~~these instruments as of September 30, 2022 was~~termination were 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 induring the ~~unaudited Condensed Consolidated Statements~~first quarter of ~~Income. As of September 30, 2022, the remaining forward starting swaps designated as cash flow hedges have a mandatory termination date in May 2025.~~2023.

FOREIGN EXCHANGE

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

Economic Hedges

KDP holds FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX 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, 2022,~~March 31, 2023, these FX contracts have maturities ranging from ~~October 2022~~April 2023 to September 2024.

Cash Flow Hedges

KDP designates certain FX forward contracts as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above. These designated FX forward contracts relate to 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, 2022,~~March 31, 2023, these FX contracts have maturities ranging from ~~October 2022~~April 2023 to 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. The Company generally holds some combination of future, swap and option contracts that economically hedge certain of its risks. In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items or as an offset to certain costs of production. Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction. Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company's ~~operating~~reportable segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations. As of ~~September 30, 2022,~~March 31, 2023, these commodity contracts have maturities ranging from ~~October 2022~~April 2023 to ~~February~~June 2024.

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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, 2022		December 31, 2021		(in millions)	March 31, 2023		December 31, 2022
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	$	500	$	2,500	Forward starting swaps, designated as cash flow hedges	$	—	$	500
Forward starting swaps, not designated as hedging instruments	Forward starting swaps, not designated as hedging instruments	1,000		—		Forward starting swaps, not designated as hedging instruments	1,500		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	1,900		400		Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments	700		1,900
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	517		463		Forward contracts, not designated as hedging instruments	589		490
Forward contracts, designated as cash flow hedges	Forward contracts, designated as cash flow hedges	545		385		Forward contracts, designated as cash flow hedges	472		511
Commodity contracts, not designated as hedging instruments(1)	Commodity contracts, not designated as hedging instruments(1)	435		529		Commodity contracts, not designated as hedging instruments(1)	529		754

(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.

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 considered level 2 within the fair value hierarchy.


(in millions)	(in millions)	Balance Sheet Location	September 30, 2022		December 31, 2021		(in millions)	Balance Sheet Location	March 31, 2023		December 31, 2022
Assets:	Assets:						Assets:
Interest rate contracts		Prepaid expenses and other current assets	$	—	$	2

FX contracts	FX contracts	Prepaid expenses and other current assets	11		3		FX contracts	Prepaid expenses and other current assets	$	5	$	8
Commodity contracts	Commodity contracts	Prepaid expenses and other current assets	17		133		Commodity contracts	Prepaid expenses and other current assets	7		6
Interest rate contracts	Interest rate contracts	Other non-current assets	49		—		Interest rate contracts	Other non-current assets	36		49
FX contracts	FX contracts	Other non-current assets	1		—		FX contracts	Other non-current assets	1		1
Commodity contracts	Commodity contracts	Other non-current assets	1		2		Commodity contracts	Other non-current assets	1		1

Liabilities:	Liabilities:						Liabilities:
Interest rate contracts	Interest rate contracts	Other current liabilities	$	41	$	—	Interest rate contracts	Other current liabilities	$	22	$	58
FX contracts	FX contracts	Other current liabilities	1		2		FX contracts	Other current liabilities	1		—
Commodity contracts	Commodity contracts	Other current liabilities	69		28		Commodity contracts	Other current liabilities	46		51
Interest rate contracts	Interest rate contracts	Other non-current liabilities	209		5		Interest rate contracts	Other non-current liabilities	123		194
FX contracts		Other non-current liabilities	—		9

Commodity contracts	Commodity contracts	Other non-current liabilities	1		1		Commodity contracts	Other non-current liabilities	3		1

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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, 2022		December 31, 2021		(in millions)	Balance Sheet Location	March 31, 2023		December 31, 2022
Assets:	Assets:						Assets:
FX contracts	FX contracts	Prepaid expenses and other current assets	$	22	$	6	FX contracts	Prepaid expenses and other current assets	$	17	$	21
FX contracts	FX contracts	Other non-current assets	4		1		FX contracts	Other non-current assets	1		1

Interest rate contracts	Interest rate contracts	Other non-current assets	73		—		Interest rate contracts	Other non-current assets	—		88

Liabilities:	Liabilities:						Liabilities:
FX contracts	FX contracts	Other current liabilities	$	4	$	1	FX contracts	Other current liabilities	$	11	$	3
Interest rate contracts		Other current liabilities	—		8
FX contracts		Other non-current liabilities	2		—
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						First Quarter
(in millions)	(in millions)	Income Statement Location	2022		2021		2022		2021		(in millions)	Income Statement Location		2023		2022
Interest rate contracts	Interest rate contracts	Interest expense	$	96	$	(7)	$	219	$	(20)	Interest rate contracts	Interest expense		$	(96)	$	67
Interest rate contracts		Loss on early extinguishment of debt	—		—		31		—

FX contracts	FX contracts	Cost of sales	(7)		(4)		(9)		5		FX contracts	Cost of sales		1		5
FX contracts	FX contracts	Other expense (income), net	(10)		(7)		(9)		4		FX contracts	Other (income) expense, net		—		8
Commodity contracts	Commodity contracts	Cost of sales	29		(71)		33		(127)		Commodity contracts	Cost of sales		(15)		(97)
Commodity contracts	Commodity contracts	SG&A expenses	24		—		(39)		(56)		Commodity contracts	SG&A expenses		14		(37)

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						First Quarter
(in millions)	(in millions)	Income Statement Location	2022		2021		2022		2021		(in millions)	Income Statement Location		2023		2022
Interest rate contracts(1)	Interest rate contracts(1)	Interest expense	$	(2)	$	—	$	(4)	$	—	Interest rate contracts(1)	Interest expense		$	(68)	$	—
FX contracts	FX contracts	Cost of sales	—		6		5		15		FX contracts	Cost of sales		(1)		3

(1)Amounts recognized during the first quarter of 2023 include the realized gains associated with the termination of forward starting swaps designated as cash flow hedges of approximately $66 million.

KDP expects to reclassify approximately $8 million and ~~$16~~$9 million of pre-tax net gains from AOCI into net income during the next twelve months related to interest rate contracts and FX contracts, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

5. Leases

The following table presents the components of lease cost:


		Third Quarter				First Nine Months					First Quarter
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)		2023		2022
Operating lease cost	Operating lease cost	$	34	$	29	$	101	$	92	Operating lease cost		$	39	$	32
Finance lease cost	Finance lease cost									Finance lease cost
Amortization of right-of-use assets	Amortization of right-of-use assets	19		15		57		45		Amortization of right-of-use assets		22		18
Interest on lease liabilities	Interest on lease liabilities	6		5		17		12		Interest on lease liabilities		6		6
Variable lease cost(1)	Variable lease cost(1)	9		8		26		23		Variable lease cost(1)		10		9
Short-term lease cost		1		—		1		—
Sublease income		(1)		—		(1)		(1)

Total lease cost	Total lease cost	$	68	$	57	$	201	$	171	Total lease cost		$	77	$	65

(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 Quarter
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
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	$	92	$	84	Operating cash flows from operating leases	$	36	$	29
Operating cash flows from finance leases	Operating cash flows from finance leases	17		12		Operating cash flows from finance leases	6		6
Financing cash flows from finance leases	Financing cash flows from finance leases	65		40		Financing cash flows from finance leases	24		20
Right-of-use assets obtained in exchange for lease obligations:	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		Operating leases	38		168
Finance leases	Finance leases	84		306		Finance leases	17		23

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

September 30, 2022

December 31, 2021

March 31, 2023

December 31, 2022

Weighted average discount rate

Operating leases

4.3

Operating leases

5.1

5.0

Finance leases

3.6

Finance leases

3.7

Weighted average remaining lease term

Operating leases

10 years

12 years

Operating leases

10 years

11 years

Finance leases

9 years

10 years

Finance leases

9 years

Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 were as follows:


(in millions)	Operating Leases		Finance Leases
Remainder of 2023	$	98	$	90
2024	141		116
2025	133		111
2026	121		148
2027	100		61
2028	78		47
Thereafter	519		264
Total future minimum lease payments	1,190		837
Less: imputed interest	(275)		(131)
Present value of minimum lease payments	$	915	$	706

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~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, 2022 were as follows:~~

(in millions) Operating Leases Finance Leases
Remainder of 2022 $ 23 $ 30
2023 129 118
2024 122 111
2025 114 106
2026 104 144
2027 83 57
Thereafter 485 288
Total future minimum lease payments 1,060 854
Less: imputed interest (209) (135)
Present value of minimum lease payments $ 851 $ 719

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of ~~September 30, 2022,~~March 31, 2023, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately ~~$205~~$208 million. These leases are expected to commence between the fourth quarter of ~~2022~~2023 and 2025, with initial lease terms ranging from 4 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~~quarter of ~~2022.~~2023. The following table presents details of the transaction. The gain on the sale-leaseback is recorded in Other operating ~~(income) expense,~~income, net, and the leaseback is accounted for as an operating lease.


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

March 31, 2023(1)								March 31, 2023(1)	$	7	$	1	$	6

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

The initial term of the leaseback is approximately 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 1615 for additional information about the RVG associated with the asset sale-leaseback transaction.

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

6. Segments

Effective January 1, 2023, the Company revised its segment structure to align with changes in how the Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources. The Company's reportable segments consist of the following:

•The ~~Coffee Systems~~U.S. Refreshment Beverages segment reflects sales in the U.S. from the manufacture and ~~Canada~~distribution of branded concentrates, syrup and finished beverages, including the sales of the Company's own brands and third-party brands, to third-party bottlers, distributors and retailers.

•The U.S. Coffee segment reflects sales in the U.S. from the manufacture and distribution of finished goods relating to the Company's K-Cup pods, single-serve brewers ~~K-Cup pods~~and accessories, and other coffee ~~products.~~products to partners, retailers and directly to consumers through the Company’s Keurig.com website.

•The ~~Packaged Beverages~~International segment reflects sales in international markets, including the ~~U.S.~~following:

◦Sales in Canada, Mexico, the Caribbean and ~~Canada~~other international markets from the manufacture and distribution of branded concentrates, syrup and 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.~~distributors 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.retailers.

•◦~~The Latin America Beverages segment reflects sales primarily~~Sales in ~~Mexico and the Caribbean~~Canada from the manufacture and distribution of ~~concentrates, syrup~~finished goods relating to the Company’s single-serve brewers, K-Cup pods and ~~finished beverages.~~other coffee products.

