What changed in this filing

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Item 1. Financial Statements

2020-10-29 compared with 2020-07-30 · 226 added, 175 removed, 739 unchanged (35% of the section changed)

3 unchanged sentences

( Unaudited )

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions, except per share data)

1 unchanged sentence

Selling, general and administrative expenses

Other operating (income) expense, net

Other operating expense (income), net

Income from operations

1 unchanged sentence

Loss on early extinguishment of debt

Impairment on investment and note receivable

Other (income) expense, net

Impairment on investments and note receivable

Other expense, net

Income before provision for income taxes

Provision for income taxes

Net income attributable to non-controlling interest

Net income attributable to KDP

Earnings per common share:

4 unchanged sentences

( Unaudited )

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

Comprehensive income

Comprehensive income attributable to KDP

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

2 unchanged sentences

( Unaudited )

September 30,

(in millions, except share and per share data)

25 unchanged sentences

Preferred stock, $0.01 par value, 15,000,000 shares authorized, no shares issued

Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,407,193,674 and 1,406,852,305 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Common stock, $0.01 par value, 2,000,000,000 shares authorized, 1,407,253,294 and 1,406,852,305 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

2 unchanged sentences

Total stockholders' equity

Total liabilities and stockholders' equity

Non-controlling interest

Total liabilities and equity

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

2 unchanged sentences

( Unaudited )

First Six Months

First Nine Months

(in millions)

Operating activities:

Net income attributable to KDP

Adjustments to reconcile net income to net cash provided by operating activities:

6 unchanged sentences

Loss on early extinguishment of debt

Gain on disposal of property, plant and equipment

(Gain) loss on disposal of property, plant and equipment

Unrealized loss (gain) on foreign currency

1 unchanged sentence

Equity in loss of unconsolidated affiliates

Impairment on investment and note receivable of unconsolidated affiliate

Impairment on investments and note receivable of unconsolidated affiliate

Changes in assets and liabilities:

17 unchanged sentences

( Unaudited , Continued)

First Six Months

First Nine Months

(in millions)

19 unchanged sentences

Supplemental cash flow disclosures of non-cash investing activities:

Measurement period adjustment of Core purchase price

Measurement period adjustment of Core Nutrition LLC purchase price

Capital expenditures included in accounts payable and accrued expenses

Non-cash acquisition of controlling interest

Purchases of intangibles

12 unchanged sentences

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Stockholders' Equity

Accumulated Other Comprehensive (Loss) Income

Total Stockholders' Equity

Non-controlling Interest

(in millions, except per share data)

11 unchanged sentences

Balance as of June 30, 2020

Other comprehensive income

Dividends declared, $0.15 per share

Proceeds from controlling shareholder stock transactions

Non-cash acquisition of controlling interest

Shares issued under employee stock-based compensation plans and other

Stock-based compensation and stock options exercised

Balance as of September 30, 2020

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

( Unaudited , Continued)

Common Stock Issued

Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Stockholders' Equity

(in millions, except per share data)

Balance as of January 1, 2019

10 unchanged sentences

Balance as of June 30, 2019

Other comprehensive loss

Dividends declared, $0.15 per share

Shares issued under employee stock-based compensation plans and other

Stock-based compensation and stock options exercised

Balance as of September 30, 2019

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On January 29, 2018, DPS entered into the DPS Merger Agreement by and among DPS , Maple and Merger Sub .

The DPS Merger was consummated on July 9, 2018, at which time DPS changed its name to " Keurig Dr Pepper Inc.

References in this Quarterly Report on Form 10-Q to " KDP " or "the Company " refer to Keurig Dr Pepper Inc.

3 unchanged sentences

All of the product names included herein are either KDP registered trademarks or those of the Company 's licensors.

Effective September 18, 2020, at market close, the Company's common stock ceased to be listed on the New York Stock Exchange and on September 21, 2020, the following business day, KDP's common stock began trading on Nasdaq 's Global Select Market at market open.

The Company's stock ticker remains "KDP".

BASIS OF PRESENTATION

5 unchanged sentences

These unaudited condensed consolidated financial statements should be read in conjunction with KDP 's consolidated financial statements and accompanying notes, included in the Company 's Annual Report .

Except as otherwise specified, references to the " second quarter " indicate the Company 's quarterly periods ended June 30, 2020 and 2019 .

Except as otherwise specified, references to the " third quarter " indicate the Company 's quarterly periods ended September 30, 2020 and 2019 .

PRINCIPLES OF CONSOLIDATION

KDP consolidates all wholly owned subsidiaries.

The Company consolidates investments in companies in which it holds the majority interest.

In these cases, the third party equity interest is referred to as non-controlling interest.

Non-controlling interests are presented as a separate component within equity in the unaudited Condensed Consolidated Balance Sheets, and net earnings attributable to the non-controlling interests are presented separately in the unaudited Condensed Consolidated Statements of Income.

The Company uses the equity method to account for investments in companies if the investment provides the Company with the ability to exercise significant influence over operating and financial policies of the investee.

9 unchanged sentences

Actual amounts may differ from these estimates .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

RECLASSIFICATIONS

The Company reclassified the following amounts in the unaudited condensed consolidated Statement of Cash Flows for the first six months of 2019 in order to conform to current year presentation:

The Company reclassified the following amounts in the unaudited condensed consolidated Statement of Cash Flows for the first nine months of 2019 in order to conform to current year presentation:

(in millions)

1 unchanged sentence

Revised Presentation

For the First Six Months of 2019

For the First Nine Months of 2019

Net cash provided by operating activities:

5 unchanged sentences

Other amortization expense

Gain on disposal of property, plant and equipment

Loss on disposal of property, plant and equipment

(Gain) loss on disposal of property, plant and equipment

Amortization of deferred financing fees

3 unchanged sentences

Primarily includes amortization of customer rebates and upfront payments.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2020, the FASB issued ASU 2020-01 .

The objective of ASU 2020-01 is to clarify the interaction of the accounting for equity securities, investments accounted for under the equity method of accounting and the accounting for certain forward contracts and purchased options accounted under different topics in U.S.

ASU 2020-01 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2020.

16 unchanged sentences

The adoption of ASU 2018-13 did not have an impact on the Company 's unaudited condensed consolidated financial statements.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Long-term Obligations and Borrowing Arrangements

1 unchanged sentence

(in millions)

June 30, 2020

September 30, 2020

December 31, 2019

4 unchanged sentences

(in millions)

June 30, 2020

September 30, 2020

December 31, 2019

11 unchanged sentences

Maturity Date

June 30, 2020

September 30, 2020

December 31, 2019

21 unchanged sentences

Carrying amount

On January 15, 2020, the Company repaid the 2020 Notes at maturity, using commercial paper notes.

On January 15, 2020, the Company repaid the 2020 Notes at maturity, using commercial paper borrowings.

On April 13, 2020, the Company completed the issuance of $ 1.5 billion aggregate principal amount of senior unsecured notes consisting of $ 750 million aggregate principal amount of 3.200 % senior unsecured notes due May 1, 2030 and $ 750 million aggregate principal amount of 3.800 % senior unsecured notes due May 1, 2050 .

2 unchanged sentences

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

BORROWING ARRANGEMENTS

1 unchanged sentence

(in millions)

June 30, 2020

September 30, 2020

December 31, 2019

12 unchanged sentences

Carrying amount

During t he first quarter of 2020, the Company borrowed $ 380 million of commercial paper to voluntarily prepay a portion of its outstanding obligations under the 2019 KDP Term Loan.

During the first quarter of 2020, the Company borrowed $ 380 million of commercial paper to voluntarily prepay a portion of its outstanding obligations under the 2019 KDP Term Loan.

During the second quarter of 2020, the Company voluntarily prepaid an additional $ 300 million of its outstanding obligations with cash on hand.

As a result of these voluntary prepayments, the Company recorded $ 2 million and $ 4 million losses on early extinguishment during the second quarter and first six months of 2020 , respectively.

The KDP Revolver has $ 200 million letters of credit availability and none utilized as of June 30, 2020 .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

During the third quarter 2020, the Company voluntarily prepaid an additional $ 125 million of its outstanding obligations with commercial paper.

As a result of these voluntary prepayments, the Company recorded no loss on early extinguishment during the third quarter of 2020 and $ 4 million loss on early extinguishment during the first nine months of 2020 , respectively.

The KDP Revolver has $ 200 million letters of credit availability and none utilized as of September 30, 2020 .

On April 14, 2020, the Company terminated the 2019 364-Day Credit Agreement and replaced it with the 2020 364-Day Credit Agreement in order to increase the commitment from $ 750 million to $ 1.5 billion .

2 unchanged sentences

The 2020 364-Day Credit Agreement will mature on April 13, 2021 .