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~~reportable 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~~

Table 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.Contents

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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

Third Quarter First Nine Months
(in millions) 2022 2021 2022 2021
Segment Results – Net sales
Coffee Systems $ 1,209 $ 1,155 $ 3,497 $ 3,398
Packaged Beverages 1,756 1,547 4,925 4,352
Beverage Concentrates 459 392 1,278 1,095
Latin America Beverages 198 156 554 447
Net sales $ 3,622 $ 3,250 $ 10,254 $ 9,292
Segment Results – Income from operations
Coffee Systems $ 295 $ 365 $ 878 $ 1,088
Packaged Beverages 10 291 728 731
Beverage Concentrates 347 287 915 780
Latin America Beverages 39 37 114 95
Unallocated corporate costs (297) (185) (703) (525)
Income from operations $ 394 $ 795 $ 1,932 $ 2,169


	First Quarter
(in millions)		2023		2022
Segment Results – Net sales
U.S. Refreshment Beverages		$	2,007	$	1,781
U.S. Coffee		931		943
International		415		354
Net sales		$	3,353	$	3,078

Segment Results – Income from operations
U.S. Refreshment Beverages		$	490	$	704
U.S. Coffee		232		255
International		80		64
Unallocated corporate costs		(218)		(57)
Income from operations		$	584	$	966


(in millions)	March 31, 2023		December 31, 2022
Identifiable operating assets
U.S. Refreshment Beverages	$	28,991	$	28,987
U.S. Coffee	14,155		14,220
International	6,903		6,873
Segment total	50,049		50,080
Unallocated corporate assets	602		757
Total identifiable operating assets	50,651		50,837
Investments in unconsolidated affiliates	1,009		1,000
Total assets	$	51,660	$	51,837

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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) 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

~~8. Stock-Based Compensation~~

~~The components of stock-based compensation expense are presented below:~~

Third Quarter First Nine Months
(in millions) 2022 2021 2022 2021
Total stock-based compensation expense(1)
$ 31 $ 20 $ 43 $ 68
Income tax benefit (5) (4) (6) (12)
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)
Outstanding as of December 31, 2021 18,808,491 $ 25.74 2.2 $ 693
Granted 3,519,474 35.86
Vested and released (1,030,244) 24.61 38
Forfeited (984,576) 27.12
Outstanding as of September 30, 2022 20,313,145 $ 27.48 1.8 $ 728

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

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

~~9. 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. 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 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, 2022~~	$	19
~~Charges to expense~~	16
~~Cash payments~~	~~(20)~~

~~Balance as of September 30, 2022~~	$	15

~~Table of Contents~~

~~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,~~LRB, 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:~~product portfolio and by reportable segment:

(in millions) Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total
For the third quarter of 2022:
CSD(1)
$ — $ 825 $ 452 $ 147 $ 1,424
NCB(1)
— 827 4 51 882
K-Cup pods(2)
913 — — — 913
Appliances 225 — — — 225
Other 71 104 3 — 178
Net sales $ 1,209 $ 1,756 $ 459 $ 198 $ 3,622
For the third quarter of 2021:
CSD(1)
$ — $ 728 $ 386 $ 115 $ 1,229
NCB(1)
— 705 2 41 748
K-Cup pods(2)
848 — — — 848
Appliances 243 — — — 243
Other 64 114 4 — 182
Net sales $ 1,155 $ 1,547 $ 392 $ 156 $ 3,250
For the first nine months of 2022:
CSD(1)
$ — $ 2,319 $ 1,260 $ 400 $ 3,979
NCB(1)
— 2,289 10 154 2,453
K-Cup pods(2)
2,675 — — — 2,675
Appliances 621 — — — 621
Other 201 317 8 — 526
Net sales $ 3,497 $ 4,925 $ 1,278 $ 554 $ 10,254
For the first nine months of 2021:
CSD(1)
$ — $ 2,063 $ 1,077 $ 324 $ 3,464
NCB(1)
— 1,959 9 123 2,091
K-Cup pods(2)
2,582 — — — 2,582
Appliances 627 — — — 627
Other 189 330 9 — 528
Net sales $ 3,398 $ 4,352 $ 1,095 $ 447 $ 9,292


(in millions)	U.S. Refreshment Beverages		U.S. Coffee		International		Total
















For the first quarter of 2023:
LRB	$	1,970	$	—	$	253	$	2,223
K-Cup pods	—		771		117		888
Appliances	—		125		12		137
Other	37		35		33		105
Net sales	$	2,007	$	931	$	415	$	3,353

For the first quarter of 2022:
LRB	$	1,753	$	—	$	203	$	1,956
K-Cup pods	—		749		106		855
Appliances	—		161		17		178
Other	28		33		28		89
Net sales	$	1,781	$	943	$	354	$	3,078

~~(1)Represents~~LRB represents net sales of owned and partner brands within our ~~portfolio.~~

~~(2) Represents~~portfolio and includes CSDs, NCBs, and contract manufacturing of KDP branded products for our bottlers and distributors. K-Cup pods 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.

8. Earnings Per Share


	First Quarter
(in millions, except per share data)		2023		2022
Net income attributable to KDP		$	467	$	585

Weighted average common shares outstanding		1,406.2		1,418.2
Dilutive effect of stock-based awards		10.8		11.5
Weighted average common shares outstanding and common stock equivalents		1,417.0		1,429.7

Basic EPS		$	0.33	$	0.41
Diluted EPS		0.33		0.41

Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation		1.0		0.9

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~11. Income Taxes~~9. Stock-Based Compensation

The ~~Company’s effective tax rates were as follows:~~components of stock-based compensation expense are presented below:

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

The following is a reconciliation of the provision for income taxes 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 %


	First Quarter
(in millions)		2023		2022
Total stock-based compensation expense(1)		$	29	$	(15)
Income tax (benefit) expense		(5)		4
Stock-based compensation expense, net of tax		$	24	$	(11)

(1)~~For~~The Company recorded a one-time $40 million reduction to stock-based compensation expense as a result of the ~~third quarter and first nine months of 2022, primarily driven by the Company’s incremental income~~change 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 changes.~~

~~(3)For~~forfeiture policy in the first ~~nine months~~quarter of ~~2022, primarily driven by the unfavorable comparison~~2022.

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)
Outstanding as of December 31, 2022	18,038,745	$	27.46	1.6	$	643
Granted	3,090,196	31.53
Vested and released	(2,069,870)	23.41			71
Forfeited	(184,830)	28.24
Outstanding as of March 31, 2023	18,874,241	$	28.57	1.8	$	666

As of March 31, 2023, there was $226 million of unrecognized compensation cost related to ~~the excess tax deductions~~unvested RSUs that ~~were generated from the vesting~~is expected to be recognized over a weighted average period of ~~RSUs during the first nine months of 2021.~~

3.4 years.

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

~~12.~~10. Investments

The following table summarizes investments in unconsolidated affiliates as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


(in millions)	(in millions)	Ownership Interest		September 30, 2022		December 31, 2021		(in millions)	Ownership Interest		March 31, 2023		December 31, 2022
Bedford		30.0	%	$	—	$	—
Nutrabolt								Nutrabolt	29.8	%	$	885	$	874

Tractor	Tractor	19.2	%	50		—		Tractor	19.2	%	48		49
Athletic Brewing								Athletic Brewing	13.1	%	50		51
Dyla LLC	Dyla LLC	12.4	%	12		12		Dyla LLC	12.4	%	12		12
Force Holdings LLC(1)	Force Holdings LLC(1)	33.3	%	4		5		Force Holdings LLC(1)	33.3	%	4		4
Beverage startup companies(2)	Beverage startup companies(2)	(various)		5		8		Beverage startup companies(2)	(various)		5		5
Other	Other	(various)		5		5		Other	(various)		5		5
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates			$	76	$	30	Investments in unconsolidated affiliates			$	1,009	$	1,000

(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,~~11. Income Taxes

The Company’s effective tax rates were as follows:


	First Quarter
(in millions)		2023		2022
Effective tax rate		19.6	%	23.5	%

The change in 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~~effective tax rate was largely driven by the tax benefit received from favorable adjustments upon foreign tax return filing and excess tax deductions that were generated from the vesting of ~~LIBOR + 5% and a term of six months. The convertible note was converted into equity interests~~RSUs during the ~~second~~first 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.~~2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~13.~~12. 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


(in millions)	Foreign Currency Translation Adjustments		Pension and Post-Retirement Benefit Liabilities		Cash Flow Hedges		Accumulated Other Comprehensive Income














For the first quarter of 2023:
Beginning balance	$	(86)	$	(10)	$	225	$	129
Other comprehensive income (loss)	108		—		(30)		78
Amounts reclassified from AOCI	—		—		(52)		(52)
Total other comprehensive income (loss)	108		—		(82)		26
Balance as of March 31, 2023	$	22	$	(10)	$	143	$	155

For the first quarter of 2022:
Beginning balance	$	81	$	(4)	$	(103)	$	(26)
Other comprehensive income	99		—		140		239
Amounts reclassified from AOCI	—		—		2		2
Total other comprehensive income	99		—		142		241
Balance as of March 31, 2022	$	180	$	(4)	$	39	$	215

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						First Quarter
(in millions)	(in millions)	Income Statement Caption	2022		2021		2022		2021		(in millions)	Income Statement Caption		2023		2022
Cash Flow Hedges:	Cash Flow Hedges:										Cash Flow Hedges:
Interest rate contracts(1)	Interest rate contracts(1)	Interest expense	$	(2)	$	—	$	(4)	$	—	Interest rate contracts(1)	Interest expense		$	(68)	$	—
FX contracts	FX contracts	Cost of sales	—		6		5		15		FX contracts	Cost of sales		—		3
Total	Total		(2)		6		1		15		Total			(68)		3
Income tax (benefit) expense	Income tax (benefit) expense		1		(1)		—		(3)		Income tax (benefit) expense			16		(1)
Total, net of tax	Total, net of tax		$	(1)	$	5	$	1	$	12	Total, net of tax			$	(52)	$	2

(1)Amounts reclassified from AOCI into interest expense during the first quarter of 2023 include the realized gains associated with the termination of forward starting swaps designated as cash flow hedges of approximately $66 million. Refer to Note 4 for additional information on the terminated forward starting swaps.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~14.~~13. Other Financial Information