As of June 30, 2020 , the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements .

As of September 30, 2020 , the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements .

Commercial Paper Program

T he following table provides information about the Company 's weighted average borrowings under its commercial paper program:

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions, except %)

3 unchanged sentences

In addition to the portion of the KDP Revolver reserved for issuance of letters of credit, the Company has an incremental letter of credit facility.

Under this facility, $ 100 million is available for the issuance of letters of credit, $ 44 million of which was utilized as of June 30, 2020 and $ 56 million of which remains available for use.

Under this facility, $ 100 million is available for the issuance of letters of credit, $ 44 million of which was utilized as of September 30, 2020 and $ 56 million of which remains available for use.

FAIR VALUE DISCLOSURES

The fair values of each of the Company 's commercial paper notes, the 2019 KDP Term Loan, the KDP Revolver , the 2019 364-Day Credit Agreement and the 2020 364-Day Credit Agreement approximate the carrying value and are considered Level 2 within the fair value hierarchy.

The fair values of each of the Company 's commercial paper notes and the 2019 KDP Term Loan approximate the carrying value and are considered Level 2 within the fair value hierarchy.

The fair values of the Company 's Notes are based on current market rates available to the Company and are considered Level 2 within the fair value hierarchy.

The difference between the fair value and the carrying value represents the theoretical net premium or discount that would be paid or received to retire all the Notes and related unamortized costs to be incurred at such date.

The fair value of the Company 's Notes was $ 14,990 million and $ 12,898 million as of June 30, 2020 and December 31, 2019 , respectively.

The fair value of the Company 's Notes was $ 15,072 million and $ 12,898 million as of September 30, 2020 and December 31, 2019 , respectively.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Goodwill and Other Intangible Assets

7 unchanged sentences

Foreign currency translation

Balance as of June 30, 2020

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Balance as of September 30, 2020

INTANGIBLE ASSETS OTHER THAN GOODWILL

1 unchanged sentence

(in millions)

June 30, 2020

September 30, 2020

December 31, 2019

1 unchanged sentence

Distribution rights

The decrease of $ 275 million in brands with indefinite lives was due to foreign currency translation during the first six months of 2020 .

The decrease of $ 207 million in brands with indefinite lives was due to foreign currency translation during the first nine months of 2020 .

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

June 30, 2020

September 30, 2020

December 31, 2019

7 unchanged sentences

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

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

7 unchanged sentences

KDP conducts impairment tests on goodwill and all indefinite lived intangible assets annually, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company did not identify any circumstances, including the ongoing COVID-19 pandemic, that indicated that the carrying amount of any goodwill or any intangible asset may not be recoverable as of June 30, 2020 .

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

ACQUISITION OF CONTROLLING INTEREST IN REVIVE

On July 31, 2020, the Company closed on a stock purchase agreement to obtain a 66.4 % ownership interest in Revive from Peet's for cash consideration of $ 1 , with Peet's retaining a minority ownership interest.

Revive is an organic, non-alcoholic kombucha brand, available in both traditional refrigerated and shelf-stable varieties.

The transaction is considered a common control transaction due to KDP's relationship with Peet's through certain affiliates of JAB.

The investment was accounted for as an acquisition of a controlling interest, and in accordance with the requirements of U.S.

GAAP for common control transactions, KDP recognized all of Revive 's assets and liabilities at their carrying values as of July 31, 2020, with the $ 3 million difference between the Company's ownership interest in the net assets and the purchase price recorded to additional paid-in capital.

Refer to Note 1 for the Company's accounting policies with respect to consolidation of Revive and accounting for the non-controlling interest.

INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The following table summarizes investments in unconsolidated affiliates as of June 30, 2020 and December 31, 2019 :

The following table summarizes investments in unconsolidated affiliates as of September 30, 2020 and December 31, 2019 :

September 30,

(in millions)

Ownership Interest

Force Holdings LLC

Beverage startup companies

Investments in unconsolidated affiliates

Impairment of Bedford Investment and Related Party Note Receivable

Impairments of Investments

Bedford Investment and Related Party Note Receivable

The Company and ABI , in conjunction with the creation of Bedford, had executed a line of credit agreement with Bedford on March 3, 2017, which was amended on December 7, 2018 to increase the line of credit.

3 unchanged sentences

As a result of these indicators of impairment, the Company tested the Bedford investment for an other-than-temporary impairment using a discounted cash flow framework with multiple scenarios, including the conversion of the note receivable into equity.

The results of its analysis indicated that the note receivable of $ 55 million was fully impaired and the investment in unconsolidated affiliates was impaired by $ 31 million , which was recorded on the Impairment on investment and note receivable line in the Condensed Consolidated Statements of Income.

The results of its analysis indicated that the note receivable of $ 55 million was fully impaired and the investment in unconsolidated affiliates was impaired by $ 31 million , which was recorded on the Impairment on investments and note receivable line in the Condensed Consolidated Statements of Income.

As a result of the other-than-temporary impairment, the Company has placed the note receivable in non-accrual status.

Beverage Startup Companies

In September 2020, the Company tested its investment in LifeFuels , which is included in the Beverage startup companies line in the table above, for an other-than-temporary impairment as a result of continued losses, ongoing liquidity concerns and a lack of a buyer for LifeFuels .

As a result of this analysis, the Company determined that the investment was fully impaired and recorded an impairment charge of approximately $ 16 million to the Impairment on investments and note receivable line in the Condensed Consolidated Statements of Income.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Restructuring and Integration Costs

4 unchanged sentences

Restructuring and integration charges incurred on the defined programs were as follows:

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

2 unchanged sentences

Total restructuring and integration charges

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Restructuring liabilities that qualify as exit and disposal costs under U.S.

GAAP are included in accounts payable and accrued expenses on the unaudited condensed consolidated financial statements.

Restructuring liabilities as of June 30, 2020 along with charges to expense, cash payments and non-cash charges for the period specific to the DPS Integration Program were as follows:

Restructuring liabilities as of September 30, 2020 along with charges to expense, cash payments and non-cash charges for the period specific to the DPS Integration Program were as follows:

(in millions)

4 unchanged sentences

Non-cash adjustment items

Balance as of June 30, 2020

Balance as of September 30, 2020

RESTRUCTURING PROGRAMS

2 unchanged sentences

The Company expects to incur total cash expenditures of $ 750 million , comprised of both capital expenditures and expense, and expects to complete the program by 2021.

The restructuring and integration program resulted in cumulative pre-tax charges of approximately $ 492 million , primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through June 30, 2020 .

The restructuring and integration program resulted in cumulative pre-tax charges of approximately $ 530 million , primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through September 30, 2020 .

Our effective tax rates were as follows:

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

Effective tax rate

For the second quarter of 2020 , the provision for income taxes was higher than the second quarter of 2019 primarily due to the decrease in the valuation of the Company's deferred tax liabilities and decrease of income tax reserves in the second quarter of 2019 .

For the first six months of 2020 , the provision for income taxes was higher than the first six months of 2019 primarily due to the tax benefit received in the first six months of 2019 from the valuation allowance release on realizability of foreign net operating loss carryforwards, which was offset by the tax benefit received from the Company ’s jurisdictional income mix through the first six months of 2020 .

For the third quarter of 2020 , the provision for income taxes was lower than the third quarter of 2019 primarily due to a decrease of uncertain tax positions, which was slightly offset by an increase of U.S.

taxation of foreign earnings.

For the first nine months of 2020 , the provision for income taxes was lower than the first nine months of 2019 primarily due to the tax benefit received in the first nine months of 2020 from the release of uncertain tax positions.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

KDP is exposed to market risks arising from adverse changes in interest rates, commodity prices, and FX rates.

8 unchanged sentences

If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI would be reclassified to earnings at that time.

For derivatives that are not designated or are de-designated as a hedging instrument, the gain or loss on the instrument is recognized in earnings in the period of change.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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.

7 unchanged sentences

Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in interest expense in the unaudited Condensed Consolidated Statements of Income.

As of June 30, 2020 , all interest rate swap contracts will mature in March 2025 .

As of September 30, 2020 , all interest rate swap contracts will mature in March 2025 .

FOREIGN EXCHANGE

5 unchanged sentences

Economic Hedges

During the second quarter and first six months of 2020 and 2019 , the Company held FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX exchange rates described above.

During the third quarter and first nine months of 2020 and 2019 , the Company held FX forward contracts to economically manage the balance sheet exposures resulting from changes in the FX exchange rates described above.

The intent of these FX contracts is to minimize the impact of FX risk associated with balance sheet positions not in local currency.

1 unchanged sentence

Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same caption of the unaudited Condensed Consolidated Statements of Income as the associated risk.