SELECTED BALANCE SHEET INFORMATION

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


		September 30,		December 31,			March 31,		December 31,
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Inventories:	Inventories:					Inventories:
Raw materials	Raw materials	$	432	$	330	Raw materials	$	471	$	475
Work-in-progress	Work-in-progress	7		6		Work-in-progress	9		8
Finished goods	Finished goods	1,026		577		Finished goods	939		858
Total	Total	1,465		913		Total	1,419		1,341
Allowance for excess and obsolete inventories	Allowance for excess and obsolete inventories	(27)		(19)		Allowance for excess and obsolete inventories	(28)		(27)
Total Inventories	Total Inventories	$	1,438	$	894	Total Inventories	$	1,391	$	1,314
Prepaid expenses and other current assets:	Prepaid expenses and other current assets:					Prepaid expenses and other current assets:
Other receivables	Other receivables	$	144	$	112	Other receivables	$	138	$	167
Prepaid income taxes	Prepaid income taxes	27		5		Prepaid income taxes	15		49
Customer incentive programs	Customer incentive programs	57		21		Customer incentive programs	104		25
Derivative instruments	Derivative instruments	50		144		Derivative instruments	29		35
Prepaid marketing	Prepaid marketing	28		12		Prepaid marketing	39		19
Spare parts	Spare parts	83		72		Spare parts	94		89

Income tax receivable	Income tax receivable	15		14		Income tax receivable	17		17
Other	Other	83		67		Other	104		70
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	487	$	447	Total prepaid expenses and other current assets	$	540	$	471
Other non-current assets:	Other non-current assets:					Other non-current assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	832	$	673	Operating lease right-of-use assets	$	892	$	881
Customer incentive programs	Customer incentive programs	50		59		Customer incentive programs	40		46
Derivative instruments	Derivative instruments	128		3		Derivative instruments	39		140

Equity securities(1)	Equity securities(1)	45		58		Equity securities(1)	59		48
Equity securities without readily determinable fair values	Equity securities without readily determinable fair values	1		1		Equity securities without readily determinable fair values	1		1

Other	Other	140		143		Other	129		136
Total other non-current assets	Total other non-current assets	$	1,196	$	937	Total other non-current assets	$	1,160	$	1,252

(1)~~Equity securities are comprised of 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, and are classified as Level 1. Unrealized mark-to market gains and losses are recorded to Other (income) expense, net. For the first quarter of 2023 and 2022, the Company recorded an unrealized mark-to-market gain of $8 million and loss of $3 million, respectively, on its investment in Vita Coco.

2621

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)


		September 30,		December 31,			March 31,		December 31,
(in millions)	(in millions)	2022		2021		(in millions)	2023		2022
Accrued expenses:	Accrued expenses:					Accrued expenses:
Accrued customer trade	Accrued customer trade	$	364	$	446	Accrued customer trade	$	352	$	429
Accrued compensation	Accrued compensation	188		227		Accrued compensation	127		246
Insurance reserve	Insurance reserve	62		33		Insurance reserve	39		53
Accrued interest	Accrued interest	146		55		Accrued interest	152		76
Accrued professional fees	Accrued professional fees	10		19		Accrued professional fees	9		7
Other accrued expenses	Other accrued expenses	359		330		Other accrued expenses	367		342
Total accrued expenses	Total accrued expenses	$	1,129	$	1,110	Total accrued expenses	$	1,046	$	1,153
Other current liabilities:	Other current liabilities:					Other current liabilities:
Dividends payable	Dividends payable	$	284	$	265	Dividends payable	$	282	$	281
Income taxes payable	Income taxes payable	59		144		Income taxes payable	110		87
Operating lease liability	Operating lease liability	97		76		Operating lease liability	105		100
Finance lease liability	Finance lease liability	95		79		Finance lease liability	95		95
Derivative instruments	Derivative instruments	115		39		Derivative instruments	80		112

Other	Other	25		10		Other	15		10
Total other current liabilities	Total other current liabilities	$	675	$	613	Total other current liabilities	$	687	$	685
Other non-current liabilities:	Other non-current liabilities:					Other non-current liabilities:
Operating lease liability	Operating lease liability	$	754	$	608	Operating lease liability	$	810	$	803
Finance lease liability	Finance lease liability	624		621		Finance lease liability	611		618
Pension and post-retirement liability	Pension and post-retirement liability	41		40		Pension and post-retirement liability	38		37
Insurance reserves	Insurance reserves	66		75		Insurance reserves	70		69

Derivative instruments	Derivative instruments	212		143		Derivative instruments	126		195
Deferred compensation liability	Deferred compensation liability	30		43		Deferred compensation liability	32		30
Other	Other	73		47		Other	76		73
Total other non-current liabilities	Total other non-current liabilities	$	1,800	$	1,577	Total other non-current liabilities	$	1,763	$	1,825

ACCOUNTS PAYABLE

KDP has agreements with third party administrators which allow participating suppliers to track ~~payments~~payment obligations 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 amount of the ~~third party administrators that~~outstanding obligations confirmed as valid included in accounts payable as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, $3,923~~2022 was $3,903 million and ~~$3,194~~$4,113 million ~~respectively,~~respectively.

Table of ~~KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.~~Contents

KEURIG DR PEPPER INC.

~~15.~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

14. Commitments and Contingencies

KDP is occasionally subject to 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~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had litigation reserves of ~~$10~~$18 million and ~~$14~~$12 million, respectively. KDP has also identified certain other legal matters where 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

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.). 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 complaint were substantially similar to the claims asserted and relief sought in the TreeHouse complaint.

~~Table of Contents~~

~~KEURIG DR PEPPER INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, CONTINUED)~~

Beginning in 2014, 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 purchasers of Keurig’s products in various federal district courts. In June 2014, these various actions, including the TreeHouse and JBR suits, were transferred to a single judicial district for coordinated pre-trial proceedings (the “Multidistrict Antitrust Litigation”). A consolidated putative class action complaint by direct purchaser plaintiffs was filed in July 2014. 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 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. In August 2021, Winn-Dixie Stores, Inc. and Bi-Lo Holding LLC filed suit against Keurig (Winn-Dixie Stores, Inc. et al. v. Keurig Green Mountain, Inc. et al.) in the EDNY asserting similar claims and was also transferred into the Multidistrict Antitrust Litigation. These cases remain in the early stages of discovery.

A number of putative class actions asserting similar claims and seeking similar relief were previously filed on behalf of purported indirect purchasers of 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 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. 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 filed in September 2014 against Keurig and Keurig Canada Inc. in Ontario, Canada, by 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 65 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.

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 appealed the trial court’s ruling, and the California Court of Appeals affirmed the trial court’s ruling in 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.

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

~~16.~~15. Transactions with Variable Interest Entities

TRANSACTIONS WITH VEYRON SPEs

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.~~beneficiary, as KDP has limited power based on the contractual agreements to direct the activities that most significantly impact the VIEs’ performance.

~~LEASING ARRANGEMENTS~~Leasing Arrangements

As of ~~September 30, 2022,~~March 31, 2023, the Company has entered into ~~twelve~~sixteen lease transactions with the Veyron SPEs, ~~eleven~~fifteen of which were associated with asset sale-leaseback transactions. Refer to Note 5 for additional information about the current period asset sale-leaseback ~~transactions.~~transaction. 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~~March 31, 2023 and December 31, ~~2021~~2022 were ~~$602~~$653 million and ~~$549~~$650 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~~March 31, 2023 and December 31, ~~2021.~~2022.


(in millions)	(in millions)	September 30, 2022(1)		December 31, 2021(2)		(in millions)	March 31, 2023(1)		December 31, 2022(2)
Current assets		$	21	$	19
Non-current assets	Non-current assets	346		312		Non-current assets	$	430	$	430
Current liabilities	Current liabilities	21		13		Current liabilities	22		22
Non-current liabilities	Non-current liabilities	359		323		Non-current liabilities	419		419

(1)The leasing agreements included as of ~~September 30, 2022~~March 31, 2023 include ~~eight~~nine manufacturing sites, ~~three~~five distribution centers and our Frisco, Texas headquarters.

(2)The leasing agreements included as of December 31, ~~2021~~2022 include ~~seven~~nine manufacturing sites, ~~two~~four distribution centers and our Frisco, Texas headquarters.

~~LICENSING ARRANGEMENT~~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,~~March 31, 2023, 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,~~March 31, 2023, KDP had ~~$102~~$98 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,											Remainder of 2023		For the Years Ending December 31,
(in millions)	(in millions)			2023		2024		2025		2026		2027		(in millions)			2024		2025		2026		2027		2028
Fixed service fees	Fixed service fees	$	2	$	8	$	8	$	8	$	8	$	8	Fixed service fees	$	5	$	8	$	8	$	7	$	8	$	8

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KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

TRANSACTION WITH NUTRABOLT

The Company has a preferred equity investment in Nutrabolt, which will earn the greater of (i) a 5% annual coupon on the preferred equity units plus any accretion for amounts not yet paid or (ii) KDP’s share of Nutrabolt’s earnings as if KDP’s preferred equity was converted into common units. As the other investors of Nutrabolt have to share in Nutrabolt's earnings with KDP if in excess of the 5% annual coupon, the other investors lack certain characteristics of a controlling financial interest, which qualifies Nutrabolt as a VIE. KDP is not the primary beneficiary of the VIE and therefore is not required to consolidate Nutrabolt, as the primary shareholder of the VIE has control over the board and decision-making for the activities that most significantly impact the VIE’s economic performance, including sales, marketing, and operations. KDP has no obligation to provide additional funding to Nutrabolt, and thus the Company’s maximum exposure and risk of loss related to Nutrabolt is limited to the carrying value of KDP’s investment. Refer to Note 10 for the carrying value of the Company’s investment in Nutrabolt.

16. Restructuring Liabilities

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, primarily consisting of workforce reduction costs, were as follows:


(in millions)	Restructuring Liabilities
Balance as of January 1, 2023	$	55
Charges to expense	—
Cash payments	(29)

Balance as of March 31, 2023	$	26

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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.

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 LRBs, including 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, our key brands include Keurig, Dr Pepper, Canada Dry, Snapple, ~~Bai,~~ Mott's, Clamato, Core, Green Mountain Coffee Roasters and The Original Donut Shop. 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. 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 and our WD systems. KDP markets and sells its products to retailers, including supermarkets, mass merchandisers, club stores, e-commerce retailers, office superstores, vending machines, grocery and 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.

~~Our 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 our single-serve brewers, K-Cup pods and 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 our own brands and third-party brands, through both the DSD and WD systems.

•The Beverage Concentrates segment reflects sales primarily in the U.S. and Canada of our branded concentrates to third-party bottlers and our syrup to fountain foodservice customers. Most of the brands in this segment are carbonated soft drink brands.

•~~The Latin America Beverages segment reflects sales primarily in Mexico and the Caribbean from the manufacture and distribution of concentrates, syrup and finished beverages.~~

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Effective January 1, 2023, the Company revised its segment structure to align with how the Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources. The Company's reportable segments consist of the following:

•The U.S. Refreshment Beverages segment reflects sales in the U.S. from the manufacture and distribution of branded concentrates, syrup and finished beverages, including the sales of the Company's own brands and third-party brands, to third-party bottlers, distributors and retailers.

•The U.S. Coffee segment reflects sales in the U.S. from the manufacture and distribution of finished goods relating to the Company's K-Cup pods, single-serve brewers and other coffee products to partners, retailers and directly to consumers through our Keurig.com website.

•The International segment reflects sales in international markets, including the following:

◦Sales in Canada, Mexico, the Caribbean and other international markets from the manufacture and distribution of branded concentrates, syrup and finished beverages, including sales of the Company's own brands and third-party brands, to third-party bottlers, distributors and retailers.

◦Sales in Canada from the manufacture and distribution of finished goods relating to the Company’s single-serve brewers, K-Cup pods and other coffee products.

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 and the impact of foreign currency. See Non-GAAP Financial Measures for further information.

EXECUTIVE SUMMARY

Financial Overview - ~~Third~~First Quarter of ~~2022~~2023 as compared to ~~Third~~First Quarter of ~~2021~~2022

As Reported, in millions (except EPS)

As Adjusted, in millions (except EPS)

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

We filed a shelf registration statement with the SEC on August 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.

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

On September 14, 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 $0.75 per share, effective with the regularly quarterly cash dividend announced on the same day.

As a result of our 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 Note 3 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

On October 6, 2022, we announced a strategic partnership with Red Bull, the iconic global energy brand, to sell and distribute Red Bull Energy Drink products in Mexico, which is expected to begin during the fourth quarter of 2022.

~~Table of Contents~~

~~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, for more information about risks and uncertainties facing us.

Some of these items, such as the ongoing COVID-19 pandemic and 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 first nine months of 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 through the remainder of the year.

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

~~Refer to~~ ~~Note 4 of the Notes to our Unaudited Condensed Consolidated Financial Statements for 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)
(in millions)
Employee Compensation Expense(2)
Employee Protection Costs(3)
Allowances for Expected Credit Losses(4)
Total
For the third quarter of 2022:
Coffee Systems $ — $ 3 $ — $ 3
Packaged Beverages 1 1 — 2
Beverage Concentrates — — — —
Latin America Beverages — — — —
Total $ 1 $ 4 $ — $ 5
For the third quarter of 2021:
Coffee Systems $ 1 $ 1 $ — $ 2
Packaged Beverages 1 1 — 2
Beverage Concentrates — — — —
Latin America Beverages — — — —
Total $ 2 $ 2 $ — $ 4
For the first nine months of 2022:
Coffee Systems $ 1 $ 6 $ — $ 7
Packaged Beverages 3 3 — 6
Beverage Concentrates — — — —
Latin America Beverages — 1 — 1
Total $ 4 $ 10 $ — $ 14
For the first nine months of 2021:
Coffee Systems $ 3 $ 14 $ (2) $ 15
Packaged Beverages 7 6 (8) 5
Beverage Concentrates — — (3) (3)
Latin America Beverages — 1 — 1
Total $ 10 $ 21 $ (13) $ 18

~~(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)~~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.

~~(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)Reflects reversal of allowances initially recorded in 2020 specifically related to the COVID-19 pandemic, driven by improving economic 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".

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

~~Consolidated Operations~~

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

Third Quarter Dollar Percentage
($ in millions, except per share amounts) 2022 2021 Change Change
Net sales $ 3,622 $ 3,250 $ 372 11.4 %
Cost of sales 1,721 1,415 306 21.6
Gross profit 1,901 1,835 66 3.6
Selling, general and administrative expenses 1,196 1,040 156 15.0
Impairment of intangible assets 311 — 311 NM
Other operating income, net — — — NM
Income from operations 394 795 (401) (50.4)
Interest expense 207 116 91 78.4
Loss on early extinguishment of debt — — — NM
Other expense (income), net 4 1 3 NM
Income before provision for income taxes 183 678 (495) (73.0)
Provision for income taxes 4 149 (145) NM
Net income including non-controlling interest 179 529 (350) (66.2)
Less: Net loss attributable to non-controlling interest (1) (1) — NM
Net income attributable to KDP $ 180 $ 530 (350) (66.0)
Earnings per common share:
Basic $ 0.13 $ 0.37 $ (0.24) (64.9) %
Diluted 0.13 0.37 (0.24) (64.9)
Gross margin 52.5 % 56.5 % (400) bps
Operating margin 10.9 % 24.5 % NM
Effective tax rate 2.2 % 22.0 % NM

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


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

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

~~Gross Profit.~~ Gross profit increased $66 million, or 3.6%, to $1,901 million for the third quarter of 2022 compared to $1,835 million in the prior year period. This performance primarily reflected the strong growth in net sales, partially offset by the impacts of broad-based inflation and an unfavorable change in unrealized commodity mark-to-market expense. Gross margin decreased 400 bps versus the year ago period to 52.5%.

~~Table of Contents~~

~~Selling, General and Administrative Expenses.~~SG&A expenses increased $156 million, or 15.0%, to $1,196 million for the third quarter of 2022 compared to $1,040 million in the prior year period. The increase was driven by the impact of broad-based inflation, an unfavorable change in unrealized commodity mark-to-market 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 Bai, an indefinite lived brand asset. Refer to Note 3 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

~~Income from Operations.~~ Income from operations decreased $401 million, or 50.4%, to $394 million for the third quarter of 2022 compared to $795 million in the prior year period, primarily driven by the impairment of Bai of $311 million and increased SG&A expenses.

~~Interest Expense.~~ Interest expense increased $91 million, or 78.4%, to $207 million for the third quarter of 2022 compared with $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.

~~Effective Tax Rate.~~ The effective tax rate was 2.2% for the third quarter of 2022, compared to 22.0% in the prior year period, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes.

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

~~Diluted EPS.~~ ~~Diluted EPS decreased 64.9% to $0.13 per diluted share for the third quarter of 2022 as compared to $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 2022 and 2021, as well as other amounts necessary to reconcile our segment results to our consolidated results presented in accordance with U.S. GAAP.

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

~~Table of Contents~~

~~COFFEE SYSTEMS~~

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

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.~~K-Cup pod volume grew 3.5% in the third quarter of 2022 compared to the prior year period, reflecting continued improvement following the completion of our coffee recovery program in the second quarter of 2022. Brewer volume decreased 15.3% compared to the prior year period, as continuing improvements in consumer mobility resulted in brewer shipments returning to more normalized levels.

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

~~Income from Operations.~~Income from operations decreased $70 million, or 19.2%, to $295 million for the third quarter of 2022, compared to $365 million for the prior year period, reflecting the impacts of broad-based inflation, particularly in green coffee, unfavorable volume/mix, and increases in other operating costs, partially offset by the benefits of pricing actions taken and productivity. Operating margin declined 720 bps versus the year ago period to 24.4%.

~~PACKAGED BEVERAGES~~

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

Third Quarter Dollar Percent
(in millions) 2022 2021 Change Change
Net sales $ 1,756 $ 1,547 $ 209 13.5 %
Income from operations 10 291 (281) (96.6)
Operating margin 0.6 % 18.8 % NM

~~Sales Volume.~~ Sales volume for the third quarter of 2022 decreased 0.8% compared to the prior year period, as the benefits of volume growth in Snapple, Hawaiian Punch and Core were more than offset by reductions in contract manufacturing.

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

~~Income from Operations.~~Income from operations decreased $281 million, or 96.6%, to $10 million for the third quarter of 2022, compared to $291 million for the prior year period, primarily driven by the $311 million non-cash impairment charge for Bai. Other drivers of the change included the benefit of strong net sales growth, partially offset by broad-based inflation, higher operating costs, and increased marketing expenses.

~~Table of Contents~~

~~BEVERAGE CONCENTRATES~~

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

Third Quarter Dollar Percent
(in millions) 2022 2021 Change Change
Net sales $ 459 $ 392 $ 67 17.1 %
Income from operations 347 287 60 20.9
Operating margin 75.6 % 73.2 % 240 bps

~~Sales volume.Sales volume for the third quarter of 2022 remained relatively flat compared to the prior year period, as increases in Dr Pepper and Crush were offset by declines in Schweppes and A&W.~~

~~Net Sales.~~ Net sales increased 17.1% to $459 million in the third quarter of 2022, compared to $392 million for the prior year period, reflecting higher net price realization of 16.6% and volume/mix growth of 0.7%. These benefits were slightly offset by unfavorable FX translation impacts of 0.2%.

~~Income from Operations.~~Income from operations increased $60 million, or 20.9%, to $347 million for the third quarter of 2022 compared to $287 million in the prior year period. This performance reflected the benefits of strong net sales growth and lower marketing expense, partially offset by broad-based inflation. Operating margin increased 240 bps versus the year ago period to 75.6%.

~~LATIN AMERICA BEVERAGES~~

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

Third Quarter Dollar Percent
(in millions) 2022 2021 Change Change
Net sales $ 198 $ 156 $ 42 26.9 %
Income from operations 39 37 2 5.4
Operating margin 19.7 % 23.7 % (400) bps

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

~~Net Sales.~~ Net sales grew 26.9% to $198 million for the third quarter of 2022, compared to $156 million in the prior year period, reflecting favorable net price realization of 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 $2 million, or 5.4%, to $39 million for the third quarter of 2022 compared to $37 million in the prior year period, reflecting the benefit of net sales growth, partially offset by the impacts of broad-based inflation, higher costs associated with increased volumes, and higher marketing expense. Operating margin decreased 400 bps versus the year ago period to 19.7%.

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~~First Nine Months of 2022~~2023 Compared to First ~~Nine Months~~Quarter of ~~2021~~2022

Consolidated Operations

The following table sets forth our unaudited condensed consolidated results of operations for the first ~~nine months~~quarter of ~~2022~~2023 and ~~2021:~~2022:


		First Nine Months						Dollar		Percentage			First Quarter						Dollar		Percentage
($ in millions, except per share amounts)	($ in millions, except per share amounts)	2022			2021			Change		Change		($ in millions, except per share amounts)	2023			2022			Change		Change
Net sales	Net sales	$	10,254		$	9,292		$	962	10.4	%	Net sales	$	3,353		$	3,078		$	275	8.9	%
Cost of sales	Cost of sales	4,927			4,087			840		20.6		Cost of sales	1,609			1,428			181		12.7
Gross profit	Gross profit	5,327			5,205			122		2.3		Gross profit	1,744			1,650			94		5.7
Selling, general and administrative expenses	Selling, general and administrative expenses	3,418			3,040			378		12.4		Selling, general and administrative expenses	1,165			1,018			147		14.4
Impairment of intangible assets		311			—			311		NM

Gain on litigation settlement	Gain on litigation settlement	(299)			—			(299)		NM		Gain on litigation settlement	—			(299)			299		NM
Other operating income, net	Other operating income, net	(35)			(4)			(31)		NM		Other operating income, net	(5)			(35)			30		NM
Income from operations	Income from operations	1,932			2,169			(237)		(10.9)		Income from operations	584			966			(382)		(39.5)
Interest expense	Interest expense	570			381			189		49.6		Interest expense	23			188			(165)		(87.8)
Loss on early extinguishment of debt	Loss on early extinguishment of debt	217			105			112		NM		Loss on early extinguishment of debt	—			48			(48)		NM
Gain on sale of equity method investment	Gain on sale of equity method investment	(50)			—			(50)		NM		Gain on sale of equity method investment	—			(50)			50		NM
Impairment of investments and note receivable	Impairment of investments and note receivable	12			—			12		NM		Impairment of investments and note receivable	—			6			(6)		NM
Other expense (income), net		22			(6)			28		NM
Other (income) expense, net												Other (income) expense, net	(20)			9			(29)		NM
Income before provision for income taxes	Income before provision for income taxes	1,161			1,689			(528)		(31.3)		Income before provision for income taxes	581			765			(184)		(24.1)
Provision for income taxes	Provision for income taxes	179			387			(208)		(53.7)		Provision for income taxes	114			180			(66)		(36.7)
Net income including non-controlling interest	Net income including non-controlling interest	982			1,302			(320)		(24.6)		Net income including non-controlling interest	467			585			(118)		(20.2)
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	—			—			—		NM
Net income attributable to KDP	Net income attributable to KDP	$	983		$	1,303		(320)		(24.6)		Net income attributable to KDP	$	467		$	585		(118)		(20.2)

Earnings per common share:	Earnings per common share:											Earnings per common share:
Basic	Basic	$	0.69		$	0.92		$	(0.23)	(25.0)	%	Basic	$	0.33		$	0.41		$	(0.08)	(19.5)	%
Diluted	Diluted	0.69			0.91			(0.22)		(24.2)		Diluted	0.33			0.41			(0.08)		(19.5)

Gross margin	Gross margin	52.0		%	56.0		%			(400) bps		Gross margin	52.0		%	53.6		%			(160) bps
Operating margin	Operating margin	18.8		%	23.3		%			(450) bps		Operating margin	17.4		%	31.4		%			NM
Effective tax rate	Effective tax rate	15.4		%	22.9		%			(750) bps		Effective tax rate	19.6		%	23.5		%			(390) bps

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


	Percentage Change
~~K-Cup pod volume~~LRB	~~0.9~~0.8	%
~~Brewer volume~~K-Cup pods	~~(8.9)~~(0.6)
~~CSD sales volume~~Brewers	~~2.1~~
~~NCB sales volume~~	~~2.8~~ (25.7)

Net Sales. Net sales increased ~~$962~~$275 million, or ~~10.4%~~8.9%, to ~~$10,254~~$3,353 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~$9,292~~$3,078 million in the prior year period. This performance reflected favorable net price realization across all segments totaling ~~9.7% and volume/mix growth of 0.9%~~9.9%, ~~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~~volume/mix of ~~0.2%~~1.0%.

Gross Profit. Gross profit increased ~~$122~~$94 million, or ~~2.3%~~5.7%, to ~~$5,327~~$1,744 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~$5,205~~$1,650 million in the prior year period. This performance primarily reflected the ~~strong growth in~~benefits of net sales growth and ~~the benefit of~~ productivity, partially offset by broad-based inflation, and an unfavorable change in unrealized commodity mark-to-market ~~impacts.~~activity. Gross margin decreased ~~400~~160 bps versus the year ago period to 52.0%.

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Selling, General and Administrative Expenses. SG&A expenses increased ~~$378~~$147 million, or ~~12.4%~~14.4%, to ~~$3,418~~$1,165 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~$3,040~~$1,018 million in the prior year period. The increase was driven by broad-based inflation, an unfavorable comparison to the stock award forfeiture accounting policy change in the prior year period of $40 million, higher ~~logistics costs~~marketing expense and increases in other operating ~~expenses.~~costs.

~~Impairment of Intangible Assets.~~ Impairment of intangible assets reflected a non-cash impairment charge of $311 million associated with Bai, an indefinite lived brand asset. Refer to Note 3 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

~~Table of Contents~~

Gain on ~~litigation settlement~~Litigation Settlement. Gain on litigation settlement ~~reflects~~reflected the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in the ~~second~~first quarter of 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 ~~increased $31~~decreased $30 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to the prior year period, primarily driven by a ~~$38~~$32 million ~~gain on an~~reduction in year-over-year asset sale-leaseback ~~transaction related~~activity relating to our strategic asset investment ~~program in the first quarter of 2022.~~program.

Income from Operations. Income from operations decreased ~~$237~~$382 million, or ~~10.9%~~39.5%, to ~~$1,932~~$584 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~$2,169~~$966 million in the prior year period, primarily driven by ~~the non-cash impairment of Bai of $311 million, which was partially offset by~~unfavorable comparison to the gain on the litigation ~~settlement.~~settlement and on the reduction in asset sale-leaseback activity. Other factors include higher SG&A expenses, partially offset by increased gross profit. ~~Operating margin decreased 450 bps versus the year ago period to 18.8%.~~

Interest Expense. Interest expense ~~increased $189~~decreased $165 million, or ~~49.6%~~87.8%, to ~~$570~~$23 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~$381~~$188 million for the prior year ~~period. This change was~~period, primarily driven by the ~~unfavorable comparison of~~favorable change in unrealized mark-to-market ~~losses~~activity of ~~$254~~$164 million on interest rate ~~contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives.~~contracts.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt reflected ~~an unfavorable change of $112 million, with~~ a loss of ~~$217~~$48 million ~~during~~in the ~~first nine months of 2022 related to~~prior year period associated with 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.~~Revolver.

Gain on ~~sale~~Sale of ~~equity method investment.~~Equity Method Investment. Gain on sale of equity method investment ~~reflects~~reflected the portion of the settlement payment from BodyArmor in the first quarter of 2022 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 non-cash impairment charge of ~~$12~~$6 million in the first ~~nine months~~quarter of 2022 associated with the wind-down of Bedford. ~~Refer to Note 12~~

Other Non-operating (Income) Expense, net. Other (income) expense, net reflected a favorable change of $29 million from the ~~Notes to~~prior year period, driven by gains on the Company’s investments in equity securities, primarily led by Nutrabolt’s preferred dividend and mark-to-market on our ~~Unaudited Condensed Consolidated Financial Statements for further information.~~Vita Coco investment.

Effective Tax Rate. The effective tax rate decreased ~~750~~390 bps to ~~15.4%~~19.6% for the first ~~nine months~~quarter of ~~2022,~~2023, compared to ~~22.9%~~23.5% in the prior year period, primarily driven by the ~~revaluation of state deferred~~ tax ~~liabilities due to state legislative changes~~benefit received from favorable adjustments upon foreign tax return filing 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 during the first ~~nine months~~quarter of ~~2021.~~2023.

Net Income Attributable to KDP. Net income attributable to KDP decreased ~~$320~~$118 million, or ~~24.6%~~20.2%, to ~~$983~~$467 million for the first ~~nine months~~quarter of ~~2022~~2023 as compared to ~~$1,303~~$585 million in the prior year period, primarily driven by lower income from operations ~~increased interest expense,~~ and the unfavorable ~~change~~comparison to the gain in the prior year period for the sale of our equity method investment in BodyArmor, partially offset by reduced interest expense, the favorable comparison to the loss on ~~early~~ extinguishment of debt ~~partially offset by~~in the prior year, and the decrease in our effective tax rate.

Diluted EPS. Diluted EPS decreased ~~24.2%~~19.5% to ~~$0.69~~$0.33 per diluted share as compared to ~~$0.91~~$0.41 in the prior year period.

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Results of Operations by Segment

The following tables provide net sales and income from operations for our reportable segments for the first ~~nine months~~quarter of ~~2022~~2023 and ~~2021,~~2022, as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with U.S. GAAP.

(in millions) First 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


(in millions)	First Quarter
Net sales	2023		2022
U.S. Refreshment Beverages	$	2,007	$	1,781
U.S. Coffee	931		943
International	415		354
Total net sales	$	3,353	$	3,078

Income from operations
U.S. Refreshment Beverages	$	490	$	704
U.S. Coffee	232		255
International	80		64
Unallocated corporate costs	(218)		(57)
Total income from operations	$	584	$	966

~~COFFEE SYSTEMS~~U.S. REFRESHMENT BEVERAGES

The following table provides selected information about our ~~Coffee Systems~~U.S. Refreshment Beverages segment's results:


		First Nine Months						Dollar		Percent			First Quarter						Dollar		Percent
(in millions)	(in millions)	2022			2021			Change		Change		(in millions)	2023			2022			Change		Change
Net sales	Net sales	$	3,497		$	3,398		$	99	2.9	%	Net sales	$	2,007		$	1,781		$	226	12.7	%
Income from operations	Income from operations	878			1,088			(210)		(19.3)		Income from operations	490			704			(214)		(30.4)
Operating margin	Operating margin	25.1		%	32.0		%			(690) bps		Operating margin	24.4		%	39.5		%			(1510) bps

Sales Volume.~~K-Cup pod volume increased 0.9%~~Sales volumes for the first ~~nine months~~quarter of ~~2022~~2023 were flat 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%period. Growth in ~~the first nine months of 2022,~~Dr Pepper, driven by ~~the unfavorable comparison to significant brewer shipment growth~~our Strawberries & Cream innovation, and C4 Energy as a result of ~~22.5%~~our recently announced sales and distribution partnership, was fully offset by declines in ~~the prior year period.~~our still portfolio.

Net Sales. Net sales increased ~~2.9%~~12.7% to ~~$3,497~~$2,007 million ~~for~~in the first ~~nine months~~quarter of ~~2022~~2023, compared to ~~$3,398~~$1,781 million in the prior year period, driven by favorable net price realization of ~~5.6%~~12.5% and volume/mix growth of 0.2%.

Income from Operations.Income from operations decreased $214 million, or 30.4%, to $490 million for the first quarter of 2023 compared to $704 million for the prior year period, primarily driven by the unfavorable comparison to the gains on the settlement of litigation with BodyArmor of $271 million and a reduction in year-over-year asset sale-leaseback activity of $32 million for our strategic asset investment program. Other drivers included the benefits of net sales growth and productivity, partially offset by broad-based inflation, higher marketing expense, and increases in other operating costs.

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U.S. COFFEE

The following table provides selected information about our U.S. Coffee segment's results:


	First Quarter						Dollar		Percent
(in millions)	2023			2022			Change		Change
Net sales	$	931		$	943		$	(12)	(1.3)	%
Income from operations	232			255			(23)		(9.0)
Operating margin	24.9		%	27.0		%			(210) bps

Sales Volume.K-Cup pod volume decreased 1.9% for the first quarter of 2023 compared to the prior year period, as improvements in our away-from-home business, driven by increasing office occupancy, were more than offset by softness in our at-home business, driven by higher consumer mobility versus the prior year period. Brewer volume decreased 29.0% in the first quarter of 2023, driven by retailer inventory shifts and category softness in small appliances.

Net Sales. Net sales decreased 1.3% to $931 million for the first quarter of 2023 compared to $943 million in the prior year period, driven by volume/mix declines of ~~2.3% and unfavorable FX translation effects~~6.6% partially offset by favorable net price realization of ~~0.4%~~5.3%.

Income from Operations. Income from operations decreased ~~$210~~$23 million, or ~~19.3%~~9.0%, to ~~$878~~$232 million for the first ~~nine months~~quarter of ~~2022,~~2023, compared to ~~$1,088~~$255 million in the prior year period, as a result of ~~broad-based~~ inflation ~~particularly~~ in ~~green coffee, lower~~input costs, declines in volume/mix ~~unfavorable mark-to-market impacts~~ and ~~increased costs associated with productivity projects.~~increases in other operating costs. These decreases were partially offset by the benefits of pricing actions and productivity. Operating margin declined ~~690~~210 bps versus the year ago period to ~~25.1%~~24.9% due to these inflationary headwinds.

~~Table of Contents~~

~~PACKAGED BEVERAGES~~INTERNATIONAL

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


		First Nine Months						Dollar		Percent			First Quarter						Dollar		Percent
(in millions)	(in millions)	2022			2021			Change		Change		(in millions)	2023			2022			Change		Change
Net sales	Net sales	$	4,925		$	4,352		$	573	13.2	%	Net sales	$	415		$	354		$	61	17.2	%
Income from operations	Income from operations	728			731			(3)		(0.4)		Income from operations	80			64			16		25.0
Operating margin	Operating margin	14.8		%	16.8		%			(200) bps		Operating margin	19.3		%	18.1		%			120 bps

Sales Volume. ~~Sales volume~~The following table provides the percentage change in sales volumes for the ~~first nine months of 2022 increased 1.1%~~International segment compared to the prior year ~~period, due primarily to strength in CSDs, Motts, Core, Polar and Hawaiian Punch, which were partially offset by reductions in contract manufacturing and Bai.~~period:

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

~~Income from Operations.~~Income from operations decreased $3 million, or 0.4%, to $728 million for the first nine months of 2022 compared to $731 million for the prior year period, primarily driven by the $311 million non-cash impairment charge for Bai, which was partially offset by the gain on the settlement of litigation with BodyArmor of $271 million. Other drivers included the benefits of net sales growth, asset sale-leaseback activity in the first nine months of 2022 relating to our strategic asset initiative, and productivity, partially offset by broad-based inflation and higher costs to serve the ongoing strong consumer demand.

~~BEVERAGE CONCENTRATES~~

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

First Nine Months Dollar Percent
(in millions) 2022 2021 Change Change
Net sales $ 1,278 $ 1,095 $ 183 16.7 %
Income from operations 915 780 135 17.3
Operating margin 71.6 % 71.2 % 40 bps

~~Sales Volume.~~ ~~Sales volume for the first nine months of 2022 increased 1.8% compared to the prior year period, primarily driven by Dr Pepper and Canada Dry, partially offset by Schweppes and Crush.~~


	Percentage Change
LRB	5.8	%
K-Cup pods	9.5
Brewers	2.5

Net Sales. Net sales increased ~~16.7%~~17.2% to ~~$1,278~~$415 million in the first ~~nine months~~quarter of ~~2022,~~2023, compared to ~~$1,095~~$354 million in the prior year period, reflecting higher net price realization of ~~14.8% and~~9.0%, volume/mix growth of ~~2.1%~~7.7%, ~~slightly offset by unfavorable~~and favorable FX translation effects of ~~0.2%~~0.5%.

Income from Operations. Income from operations increased ~~$135~~$16 million, or ~~17.3%~~25.0%, to ~~$915~~$80 million for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~$780~~$64 million in the prior year period. This performance reflected ~~the impact of net sales growth, partially offset by broad-based inflation. Operating margin increased 40 bps versus the year ago period to 71.6%.~~

~~LATIN AMERICA BEVERAGES~~

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

First Nine Months Dollar Percent
(in millions) 2022 2021 Change Change
Net sales $ 554 $ 447 $ 107 23.9 %
Income from operations 114 95 19 20.0
Operating margin 20.6 % 21.3 % (70) bps

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

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

~~Table of Contents~~

~~Income from Operations.Income from operations increased $19 million, or 20.0%, to $114 million for the first nine months of 2022 compared to $95 million in the prior year period, driven by~~ the benefits of net sales growth and productivity, partially offset by ~~the impacts of~~ broad-based inflation and higher costs associated with ~~incremental volumes, and increased marketing expense.~~higher volumes. Operating margin ~~decreased 70~~increased 120 bps versus the year ago period to ~~20.6%~~19.3%.

Table of Contents

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~~first quarter of 2023 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~~first quarter ~~and~~of 2023, the other certain items excluded for comparison purposes include productivity expenses.

For the first ~~nine months~~quarter 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;~~matters, specifically the antitrust litigation; (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, which were 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; (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; and (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.~~costs.

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~~first quarter of 2023 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			Cost of sales		Gross profit		Gross margin		Selling, general and administrative expenses		Gain on litigation settlement		Other operating income, net		Income from operations		Operating margin
For the Third Quarter of 2022
For the First Quarter of 2023																For the First Quarter of 2023
Reported	Reported	$	1,721	$	1,901	52.5	%	$	1,196	$	311	$	394	10.9	%	Reported	$	1,609	$	1,744	52.0	%	$	1,165	$	—	$	(5)	$	584	17.4	%
Items Affecting Comparability:	Items Affecting Comparability:															Items Affecting Comparability:
Mark to market	Mark to market	(51)		51				(55)		—		106				Mark to market	14		(14)				(12)		—		—		(2)
Amortization of intangibles	Amortization of intangibles	—		—				(33)		—		33				Amortization of intangibles	—		—				(34)		—		—		34

Stock compensation	Stock compensation	—		—				(5)		—		5				Stock compensation	—		—				(5)		—		—		5
Restructuring and integration costs		—		—				(33)		—		33

Productivity	Productivity	(30)		30				(27)		—		57				Productivity	(38)		38				(40)		—		—		78
Impairment of intangible assets		—		—				—		(311)		311

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

Foundational projects		—		—				(1)		—		1

Adjusted	Adjusted	$	1,637	$	1,985	54.8	%	$	1,038	$	—	$	947	26.1	%	Adjusted	$	1,585	$	1,768	52.7	%	$	1,074	$	—	$	(5)	$	699	20.8	%
Impact of foreign currency	Impact of foreign currency					(0.1)	%							—	%	Impact of foreign currency					—	%									0.1	%
Constant currency adjusted	Constant currency adjusted					54.7	%							26.1	%	Constant currency adjusted					52.7	%									20.9	%

For the Third Quarter of 2021
For the First Quarter of 2022																For the First Quarter of 2022
Reported	Reported	$	1,415	$	1,835	56.5	%	$	1,040	$	—	$	795	24.5	%	Reported	$	1,428	$	1,650	53.6	%	$	1,018	$	(299)	$	(35)	$	966	31.4	%
Items Affecting Comparability:	Items Affecting Comparability:															Items Affecting Comparability:
Mark to market	Mark to market	27		(27)				(18)		—		(9)				Mark to market	59		(59)				26		—		—		(85)
Amortization of intangibles	Amortization of intangibles	—		—				(34)		—		34				Amortization of intangibles	—		—				(34)		—		—		34

Stock compensation	Stock compensation	—		—				(3)		—		3				Stock compensation	—		—				7		—		—		(7)
Restructuring and integration costs	Restructuring and integration costs	—		—				(53)		—		53				Restructuring and integration costs	—		—				(33)		—		(3)		36
Productivity	Productivity	(21)		21				(23)		—		44				Productivity	(28)		28				(22)		—		—		50

Non-routine legal matters	Non-routine legal matters	—		—				(7)		—		7				Non-routine legal matters	—		—				(4)		—		—		4
COVID-19	COVID-19	(3)		3				(1)		—		4				COVID-19	(4)		4				(1)		—		—		5
Gain on litigation																Gain on litigation	—		—				—		271		—		(271)

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

Adjusted	Adjusted	$	1,418	$	1,832	56.4	%	$	901	$	—	$	931	28.6	%	Adjusted	$	1,455	$	1,623	52.7	%	$	957	$	(28)	$	(38)	$	732	23.8	%

Refer to page 4435 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				Interest expense			Loss on early extinguishment of debt		Gain on sale of equity method investment		Impairment of investments and note receivable		Other (income) expense, 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
For the First Quarter of 2023																			For the First Quarter of 2023
Reported	Reported	$	207		$	4	$	183	$	4	2.2	%	$	180		$	0.13		Reported	$	23		$	—	$	—	$	—	$	(20)	$	581	$	114	19.6	%	$	467		$	0.33
Items Affecting Comparability:	Items Affecting Comparability:																		Items Affecting Comparability:
Mark to market	Mark to market	(113)			2		217		54				163			0.11			Mark to market	93			—		—		—		9		(104)		(29)				(75)			(0.05)
Amortization of intangibles	Amortization of intangibles	—			—		33		8				25			0.02			Amortization of intangibles	—			—		—		—		—		34		10				24			0.02

Amortization of fair value debt adjustment	Amortization of fair value debt adjustment	(5)			—		5		1				4			—			Amortization of fair value debt adjustment	(4)			—		—		—		—		4		1				3			—
Stock compensation	Stock compensation	—			—		5		2				3			—			Stock compensation	—			—		—		—		—		5		2				3			—
Restructuring and integration costs		—			—		33		8				25			0.02

Productivity	Productivity	—			—		57		10				47			0.03			Productivity	—			—		—		—		—		78		21				57			0.04
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	Adjusted	$	89		$	6	$	852	$	197	23.1	%	$	656		$	0.46		Adjusted	$	112		$	—	$	—	$	—	$	(11)	$	598	$	119	19.9	%	$	479		$	0.34
Impact of foreign currency	Impact of foreign currency										—	%							Impact of foreign currency																0.3	%
Constant currency adjusted	Constant currency adjusted										23.1	%							Constant currency adjusted																20.2	%

For the Third Quarter of 2021

For the First Quarter of 2022																			For the First Quarter of 2022
Reported	Reported	$	116		$	1	$	678	$	149	22.0	%	$	530		$	0.37		Reported	$	188		$	48	$	(50)	$	6	$	9	$	765	$	180	23.5	%	$	585		$	0.41
Items Affecting Comparability:	Items Affecting Comparability:																		Items Affecting Comparability:
Mark to market	Mark to market	—			—		(9)		(3)				(6)			—			Mark to market	(71)			—		—		—		(3)		(11)		(2)				(9)			(0.01)
Amortization of intangibles	Amortization of intangibles	—			—		34		9				25			0.02			Amortization of intangibles	—			—		—		—		—		34		9				25			0.02
Amortization of deferred financing costs	Amortization of deferred financing costs	(2)			—		2		2				—			—			Amortization of deferred financing costs	(1)			—		—		—		—		1		—				1			—
Amortization of fair value of debt adjustment	Amortization of fair value of debt adjustment	(4)			—		4		1				3			—			Amortization of fair value of debt adjustment	(5)			—		—		—		—		5		1				4			—
Stock compensation	Stock compensation	—			—		3		—				3			—			Stock compensation	—			—		—		—		—		(7)		(1)				(6)			—
Restructuring and integration costs	Restructuring and integration costs	—			—		53		13				40			0.03			Restructuring and integration costs	—			—		—		—		—		36		9				27			0.02
Productivity	Productivity	—			—		44		11				33			0.02			Productivity	—			—		—		—		—		50		12				38			0.03

Impairment of investment																			Impairment of investment	—			—		—		(6)		—		6		—				6			—
Loss on early extinguishment of debt	Loss on early extinguishment of debt	—			—		—		(1)				1			—			Loss on early extinguishment of debt	—			(48)		—		—		—		48		11				37			0.03
Non-routine legal matters	Non-routine legal matters	—			—		7		2				5			—			Non-routine legal matters	—			—		—		—		—		4		1				3			—
COVID-19	COVID-19	—			—		4		1				3			—			COVID-19	—			—		—		—		—		5		1				4			—
Gain on litigation																			Gain on litigation	—			—		—		—		—		(271)		(68)				(203)			(0.14)
Gain on sale of equity-method investment																			Gain on sale of equity-method investment	—			—		50		—		—		(50)		(12)				(38)			(0.03)

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

Change in deferred tax liabilities related to goodwill and other intangible assets		—			—		—		7				(7)			—

Adjusted	Adjusted	$	110		$	1	$	820	$	190	23.2	%	$	631		$	0.44		Adjusted	$	111		$	—	$	—	$	—	$	6	$	615	$	141	22.9	%	$	474		$	0.33

Change - adjusted	Change - adjusted	(19.1)		%									4.0		%	4.5		%	Change - adjusted	0.9		%															1.1		%	3.0		%
Impact of foreign currency	Impact of foreign currency	—		%									0.3		%	—		%	Impact of foreign currency	—		%															(0.5)		%	—		%
Change - constant currency adjusted	Change - constant currency adjusted	(19.1)		%									4.3		%	4.5		%	Change - constant currency adjusted	0.9		%															0.6		%	3.0		%

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


(in millions)	Reported		Items Affecting Comparability		Adjusted
For the first quarter of 2023:
Income from operations
U.S. Refreshment Beverages	$	490	$	18	$	508
U.S. Coffee	232		53		285
International	80		4		84
Unallocated corporate costs	(218)		40		(178)
Total income from operations	$	584	$	115	$	699

For the first quarter of 2022:
Income from operations
U.S. Refreshment Beverages	$	704	$	(249)	$	455
U.S. Coffee	255		46		301
International	64		7		71
Unallocated corporate costs	(57)		(38)		(95)
Total income from operations	$	966	$	(234)	$	732

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


	Reported		Impact of Foreign Currency		Constant Currency
For the first quarter of 2023:
Net sales
U.S. Refreshment Beverages	12.7	%	—	%	12.7	%
U.S. Coffee	(1.3)		—		(1.3)
International	17.2		(0.5)		16.7
Total net sales	8.9		—		8.9

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


	Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the first quarter of 2023:
Income from operations
U.S. Refreshment Beverages	11.6	%	—	%	11.6	%
U.S. Coffee	(5.3)		—		(5.3)
International	18.3		—		18.3
Total income from operations	(4.5)		—		(4.5)

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

~~Table of Contents~~

~~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.~~Constant currency adjusted income from operations increased 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.~~


	Reported		Items Affecting Comparability		Adjusted		Impact of Foreign Currency		Constant Currency Adjusted
For the first quarter of 2023:
Operating margin
U.S. Refreshment Beverages	24.4	%	0.9	%	25.3	%	—	%	25.3	%
U.S. Coffee	24.9		5.7		30.6		—		30.6
International	19.3		0.9		20.2		0.1		20.3
Total operating margin	17.4		3.4		20.8		0.1		20.9

~~Table of Contents~~

~~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 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.

~~Table of Contents~~

~~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~~Quarter of ~~2022~~2023 Compared to First ~~Nine Months~~Quarter of ~~2021~~2022

The following discussion of our results for the first ~~nine months~~quarter of ~~2022~~2023 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%~~8.9% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the prior year period, driven by favorable net price realization of ~~9.7% and~~9.9%, partially offset by lower volume/mix ~~growth~~ of ~~0.9%~~1.0%.

Constant Currency Adjusted Income from Operations. Constant currency adjusted income from operations ~~increased 0.2%~~decreased 4.5% compared to the prior year ~~period,~~period. This decrease primarily ~~driven~~resulted from the impacts of broad-based inflation, higher marketing expense, increases in other operating costs, and the unfavorable comparison of a number of prior year benefits, partially offset by the benefits of strong ~~growth in~~ net sales growth and productivity. In the prior year period, we had the benefit of ~~productivity and a $38 million gain on an~~the change in our accounting policy related to the recognition of forfeitures for our stock awards, the asset sale-leaseback ~~transaction~~activity related to our strategic asset investment ~~program. These benefits were almost entirely offset by~~program, and the ~~impact~~portion of ~~broad-based inflation and increases in other operating costs.~~the settlement payment from BodyArmor for the reimbursement of attorney fees.

Constant Currency Adjusted Interest Expense. Constant currency adjusted interest expense ~~decreased 16.6%~~increased 0.9% compared to the prior year period, primarily driven by ~~reduced interest expense on our senior unsecured notes as a result~~increased use of our ~~strategic refinancing initiatives.~~commercial paper facility in the current year period.

Constant Currency Adjusted Effective Tax Rate. The constant currency adjusted effective tax rate was ~~22.9%~~20.2% for the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~23.7%~~22.9% for the prior year period, primarily driven by ~~our incremental income in low~~the tax ~~jurisdictions~~benefit received from favorable adjustments upon foreign tax return filing and excess tax deductions that were generated from the vesting of RSUs during the first ~~nine months~~quarter of ~~2022.~~2023.

Constant Currency Adjusted Net Income Attributable to KDP. Constant currency adjusted net income attributable to KDP increased ~~3.0%~~0.6% compared to the prior year period, ~~primarily driven by lower interest expense and~~as the decrease in our effective tax ~~rate.~~rate and the benefit of Nutrabolt’s preferred dividend was partially offset by lower constant currency adjusted income from operations.

Constant Currency Adjusted Diluted EPS. Constant currency adjusted diluted EPS increased approximately ~~2.6%~~3.0% over the prior year ~~period.~~period, driven by lower weighted average shares outstanding compared to the prior year period and the increase in constant currency adjusted net income attributable to KDP.

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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 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~~U.S. REFRESHMENT BEVERAGES

Constant Currency Net Sales. Constant currency net sales increased ~~13.2%~~12.7%, reflecting favorable net price realization of ~~11.1%~~12.5% and volume/mix growth of ~~2.1%~~0.2%.

Constant Currency Adjusted Income from Operations. Constant currency adjusted income from operations for the first ~~nine months~~quarter of ~~2022~~2023 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%~~11.6% 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, the unfavorable comparison to asset sale-leaseback activity relating to our strategic asset initiative in the prior year period, higher marketing expense and increases in other operating costs.

U.S. COFFEE

Constant Currency Net Sales.Constant currency net sales decreased 1.3%, driven by unfavorable volume/mix of 6.6%, partially offset by higher net price realization of 5.3%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations decreased 5.3% compared to the prior year period, as a result of inflation in input costs and declines in volume/mix. These decreases were partially offset by the benefits of pricing actions and productivity.

INTERNATIONAL

Constant Currency Net Sales. Constant currency net sales increased 16.7%, driven by favorable net price realization of 9.0% and volume/mix growth of 7.7%.

Constant Currency Adjusted Income from Operations.Constant currency adjusted income from operations increased 18.3% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by broad-based inflation and higher costs associated with ~~incremental volumes, and increased marketing expense.~~higher volumes.

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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

We believe our financial condition and liquidity remain strong. 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.

The following summarizes our cash activity for the first ~~nine months~~quarter of ~~2022~~2023 and ~~2021:~~2022:

Cash, cash equivalents, restricted cash and restricted cash equivalents ~~increased $360~~decreased $331 million from December 31, ~~2021~~2022 to ~~September 30, 2022~~March 31, 2023, primarily ~~as a result~~driven by the reduction in cash provided by operating activities, dividend payments and share repurchases, partially offset by net issuances of ~~proceeds from the cash settlement with BodyArmor.~~commercial paper.

Cash generated by our foreign operations is generally repatriated to the U.S. periodically as working capital funding requirements, ~~in those jurisdictions allow. Foreign~~where allowed. We do not expect restrictions or taxes on repatriation of cash ~~balances were $435 million and $216 million as of September 30, 2022 and December 31, 2021, respectively.~~

~~Additionally, in April 2022, we chose~~held outside the U.S. to ~~undertake~~have 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 reducedmaterial effect on our overall ~~interest payments and our annual cash requirements. As part~~business, liquidity, financial condition or results of ~~this transaction, we additionally unwound approximately $1.5 billion~~operations for the foreseeable future.

Table 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.Contents

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 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 $165~~decreased $592 million for the first ~~nine months~~quarter of ~~2022,~~2023, as compared to the first ~~nine months~~quarter of ~~2021,~~2022, driven by the ~~increase~~decrease in net income adjusted for non-cash items, led by the unfavorable year-over-year impact of the $349 million gain from BodyArmor ~~partially offset by~~in the first quarter of 2022 and a ~~decline~~reduction in ~~working capital.~~

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our cash conversion cycle.

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

The following table summarizes our cash conversion cycle:


		September 30,			March 31,
		2022	2021		2023	2022
DIO	DIO	64	58	DIO	71	60
DSO	DSO	39	33	DSO	37	34
DPO	DPO	174	157	DPO	154	164
Cash conversion cycle	Cash conversion cycle	(71)	(66)	Cash conversion cycle	(46)	(70)

Our cash conversion cycle increased 24 days to approximately (46) days as of March 31, 2023 as compared to (70) days as of March 31, 2022. The increase in DIO reflects our efforts to restore inventory to meet customer service levels and the build up of our inventory of C4, and the increase in DSO was primarily driven by rising inflation during the year. The decrease in DPO was driven by the reduction of payment terms for certain suppliers.

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~~enter 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, 2022 and December 31, 2021, $3,923 million and $3,194 million, respectively, of our outstanding payment obligations were voluntarily elected by the supplier and soldRefer to ~~financial institutions. The amounts settled through the program and paid to the financial institutions were $2,830 million and $2,492 million for the first nine months of 2022 and 2021, respectively.~~

~~Impact~~Note 13 of the ~~CARES Act~~

~~Beginning in the second quarter of 2020, we deferred payments of employer-related payroll taxes as allowed under the CARES Act. Payment of at least 50% of the deferred amount was due~~Notes to our Unaudited Condensed Consolidated Financial Statements for additional information on January 3, 2022, with the remainder due by January 3, 2023. We deferred a total of $59 million in such payments since the CARES Act was implemented, and we timely paid approximately $30 million as of January 3, 2022.our obligations to participating suppliers.

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Sources of Liquidity - Financing

In 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 a $3 billion aggregate face value of Notes, consisting of the 2029 Notes, the 2032 Notes, and the 2052 Notes. The proceeds from the issuance were used to voluntarily prepay and retire the remaining 2023 Merger Notes and to tender portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 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 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.

Sources of Liquidity - Asset Sale-Leaseback Transactions

We 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 $7 million and $77 million of cash proceeds from our strategic asset investment program during the first ~~nine months~~quarter of 2023 and 2022, respectively, which are included in Proceeds from sales of property, plant and equipment in the ~~statement~~unaudited Condensed Consolidated Statements of Cash Flows.

Debt Ratings

Our credit ratings are as follows:

Rating Agency

Long-Term Debt Rating

Commercial Paper Rating

Outlook

Moody's(1)

Baa1

P-2

Stable

S&P

BBB

A-2

Stable

(1)On April 3, 2023, Moody’s upgraded our long-term debt rating to Baa1 from Baa2 and affirmed our P-2 commercial paper rating and outlook.

These debt and commercial paper ratings impact the interest we pay on our financing arrangements. A downgrade of one or both of our debt and commercial paper ratings could increase our interest expense and decrease the cash ~~flows.~~available to fund anticipated obligations.

As of March 31, 2023, we were in compliance with all debt covenants and we have no reason to believe that we will be unable to satisfy these covenants.

Principal Uses of Capital Resources

Over the past several years, our principal uses of our capital resources 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.

Now that we have met our post-merger goals, we plan to further reduce our leverage ratio. We also plan to invest in inorganic value creation through ~~M&A, including~~mergers or acquisitions, which may include 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 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~~quarter of ~~2022,~~2023, we have declared total dividends of ~~$0.575~~$0.20 per share.

Repurchases of Common Stock

Our Board authorized a four-year share repurchase program, ending December 31, 2025, of up to $4 billion of our outstanding common stock, potentially enabling us to return value to shareholders. We repurchased and retired ~~$88~~$231 million of common stock during the first ~~nine months~~quarter of ~~2022.~~2023. As of March 31, 2023, $3,390 million remained available for repurchase under the authorized share repurchase program.

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Capital Expenditures

We are investing in state-of-the-art manufacturing and warehousing facilities, including expansive investments in facilities in ~~Newbridge, Ireland;~~ Spartanburg, South Carolina; and Allentown, Pennsylvania, in ~~2022~~2023 and ~~2021,~~2022, in order to optimize our supply chain ~~network through integration and productivity projects and to mitigate risk of business interruption.~~network.

Purchases of property, plant and equipment were ~~$260~~$62 million and ~~$325~~$109 million for the first ~~nine months~~quarter of ~~2022~~2023 and ~~2021,~~2022, 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~~quarter of ~~2022~~2023 and ~~2021~~2022 primarily related to the manufacturing and warehousing facilities discussed above. Capital expenditures included in accounts payable and accrued expenses were ~~$179~~$222 million and ~~$180~~$139 million for the first ~~nine months~~quarter of ~~2022~~2023 and ~~2021,~~2022, respectively, which primarily related to these investments.

Investments in Unconsolidated Affiliates

From time to time, we expect to ~~acquire businesses or brands,~~ invest in ~~emerging~~beverage startup companies or in brand ownership companies to grow our presence in certain product categories, or enter into various licensing and distribution agreements to expand our product portfolio. Our investments in ~~emerging~~beverage startup companies generally involve acquiring a minority interest in equity securities of a company, in certain cases with a protected path to ownership at our future option. ~~In the second quarter of 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 or third-party brand ownership companies to ensure competitive distribution ~~scale for our brands.~~scale. 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 acquisition of an intangible asset. Purchases of intangible assets were ~~$41~~$51 million and ~~$31~~$10 million for the first ~~nine months~~quarter of ~~2022~~2023 and ~~2021,~~2022, respectively.

Uncertainties and Trends Affecting Liquidity

Disruptions in ~~global~~ financial and credit markets, including those caused by ~~the ongoing COVID-19 pandemic~~inflation, global economic uncertainty and ~~Russia’s invasion of Ukraine,~~rising interest rates, 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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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~~Quarter of ~~2022~~2023
Net sales	$	~~6,133~~2,082

Income from operations	~~889~~188
Net income attributable to KDP	~~983~~467


(in millions)	(in millions)	September 30, 2022		December 31, 2021		(in millions)	March 31, 2023		December 31, 2022
Current assets	Current assets	$	2,093	$	1,594	Current assets	$	1,842	$	1,712
Non-current assets	Non-current assets	44,411		43,972		Non-current assets	45,795		45,721
Total assets(1)	Total assets(1)	$	46,504	$	45,566	Total assets(1)	$	47,637	$	47,433

Current liabilities	Current liabilities	$	3,915	$	3,470	Current liabilities	$	6,007	$	4,797
Non-current liabilities	Non-current liabilities	17,441		17,125		Non-current liabilities	16,481		17,463
Total liabilities(2)	Total liabilities(2)	$	21,356	$	20,595	Total liabilities(2)	$	22,488	$	22,260

(1)Includes $3$4 million and ~~$209~~$3 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

(2)Includes ~~$115~~$1,450 million and ~~$40~~$1,186 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the disclosures on market risk made in our 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, 2022,~~March 31, 2023, 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, 2022~~March 31, 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

We are occasionally subject to litigation or other legal proceedings relating to our business. See Note 1514 of the Notes to our Unaudited Condensed Consolidated Financial Statements for more information related to commitments and contingencies, which is incorporated herein by reference.

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 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~~

The following table summarizes shares repurchased by the Company under this program during the ~~third~~first quarter of 2023:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Amount of Dollars that May Yet be Used to Purchase Shares Under the Program (in millions)(1)
January 1 to January 31	2,000,000	$	34.59	2,000,000	$	3,552
February 1 to February 28	471,803	35.74		471,803	3,535
March 1 to March 31	4,135,722	35.05		4,135,722	3,390
Total	6,607,525	$	34.96	6,607,525	$	3,390

(1)The share repurchase program was authorized prior to the issuance of the Inflation Reduction Act of 2022, which imposes a 1% excise tax on net share repurchases that occur after December 31, 2022. For the first quarter of 2023, the Company recorded $1 million to additional paid-in capital for the excise tax associated with shares repurchased during the quarter.

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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 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).
~~10.1~~			Letter Agreement by and between the Company and Mauricio Leyva dated July 15, 2022 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed on July 19, 2022) and incorporated herein by reference). ++
~~10.2~~			Letter Agreement by and between the Company and Ozan Dokmecioglu dated July 25, 2022 (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (filed on 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, 2022,~~March 31, 2023, 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/ ~~George Lagoudakis~~Sudhanshu Priyadarshi

	Name:	~~George Lagoudakis~~Sudhanshu Priyadarshi
	Title:	~~Interim~~ Chief Financial Officer
		(Principal Financial Officer)
Date: ~~October~~April 27, ~~2022~~2023

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(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



	Items Affecting Comparability(1)
(in millions)	Employee Compensation Expense(2)		Employee Protection Costs(3)		Allowances for Expected Credit Losses(4)		Total
For the third quarter of 2022:
Coffee Systems	$	—	$	3	$	—	$	3
Packaged Beverages	1		1		—		2
Beverage Concentrates	—		—		—		—
Latin America Beverages	—		—		—		—
Total	$	1	$	4	$	—	$	5

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

For the first nine months of 2022:
Coffee Systems	$	1	$	6	$	—	$	7
Packaged Beverages	3		3		—		6
Beverage Concentrates	—		—		—		—
Latin America Beverages	—		1		—		1
Total	$	4	$	10	$	—	$	14

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