These FX contracts have maturities ranging from July 2020 to September 2024 as of June 30, 2020 .

These FX contracts have maturities ranging from October 2020 to September 2024 as of September 30, 2020 .

Cash Flow Hedges

Beginning in the second quarter of 2020, the Company began to designate certain FX forward contracts related to inventory purchases of the Mexican businesses as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above.

During 2020, the Company began to designate certain FX forward contracts related to inventory purchases of the Canadian and Mexican businesses as cash flow hedges in order to manage the exposures resulting from changes in the FX rates described above.

The intent of these FX contracts is to provide predictability in the Company's overall cost structure.

These FX contracts, carried at fair value, have maturities ranging from October 2020 to December 2020 as of June 30, 2020 .

These FX contracts, carried at fair value, have maturities ranging from October 2020 to December 2021 as of September 30, 2020 .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Economic Hedges

1 unchanged sentence

The intent of these contracts is to provide a certain level of predictability in the Company 's overall cost structure.

During the second quarter and first six months of 2020 and 2019 , the Company held forward, future, swap and option contracts that economically hedged certain of its risks.

During the third quarter and first nine months of 2020 and 2019 , the Company held forward, future, swap and option contracts that economically hedged certain of its risks.

In these cases, a hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items.

1 unchanged sentence

Unrealized gains and losses are recognized as a component of unallocated corporate costs until the Company 's operating segments are affected by the completion of the underlying transaction, at which time the gain or loss is reflected as a component of the respective segment's income from operations.

These commodity contracts have maturities ranging from July 2020 to December 2022 as of June 30, 2020 .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

These commodity contracts have maturities ranging from October 2020 to January 2023 as of September 30, 2020 .

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

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

September 30,

(in millions)

5 unchanged sentences

Commodity contracts

During the first six months of 2020 , the Company elected to terminate $ 50 million notional amount of receive-fixed, pay-variable interest rate swaps and received cash of $ 18 million .

During the first six months of 2020 , the Company elected to terminate $ 575 million notional amount of receive-variable, pay-fixed interest rate swaps and received cash of $ 2 million .

During the first nine months of 2020 , the Company elected to terminate $ 50 million notional amount of receive-fixed, pay-variable interest rate swaps and received cash of $ 18 million .

During the first nine months of 2020 , the Company elected to terminate $ 575 million notional amount of receive-variable, pay-fixed interest rate swaps and received cash of $ 2 million .

FAIR VALUE OF DERIVATIVE INSTRUMENTS

4 unchanged sentences

Therefore, the Company has categorized these contracts as Level 2.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Not Designated as Hedging Instruments

3 unchanged sentences

Balance Sheet Location

September 30,

Interest rate contracts

18 unchanged sentences

Other non-current liabilities

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Designated as Hedging Instruments

3 unchanged sentences

Balance Sheet Location

September 30,

Prepaid expenses and other current assets

Other non-current assets

Other current liabilities

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

2 unchanged sentences

Amounts include both realized and unrealized gains and losses.

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

3 unchanged sentences

Cost of sales

Other (income) expense, net

Other expense, net

Commodity contracts

2 unchanged sentences

SG&A expenses

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

IMPACT OF CASH FLOW HEDGES

The following table presents the impact of derivative instruments designated as cash flow hedging instruments under U.S.

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

1 unchanged sentence

Amount of gain recognized in other comprehensive income (1)

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

KDP expects that amounts reclassified from AOCI into net income during the next twelve months will be insignificant.

There was no hedge ineffectiveness during the periods presented.

4 unchanged sentences

KDP has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

The following table presents the components of lease cost:

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

9 unchanged sentences

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

First Six Months

First Nine Months

(in millions)

4 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

5 unchanged sentences

Finance leases

Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 were as follows:

KEURIG DR PEPPER INC.

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, 2020 were as follows:

(in millions)

6 unchanged sentences

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of June 30, 2020 , the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 670 million .

These leases are expected to commence between the third quarter of 2020 and first quarter of 2021 , with initial lease terms ranging from 7 years to 20 years .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

As of September 30, 2020 , the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 640 million .

These leases are expected to commence between the fourth quarter of 2020 and third quarter of 2021 , with initial lease terms ranging from 5 years to 17 years .

ASSET SALE-LEASEBACK TRANSACTIONS

8 unchanged sentences

The term of the leaseback is expected to end in 2025 and has two three-year renewals.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Earnings Per Share

The following table presents the Company 's basic and diluted EPS and shares outstanding:

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions, except per share data)

Net income attributable to KDP

Weighted average common shares outstanding

Earnings per common share — basic

Net income attributable to KDP

Weighted average common shares outstanding

4 unchanged sentences

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Stock-Based Compensation

1 unchanged sentence

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

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

10 unchanged sentences

Vested and released

Outstanding as of June 30, 2020

As of June 30, 2020 , there was $ 328 million of unrecognized compensation cost related to unvested RSU s that is expected to be recognized over a weighted average period of 3.81 years .

Accumulated Other Comprehensive Income (Loss)

Outstanding as of September 30, 2020

As of September 30, 2020 , there was $ 350 million of unrecognized compensation cost related to unvested RSU s that is expected to be recognized over a weighted average period of 3.85 years .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Accumulated Other Comprehensive (Loss) Income

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

3 unchanged sentences

Cash Flow Hedges

Accumulated Other Comprehensive Income (Loss)

Balance as of April 1, 2020

Accumulated Other Comprehensive (Loss) Income

Balance as of July 1, 2020

Other comprehensive income

Balance as of June 30, 2020

Balance as of September 30, 2020

Balance as of January 1, 2020

Other comprehensive income (loss)

Balance as of June 30, 2020

Balance as of April 1, 2019

Balance as of September 30, 2020

Balance as of July 1, 2019

Other comprehensive income

Balance as of June 30, 2019

Amounts reclassified from AOCI (1)

Balance as of September 30, 2019

Balance as of January 1, 2019

Other comprehensive income

Balance as of June 30, 2019

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Amounts reclassified from AOCI (1)

Balance as of September 30, 2019

Amounts reclassified from AOCI during the period represent settlement losses, which are recorded to SG&A expenses within the unaudited Condensed Consolidated Statements of Income.

Trade Accounts Receivables, Net

1 unchanged sentence

The Company is exposed to potential credit risks associated with its accounts receivable, as it generally does not require collateral on its accounts receivable.

The Company determines the required allowance for expected credit losses using information such as its customer credit history and financial condition, industry and market segment information, credit reports, and economic trends and conditions such as the impacts of COVID-19 in the first six months of 2020 .

Allowances can be affected by changes in the industry, customer credit issues or customer bankruptcies or expectations of any such events in a future period when reasonable and supportable.

1 unchanged sentence

Amounts are charged against the allowance when it is determined that expected credit losses may occur.

Activity in the allowance for expected credit loss accounts during the Periods was as follows:

Activity in the allowance for expected credit loss accounts during the periods presented was as follows:

(in millions)

6 unchanged sentences

Write-offs and adjustments

Balance as of June 30, 2020

Balance as of September 30, 2020

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Other Financial Information

2 unchanged sentences

(in millions)

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows

Restricted cash and cash equivalents primarily represent amounts held in escrow in connection with the Core Acquisition , the Bai Acquisition and the Big Red Acquisition .

Amounts held in escrow are expected to be released within one year.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Restricted cash and cash equivalents primarily represent amounts held in escrow in connection with the acquisitions of Core Nutrition LLC, Bai Brands LLC and Big Red Group Holdings, LLC, which have a corresponding holdback liability recorded in other current liabilities, as shown below.

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

September 30,

(in millions)

Trade accounts receivable, net:

Trade and other accounts receivable

Allowance for expected credit losses

Total trade accounts receivable, net

Raw materials

23 unchanged sentences

Fair values of marketable securities are determined using quoted market prices from daily exchange traded markets, based on the closing price as of the balance sheet date, and are classified as Level 1.

The fair value of marketable securities was $ 37 million and $ 40 million as of June 30, 2020 and December 31, 2019 , respectively.

The fair value of marketable securities was $ 37 million and $ 40 million as of September 30, 2020 and December 31, 2019 , respectively.

Refer to Note 4 for additional information .

2 unchanged sentences

(Unaudited, Continued)

September 30,

(in millions)

28 unchanged sentences

KDP 's obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted.

As of June 30, 2020 and December 31, 2019 , $ 2,487 million and $ 2,097 million , respectively, of KDP 's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

KDP has been informed by the third party administrator that as of September 30, 2020 and December 31, 2019 , $ 2,442 million and $ 2,097 million , respectively, of KDP 's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Commitments and Contingencies

3 unchanged sentences

The Company has also identified certain other legal matters where the Company believes an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Antitrust Litigation

29 unchanged sentences

Proposition 65 Litigation

In May 2011, the Council for Education and Research on Toxics filed a lawsuit in the Superior Court of the State of California, County of Los Angeles, (Council for Education and Research on Toxics v.

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 KGM , in addition to nearly one hundred other defendants who manufacture, package, distribute or sell coffee, failed to warn persons in California that KGM 's coffee products expose persons to the chemical acrylamide in violation of Proposition 65 .

Plaintiff seeks equitable relief, including providing warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65 .

Council for Education and Research on Toxics asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Proposition 65 .

KGM , as part of a joint defense group organized to defend against the lawsuit, disputes the claims of the Plaintiff.

Acrylamide is not added to coffee, but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process.

KGM has asserted multiple affirmative defenses.

The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees, but the California Court of Appeal granted the defendants request for a stay of the third phase trial in October 2018.

The stay order was prompted by California’s Office of Environmental Health Hazard Assessment proposal of a new Proposition 65 regulation clarifying that cancer warnings are not required for chemicals, such as acrylamide, that are present in coffee as a result of roasting coffee beans.

After the regulation took effect in October 2019, the Court of Appeal lifted its stay order and the litigation has continued based on, among other items, CERT’s contentions that the regulation is legally invalid and, alternatively, cannot be applied to its pending claims.

At this stage of the proceedings, the Company is unable to reasonably estimate the potential loss or effect on the Company or its operations that could be associated with the lawsuit.

The trial court has discretion to impose zero penalties against the Company or to impose significant statutory penalties.

Significant labeling or warning requirements that could potentially be imposed by the trial court may increase the Company's costs and adversely affect sales of coffee products.

BC461182), alleging that KGM , and certain other defendants who manufacture, package, distribute or sell coffee, failed to warn persons in California that KGM 's coffee products expose persons to the chemical acrylamide in violation of Proposition 65 .

KGM , 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, though CERT may still file an appeal.

If necessary, the Company intends to continue to vigorously defend itself in this action.

KEURIG DR PEPPER INC.

2 unchanged sentences

Related Parties

KDP is indirectly controlled by JAB , a privately held investor group.

JAB and its affiliates have controlling investments in a number of other companies that have commercial relationships with the Company, including Peet's , Caribou Coffee Company, Inc., Panera Bread Company, Einstein Bros Bagels, and Krispy Kreme Doughnuts Inc.

IDENTIFICATION OF RELATED PARTIES

Prior to August 19, 2020, KDP was indirectly controlled by JAB , a privately held investor group.

Since August 19, 2020, JAB continues to hold a significant but non-controlling interest in KDP.

As of September 30, 2020 , JAB beneficially owned approximately 44 % of KDP's outstanding common stock.

JAB and its affiliates also hold investments in a number of other companies that have commercial relationships with the Company, including Peet's , Caribou Coffee Company, Inc., Panera Bread Company, Einstein Bros Bagels, and Krispy Kreme Doughnuts Inc.

KDP purchases certain raw materials from Peet's and manufactures coffee and tea portion packs under Peet's brands for sale by KDP and Peet's in the U.S.

7 unchanged sentences

ABI purchases Clamato from KDP and pays the Company a royalty for use of the brand name.

Refer to Note 4 for additional information about KDP 's investments in unconsolidated affiliates.

Refer to Note 4 for additional information about KDP 's investments in brand ownership companies.

For all periods presented, the Company 's operating structure consisted of the following four reportable segments:

5 unchanged sentences

Most of the brands in this segment are carbonated soft drink brands.

The Latin America Beverages segment reflects sales in Mexico, the Caribbean, and other international markets from the manufacture and distribution of concentrates, syrup and finished beverages.

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

Segment results are based on management reports.

2 unchanged sentences

“ 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.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

4 unchanged sentences

Latin America Beverages

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Second Quarter

First Six Months

Third Quarter

First Nine Months

(in millions)

22 unchanged sentences

Latin America Beverages

For the second quarter of 2020:

For the third quarter of 2020:

K-Cup pods (2)

For the first six months of 2020:

For the first nine months of 2020:

K-Cup pods (2)

For the second quarter of 2019:

For the third quarter of 2019:

K-Cup pods (2)

For the first six months of 2019:

For the first nine months of 2019:

K-Cup pods (2)

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements