What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 387 added, 519 removed, 446 unchanged (67% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

( Unaudited )

Third Quarter

First Nine Months

First Quarter

(in millions, except per share data) 2021 2020

Net sales $ 2,902 $ 2,613

Cost of sales 1,302 1,161

Gross profit 1,600 1,452

Selling, general and administrative expenses 961 1,028

Other operating expense (income), net

Other operating income, net ( 1 ) ( 42 )

Income from operations 640 466

1 unchanged sentence

Loss on early extinguishment of debt 105 2

Impairment on investments and note receivable

Other expense, net

Impairment of investments and note receivable — 86

Other (income) expense, net ( 3 ) 20

Income before provision for income taxes 398 205

Provision for income taxes 73 49

Net income 325 156

Net income attributable to non-controlling interest — —

1 unchanged sentence

Earnings per common share:

Basic $ 0.23 $ 0.11

Diluted 0.23 0.11

Weighted average common shares outstanding:

Basic 1,409.2 1,407.0

Diluted 1,425.6 1,420.1

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

( Unaudited )

Third Quarter

First Nine Months

First Quarter

(in millions) 2021 2020

Comprehensive income attributable to KDP

Net income $ 325 $ 156

Other comprehensive income

Foreign currency translation adjustments 16 ( 583 )

Net change in pension and post-retirement liability, net of tax of $ — and $ — , respectively

Net change in cash flow hedges, net of tax of $ 22 and $ — , respectively

Total other comprehensive income (loss) 87 ( 584 )

Comprehensive income (loss) 412 ( 428 )

Comprehensive income attributable to non-controlling interest — —

Comprehensive income (loss) attributable to KDP $ 412 $ ( 428 )

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

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

( Unaudited )

September 30,

March 31, December 31,

(in millions, except share and per share data) 2021 2020

3 unchanged sentences

Trade accounts receivable, net 1,065 1,048

Inventories 841 762

Prepaid expenses and other current assets 410 323

2 unchanged sentences

Investments in unconsolidated affiliates 88 88

Goodwill 20,209 20,184

Other intangible assets, net 23,949 23,968

1 unchanged sentence

Deferred tax assets 44 45

Total assets $ 50,403 $ 49,779

Liabilities and Stockholders' Equity

13 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, 1,407,253,294 and 1,406,852,305 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Common stock, $ 0.01 par value, 2,000,000,000 shares authorized, 1,417,325,379 and 1,407,260,676 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 21,718 21,677

Retained earnings 2,174 2,061

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income 164 77

Total stockholders' equity 24,070 23,829

Non-controlling interest 1 1

Total equity 24,071 23,830

Total liabilities and equity $ 50,403 $ 49,779

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

( Unaudited )

First Nine Months

First Quarter

(in millions) 2021 2020

Operating activities:

Net income attributable to KDP

Net income $ 325 $ 156

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

6 unchanged sentences

Loss on early extinguishment of debt 105 2

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

Unrealized loss (gain) on foreign currency

Unrealized loss on derivatives

Gain on disposal of property, plant and equipment ( 1 ) ( 43 )

Unrealized (gain) loss on foreign currency ( 10 ) 22

Unrealized (gain) loss on derivatives ( 41 ) 43

Equity in loss of unconsolidated affiliates — 15

Impairment on investments and note receivable of unconsolidated affiliate — 86

Other, net 15 22

Changes in assets and liabilities:

Trade accounts receivable ( 37 ) 42

Inventories ( 77 ) ( 38 )

Income taxes receivable and payables, net 25 ( 29 )

5 unchanged sentences

Investing activities:

Acquisitions of businesses

Issuance of related party note receivable

Investments in unconsolidated affiliates

Purchases of property, plant and equipment ( 95 ) ( 151 )

1 unchanged sentence

Purchases of intangibles ( 12 ) ( 15 )

Net cash used in investing activities

Issuance of related party note receivable — ( 6 )

Other, net 1 5

Net cash (used in) provided by investing activities $ ( 99 ) $ 34

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

First Nine Months

First Quarter

(in millions) 2021 2020

Financing activities:

Proceeds from controlling shareholder stock transactions

Proceeds from issuance of common stock $ 140 $ —

Proceeds from unsecured credit facility — 1,000

Proceeds from senior unsecured notes 2,150 —

Proceeds from term loan

Net (payment) issuance of commercial paper

Net payment of commercial paper — ( 387 )

Proceeds from structured payables 35 44

Payments on structured payables ( 41 ) ( 107 )

Payments on senior unsecured notes

Payment on unsecured credit facility

Payments on Notes

( 1,845 ) ( 250 )

Payments on term loan ( 425 ) ( 405 )

1 unchanged sentence

Cash dividends paid ( 192 ) ( 212 )

Tax witholdings related to net share settlements ( 125 ) —

Other, net ( 37 ) 2

Net cash used in financing activities ( 355 ) ( 328 )

Cash, cash equivalents, restricted cash and restricted cash equivalents — net change from:

Operating, investing and financing activities

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

Cash, cash equivalents, restricted cash, and restricted cash equivalents:

Net change from operating, investing and financing activities 92 120

Effect of exchange rate changes 2 ( 8 )

Beginning balance 255 111

Ending balance $ 349 $ 223

Supplemental cash flow disclosures of non-cash investing activities:

Measurement period adjustment of Core Nutrition LLC purchase price

Capital expenditures included in accounts payable and accrued expenses $ 259 $ 177

Non-cash acquisition of controlling interest

Purchases of intangibles

Supplemental cash flow disclosures of non-cash financing activities:

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

( Unaudited )

Common Stock Issued

1 unchanged sentence

Retained Earnings

Accumulated Other Comprehensive (Loss) Income

Total Stockholders' Equity

Non-controlling Interest

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Non-controlling Interest Total

(in millions, except per share data)

Balance as of January 1, 2021 1,407.3 $ 14 $ 21,677 $ 2,061 $ 77 $ 23,829 $ 1 $ 23,830

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 March 31, 2020

Other comprehensive income

Dividends declared, $0.15 per share

Proceeds from controlling shareholder stock transactions

Shares issued under employee stock-based compensation plans and other

Stock-based compensation and stock options exercised

Balance as of June 30, 2020

Net income — — — 325 — 325 — 325

Other comprehensive income — — — — 87 87 — 87

Dividends declared, $ 0.15 per share

Proceeds from controlling shareholder stock transactions

Non-cash acquisition of controlling interest

— — — ( 212 ) — ( 212 ) — ( 212 )

Issuance of common stock 4.3 — 140 — — 140 — 140

Shares issued under employee stock-based compensation plans and other 5.7 — — — — — — —

Stock-based compensation and stock options exercised — — ( 99 ) — — ( 99 ) — ( 99 )

Balance as of 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 March 31, 2021

1,417.3 $ 14 $ 21,718 $ 2,174 $ 164 $ 24,070 $ 1 $ 24,071

Common Stock Issued Additional

Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Non-controlling Interest Total Equity

(in millions, except per share data) Shares Amount

Balance as of January 1, 2020

Adoption of new accounting standards

Other comprehensive income

1,406.8 $ 14 $ 21,557 $ 1,582 $ 104 $ 23,257 $ — $ 23,257

Net income — — — 156 — 156 — 156

Other comprehensive loss — — — — ( 584 ) ( 584 ) — ( 584 )

Dividends declared, $ 0.15 per share

Measurement period adjustment

— — — ( 211 ) — ( 211 ) — ( 211 )

Shares issued under stock-based compensation plans and other 0.3 — — — — — — —

1 unchanged sentence

Balance as of March 31, 2020

Other comprehensive income

Dividends declared, $0.15 per share

Stock-based compensation and stock options exercised

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

1,407.1 $ 14 $ 21,579 $ 1,527 $ ( 480 ) $ 22,640 $ — $ 22,640

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

6 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 " third quarter " indicate the Company 's quarterly periods ended September 30, 2020 and 2019 .

Except as otherwise specified, references to the "first quarter" indicate the Company's quarterly periods ended March 31, 2021 and 2020.

PRINCIPLES OF CONSOLIDATION

2 unchanged sentences

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.

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

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

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 nine months of 2019 in order to conform to current year presentation:

(in millions)

Prior Presentation

Revised Presentation

For the First Nine Months of 2019

Net cash provided by operating activities:

Amortization of intangibles

Amortization expense

Amortization of intangibles

Other amortization expense (1)

Amortization expense

Other amortization expense

Loss on disposal of property, plant and equipment

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

Amortization of deferred financing fees

Amortization expense

Amortization of bond fair value

Amortization expense

Primarily includes amortization of customer rebates and upfront payments.

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 for 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.

The Company is currently evaluating the impact of ASU 2020-01 but expects the impact to be immaterial to KDP 's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 .

The objective of ASU 2020-04 is to provide optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2020-04 is effective and can be elected for all entities from the issuance date of the ASU through December 31, 2022.

The Company is currently evaluating the impact of ASU 2020-04 to KDP 's consolidated financial statements.

RECENTLY ADOPTED PROVISIONS OF U.S.

Credit Losses

As of January 1, 2020, the Company adopted ASU 2016-13 , which replaced the incurred loss methodology with an expected loss methodology.

The objective of ASU 2016-13 was to provide for a new impairment model which requires measurement and recognition of current expected credit losses (CECL) for most financial assets held.

The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost, which means that results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The adoption of ASU 2016-13 did not have an impact on the Company 's unaudited condensed consolidated financial statements.

Refer to Note 12 for additional information.

Other Accounting Standards

As of January 1, 2020, the Company adopted ASU 2018-13 .

The objective of ASU 2018-13 is to improve the disclosures related to fair value measurement by removing, modifying, or adding disclosure requirements related to recurring and non-recurring fair value measurements.

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

As of January 1, 2021, the Company adopted ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

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

The adoption of the standard did not impact KDP's consolidated financial statements.

KEURIG DR PEPPER INC.

3 unchanged sentences

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

(in millions)

September 30, 2020

December 31, 2019

Senior unsecured notes

(in millions) March 31, 2021 December 31, 2020

$ 13,465 $ 13,065

Term loan — 423

Subtotal 13,465 13,488

Less - current portion ( 1,750 ) ( 2,345 )

1 unchanged sentence

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

(in millions)

September 30, 2020

December 31, 2019

(in millions) March 31, 2021 December 31, 2020

Commercial paper notes $ — $ —

1 unchanged sentence

Current portion of long-term obligations:

Senior unsecured notes

Term loan — 99

Short-term borrowings and current portion of long-term obligations $ 1,750 $ 2,345

4 unchanged sentences

The Company's Notes consisted of the following:

(in millions)

Maturity Date

September 30, 2020

December 31, 2019

2020 Notes (1)

January 15, 2020

2021 Merger Notes

November 15, 2021

November 15, 2022

2023 Merger Notes

December 15, 2023

2025 Merger Notes

November 15, 2025

September 15, 2026

June 15, 2027

2028 Merger Notes

2030 Notes (2)

2038 Merger Notes

November 15, 2045

December 15, 2046

2048 Merger Notes

(in millions, except %)

Issuance Maturity Date Rate March 31, 2021 December 31, 2020

2021 Merger Notes May 25, 2021 3.551 % $ 1,750 $ 1,750

2021-A Notes November 15, 2021 3.200 % — 250

2021-B Notes November 15, 2021 2.530 % — 250

2022 Notes November 15, 2022 2.700 % — 250

2023 Merger Notes May 25, 2023 4.057 % 1,000 2,000

2023 Notes December 15, 2023 3.130 % 500 500

2024 Notes (1)

March 15, 2024 0.750 % 1,150 —

2025 Merger Notes May 25, 2025 4.417 % 1,000 1,000

2025 Notes November 15, 2025 3.400 % 500 500

2026 Notes September 15, 2026 2.550 % 400 400

2027 Notes June 15, 2027 3.430 % 500 500

2028 Merger Notes May 25, 2028 4.597 % 2,000 2,000

2030 Notes May 1, 2030 3.200 % 750 750

2031 Notes March 15, 2031 2.250 % 500 —

2038 Notes May 1, 2038 7.450 % 125 125

2038 Merger Notes May 25, 2038 4.985 % 500 500

2045 Notes November 15, 2045 4.500 % 550 550

2046 Notes December 15, 2046 4.420 % 400 400

2048 Merger Notes May 25, 2048 5.085 % 750 750

2050 Notes May 1, 2050 3.800 % 750 750

2051 Notes March 15, 2051 3.350 % 500 —

Principal amount $ 13,625 $ 13,225

Adjustment from principal amount to carrying amount (2)

( 160 ) ( 160 )

Carrying amount $ 13,465 $ 13,065

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 .

The discount associated with the 2030 Notes and the 2050 Notes was approximately $ 6 million .

The net proceeds from the issuance were used to repay outstanding borrowings under the KDP Revolver.

(1) The 2024 Notes may be called anytime on or after March 15, 2022, in whole or in part, at the Company’s option, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest.

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

On March 15, 2021, the Company completed the issuance of the 2024 Notes, the 2031 Notes, and the 2051 Notes.

The discount associated with these notes was approximately $ 3 million and the Company incurred $ 13 million in debt issuance costs.

The net proceeds from the issuance were used to repay the Company’s 2021-A Notes, 2021-B Notes, 2022 Notes, and approximately $ 1 billion of the 2023 Merger Notes, as well as to repay and terminate the 2019 KDP Term Loan as described below.

As a result of the repayments of senior unsecured notes, the Company recorded losses on early extinguishment of debt of $ 104 million during the first quarter of 2021, comprised of a make-whole premium, fair market value adjustments and deferred financing fees written off.

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

BORROWING ARRANGEMENTS

The KDP Credit Agreements consisted of the following carrying values and estimated fair values that are not required to be measured at fair value in the unaudited Condensed Consolidated Balance Sheets:

(in millions)

September 30, 2020

December 31, 2019

Maturity Date

Available Balances

Carrying Value

VARIABLE-RATE BORROWING ARRANGEMENTS

The KDP Credit Agreements consist of the following:

(in millions) March 31, 2021 December 31, 2020

Issuance Maturity Date Available Balances Carrying Value Carrying Value

2019 KDP Term Loan $ — $ — $ 425

February 2023

KDP Revolver (1)

1 unchanged sentence

2020 364-Day Credit Agreement — — —

2020 364-Day Credit Agreement

2021 364-Day Credit Agreement March 2022 1,500 — —

Principal amount $ — $ 425

1 unchanged sentence

Carrying amount $ — $ 423

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.

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 .

The 2020 364-Day Credit Agreement is unsecured, and its proceeds may be used for general corporate purposes.

(1) The KDP Revolver has $ 200 million letters of credit availability and none utilized as of March 31, 2021.

As of March 31, 2021, the Company was in compliance with all financial covenant requirements relating to the KDP Credit Agreements .

2019 KDP Term Loan

During the first quarter of 2021, the Company voluntarily prepaid and terminated the 2019 KDP Term Loan using proceeds from the aforementioned issuance of senior subordinated notes.

As a result of this voluntary prepayment, the Company recorded $ 1 million of losses on early extinguishment of debt related to the 2019 KDP Term Loan during the first quarter of 2021.

364-Day Credit Agreements

During the first quarter of 2021, the Company terminated its 2020 364-Day Credit Agreement, which was originally available through April 2021.

No amounts were drawn under the 2020 364-Day Credit Agreement prior to termination.

The Company then entered into the 2021 364-Day Credit Agreement on March 24, 2021 among KDP, the banks party thereto and Bank of America, N.A.

as administrative agent, pursuant to which the Company obtained a $ 1,500 million commitment.

The interest rate applicable to borrowings under the 2021 364-Day Credit Agreement ranges from a rate equal to LIBOR plus a margin of 1.000 % to 1.625 % or a base rate plus a margin of 0.000 % to 0.625 %, depending on the rating of certain index debt of the Company.

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

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

The 2021 364-Day Credit Agreement matures on March 23, 2022, and includes a term-out option which allows KDP to extend any outstanding amounts borrowed under the agreement for one year for a fee of 0.750 % on the amounts borrowed.

Commercial Paper Program

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

Third Quarter

First Nine Months

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

First Quarter

(in millions, except %) 2021 2020

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 September 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 March 31, 2021 and $ 56 million of which remains available for use.

FAIR VALUE DISCLOSURES

The fair values of each of the Company 's commercial paper notes 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 commercial paper 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 $ 15,072 million and $ 12,898 million as of September 30, 2020 and December 31, 2019 , respectively.

The fair value of the Company's Notes was $ 14,828 million and $ 15,274 million as of March 31, 2021 and December 31, 2020, respectively.

KEURIG DR PEPPER INC.

3 unchanged sentences

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

(in millions)

Coffee Systems

Packaged Beverages

Beverage Concentrates

Latin America Beverages

(in millions) Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total

Balance as of January 1, 2021 $ 9,795 $ 5,314 $ 4,536 $ 539 $ 20,184

Foreign currency translation 27 9 6 ( 17 ) 25

Balance as of September 30, 2020

Balance as of March 31, 2021 $ 9,822 $ 5,323 $ 4,542 $ 522 $ 20,209

INTANGIBLE ASSETS OTHER THAN GOODWILL

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

(in millions)

September 30, 2020

December 31, 2019

(in millions) March 31, 2021 December 31, 2020

$ 19,876 $ 19,874

Trade names 2,480 2,480

Contractual arrangements 123 123

Distribution rights 66 57

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

Total $ 22,545 $ 22,534

(1) The increase of $ 2 million in brands with indefinite lives was due to foreign currency translation during the first quarter of 2021.

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

September 30, 2020

December 31, 2019

(in millions)

Accumulated Amortization

March 31, 2021 December 31, 2020

(in millions) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount

Acquired technology $ 1,146 $ ( 346 ) $ 800 $ 1,146 $ ( 328 ) $ 818

Customer relationships 638 ( 143 ) 495 638 ( 135 ) 503

Trade names 128 ( 74 ) 54 127 ( 69 ) 58

Contractual arrangements 24 ( 6 ) 18 24 ( 5 ) 19

Brands 21 ( 6 ) 15 21 ( 5 ) 16

Distribution rights 29 ( 7 ) 22 26 ( 6 ) 20

Total $ 1,986 $ ( 582 ) $ 1,404 $ 1,982 $ ( 548 ) $ 1,434

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

Third Quarter

First Nine Months

First Quarter

(in millions) 2021 2020

Amortization expense for intangible assets with definite lives

Amortization expense $ 33 $ 33

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

Remainder of 2020

For the Years Ending December 31,

(in millions)

Expected amortization expense for intangible assets with definite lives

IMPAIRMENT TESTING

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

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 September 30, 2020 .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 September 30, 2020 and December 31, 2019 :

September 30,

Remainder of 2021 For the Years Ending December 31,

(in millions) 2022 2023 2024 2025 2026

Ownership Interest

Beverage startup companies

Investments in unconsolidated affiliates

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.

The Company committed and funded the $ 51 million capacity, which incurs a fixed interest rate of 8.1 % per annum.

The credit agreement with Bedford matures on March 3, 2024.

In March 2020, the Company reduced its expectation of future operating performance for Bedford based on COVID-19 and a new revised five-year projection from the management of Bedford that projected the possibility of profitability two years later than previously anticipated.

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

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

Expected amortization expense $ 101 $ 134 $ 132 $ 124 $ 110 $ 105

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

IMPAIRMENT TESTING

As a result of the changes to the Company’s operating segments effective January 1, 2021, as described in Note 7, which resulted in a change to the Company’s reporting units, management performed a step zero analysis as of the effective date of the goodwill for the impacted reporting units.

The Company also performed an analysis as of March 31, 2021 to ensure that there were no additional triggering events which occurred during the quarter.

As a result of these analyses, management did not identify any indications that the carrying amount of any goodwill or any intangible asset may not be recoverable.

Restructuring and Integration Costs

3 unchanged sentences

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

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

Third Quarter

First Nine Months

(in millions)

Keurig 2.0 exit

DPS INTEGRATION PROGRAM

Total restructuring and integration charges

As part of the DPS Merger, the Company developed a program to deliver $ 600 million in synergies over a three-year period through supply chain optimization, reduction of indirect spend through new economies of scale, elimination of duplicative support functions and advertising and promotion optimization.

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

The restructuring and integration program resulted in cumulative pre-tax charges of approximately $ 630 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through March 31, 2021.

Restructuring and integration charges on the DPS Integration Program were $ 43 million and $ 53 million for the first quarter of 2021 and 2020, respectively.

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 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)

Workforce Reduction Costs

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

(in millions) Restructuring Liabilities

Balance as of January 1, 2021 $ 14

1 unchanged sentence

Cash payments

Non-cash adjustment items

Balance as of September 30, 2020

RESTRUCTURING PROGRAMS

DPS Integration Program

As part of the DPS Merger , the Company developed a program to deliver $ 600 million in synergies over a three-year period through supply chain optimization, reduction of indirect spend through new economies of scale, elimination of duplicative support functions and advertising and promotion optimization.

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

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:

Third Quarter

First Nine Months

(in millions)

Effective tax rate

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)

Balance as of March 31, 2021 $ 18

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

9 unchanged sentences

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.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

The Company has exposure to credit losses from derivative instruments in an asset position in the event of nonperformance by the counterparties to the agreements.

3 unchanged sentences

Economic Hedges

The Company is exposed t o interest rate risk related to its borrowing arrangements and obligations.

KDP is exposed to interest rate risk related to its borrowing arrangements and obligations.

The Company enters into interest rate swaps to provide predictability in the Company 's overall cost structure, including both receive-fixed, pay-variable and receive-variable, pay-fixed swaps.

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 interest expense in the unaudited Condensed Consolidated Statements of Income.

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

As of March 31, 2021, all economic interest rate swap contracts will mature in March 2025.

Cash Flow Hedges

In order to hedge the variability in cash flows from interest rate changes associated with the Company’s planned future issuances of long-term debt, during the first quarter of 2021, the Company entered into forward starting swaps and designated them as cash flow hedges.

The forward starting swaps are planned to be unwound at the issuance of long-term debt.

As of March 31, 2021, the forward starting swaps have mandatory termination dates ranging from June 2022 to May 2025.

FOREIGN EXCHANGE

The Company 's Canadian and Mexican businesses purchase certain inventory through transactions denominated and settled in U.S.

dollars, a currency different from the functional currency of those businesses.

The Company additionally has a subsidiary in Canada with intercompany notes denominated and settled in U.S.

dollars, a currency different from the functional currency of the Canadian business.

The accounts payable related to the inventory purchases and the intercompany notes are subject to exposure from movements in exchange rates.

KDP is exposed to foreign exchange risk in its international subsidiaries, which may transact in currencies that are different from the functional currencies of those subsidiaries.

The balance sheets of each of these businesses are also subject to exposure from movements in exchange rates.

Economic Hedges

During the third quarter and first nine months of 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 first quarter of 2021 and 2020, KDP 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 October 2020 to September 2024 as of September 30, 2020 .

These FX contracts have maturities ranging from April 2021 to September 2024 as of March 31, 2021.

Cash Flow Hedges

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.

During 2020, KDP 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 2021 as of September 30, 2020 .

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

These FX contracts, carried at fair value, have maturities ranging from April 2021 to November 2022 as of March 31, 2021.

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 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.

During the first quarter of 2021 and 2020, 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 October 2020 to January 2023 as of September 30, 2020 .

These commodity contracts have maturities ranging from April 2021 to January 2024 as of March 31, 2021.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

NOTIONAL AMOUNTS OF DERIVATIVE INSTRUMENTS

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

September 30,

(in millions)

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

(in millions) March 31, 2021 December 31, 2020

Interest rate contracts

Receive-fixed, pay-variable interest rate swaps (1)

Receive-variable, pay-fixed interest rate swaps (2)

Forward starting swaps, designated as cash flow hedges $ 2,500 $ —

Receive-variable, pay-fixed interest rate swaps, not designated as hedging instruments 450 450

Forward contracts, not designated as hedging instruments 505 476

1 unchanged sentence

Commodity contracts 450 450

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.

Not Designated as Hedging Instruments

The following table summarizes the location of the fair value of the Company's derivative instruments which are not designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets.

All such instruments are designated level 2 within the fair value hierarchy.

(in millions) Balance Sheet Location March 31, 2021 December 31, 2020

Commodity contracts Prepaid expenses and other current assets $ 65 $ 45

Interest rate contracts Other non-current assets 2 —

Commodity contracts Other non-current assets 25 12

Interest rate contracts Other current liabilities $ 2 $ 2

FX contracts Other current liabilities 7 6

Commodity contracts Other current liabilities 1 5

Interest rate contracts Other non-current liabilities — 7

FX contracts Other non-current liabilities 14 9

Commodity contracts Other non-current liabilities 2 2

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) Balance Sheet Location March 31, 2021 December 31, 2020

Interest rate contracts Other non-current assets $ 92 $ —

FX contracts Other current liabilities $ 13 $ 12

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

Not Designated as Hedging Instruments

The following table summarizes the fair value hierarchy and the location of the fair value of the Company 's derivative instruments which are not designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets:

(in millions)

Fair Value Hierarchy Level

Balance Sheet Location

September 30,

Interest rate contracts

Prepaid expenses and other current assets

Commodity contracts

Prepaid expenses and other current assets

Interest rate contracts

Other non-current assets

Commodity contracts

Other non-current assets

Interest rate contracts

Other current liabilities

Commodity contracts

Other current liabilities

Interest rate contracts

Other non-current liabilities

Commodity contracts

Other non-current liabilities

Designated as Hedging Instruments

The following table summarizes the fair value hierarchy and the location of the fair value of the Company 's derivative instruments which are designated as hedging instruments within the unaudited Condensed Consolidated Balance Sheets:

(in millions)

Fair Value Hierarchy Level

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.

Third Quarter

First Nine Months

(in millions)

Income Statement Location

Interest rate contracts

Interest expense

Cost of sales

Other expense, net

Commodity contracts

Cost of sales

Commodity contracts

SG&A expenses

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

First Quarter

(in millions) Income Statement Location 2021 2020

Interest rate contracts Interest expense $ ( 8 ) $ 4

FX contracts Cost of sales 4 ( 23 )

FX contracts Other (income) expense, net 5 ( 17 )

Commodity contracts Cost of sales ( 17 ) 17

Commodity contracts SG&A expenses ( 29 ) 45

Total $ ( 45 ) $ 26

IMPACT OF CASH FLOW HEDGES

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

Third Quarter

First Nine Months

(in millions)

FX contracts designated as hedges:

Amount of gain recognized in other comprehensive income (1)

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.

The following table presents the amount of loss 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:

First Quarter

(in millions) Income Statement Location 2021 2020

Interest rate contracts Interest expense $ — $ —

FX contracts Cost of sales 5 —

KDP expects to reclassify approximately $ 15 million of pre-tax net losses from AOCI into net income during the next twelve months related to its FX contracts.

KDP does not expect to reclassify any amounts from AOCI into net income during the next twelve months related to its interest rate contracts.

The Company leases certain facilities and machinery and equipment, including fleet.

4 unchanged sentences

The following table presents the components of lease cost:

Third Quarter

First Nine Months

First Quarter

(in millions) 2021 2020

8 unchanged sentences

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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

First Nine Months

First Quarter

(in millions) 2021 2020

4 unchanged sentences

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

September 30, 2020

December 31, 2019

March 31, 2021 December 31, 2020

Weighted average discount rate

2 unchanged sentences

Weighted average remaining lease term

Operating leases

Finance leases

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)

Operating Leases

Finance Leases

Operating leases 13 years 12 years

Finance leases 11 years 11 years

Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of March 31, 2021 were as follows:

(in millions) Operating Leases Finance Leases

Remainder of 2021 $ 72 $ 52

Thereafter 536 153

Total future minimum lease payments 1,046 502

2 unchanged sentences

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

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

On January 6, 2020 , the Company closed an asset sale-leaseback transaction on two manufacturing properties as the buyer obtained control.

The Company received proceeds of approximately $ 150 million , net of selling costs for the properties, which had a carrying value of $ 131 million , and resulted in an approximately $ 19 million gain on the sale transaction.

The initial term of the leaseback is expected to end during 2034 and has two 10-year renewal options.

The renewal options are not reasonably assured as (i) the Company 's position that the dynamic environment in which it operates precludes the Company 's ability to be reasonably certain of exercising the renewal options in the distant future and (ii) the options are contingent as the Company must remain investment grade and a change-in-control has not occurred as of the end of the lease term.

The leaseback has a residual value guarantee;

however, the Company concluded it was not probable that the Company will owe an amount at the end of the lease term and will record the lease obligation excluding the residual value guarantee.

On January 10, 2020 , the Company closed the asset sale-leaseback transaction on two distribution properties as the buyer obtained control.

The Company received proceeds of approximately $ 50 million , net of selling costs for the properties, which had a carrying value of $ 27 million , and resulted in an approximately $ 23 million gain on the sale transaction.

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

As of March 31, 2021, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 343 million.

These leases are expected to commence between the second quarter and fourth quarter of 2021, with initial lease terms ranging from 5 years to 10 years.

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

Effective January 1, 2021, the Company modified its internal reporting and operating segments to reflect changes in the executive leadership team to further enhance speed-to-market and decision effectiveness.

These modifications did not change the Company’s reportable segments.

The Company's reportable segments consist of the following:

• The Coffee Systems segment reflects sales in the U.S.

and Canada of the manufacture and distribution of finished goods relating to the Company's coffee system, K-Cup pods and brewers.

• The Packaged Beverages segment reflects sales in the U.S.

and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company's own brands and third-party brands, through both the DSD and WD systems.

DSD and WD have both been identified as operating segments that the Company aggregated into Packaged Beverages due to similar economic characteristics and similarities in the nature of finished goods sales and route-to-markets.

• The Beverage Concentrates segment reflects sales of the Company's branded concentrates and syrup to third-party bottlers primarily in the U.S.

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

Our FFS operating segment is aggregated with our Branded Concentrates operating segment into our Beverage Concentrates reportable segment due to similar economic characteristics and similarities in the nature of the product sold.

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

Segment results are based on management reports.

Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company's operating segments.

Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income.

“Unallocated corporate costs” are excluded from the Company's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.

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

First Quarter

(in millions) 2021 2020

Segment Results – Net sales

Coffee Systems $ 1,142 $ 973

Packaged Beverages 1,307 1,217

Beverage Concentrates 328 306

Latin America Beverages 125 117

Net sales $ 2,902 $ 2,613

First Quarter

(in millions) 2021 2020

Segment Results – Income from operations

Coffee Systems $ 336 $ 272

Packaged Beverages 175 189

Beverage Concentrates 238 197

Latin America Beverages 22 27

Unallocated corporate costs ( 131 ) ( 219 )

Income from operations $ 640 $ 466

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:

Third Quarter

First Nine Months

First Quarter

(in millions, except per share data) 2021 2020

5 unchanged sentences

Effect of dilutive securities:

RSUs 16.0 12.7

Stock options 0.3 0.4

2 unchanged sentences

Anti-dilutive shares excluded from the diluted weighted average shares outstanding calculation — 0.3

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Revenue Recognition

The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied.

Branded product sales, which include CSDs, NCB, K-Cup pods and appliances, occur once control is transferred upon delivery to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods.

The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers.

Sales taxes and other similar taxes are excluded from revenue.

Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.

The following table disaggregates the Company's revenue by portfolio:

(in millions) Coffee Systems Packaged Beverages Beverage Concentrates Latin America Beverages Total

For the first quarter of 2021:

$ — $ 624 $ 323 $ 87 $ 1,034

— 581 3 38 622

K-Cup pods (2)

903 — — — 903

Appliances 174 — — — 174

Other 65 102 2 — 169

Net sales $ 1,142 $ 1,307 $ 328 $ 125 $ 2,902

For the first quarter of 2020:

$ — $ 563 $ 302 $ 82 $ 947

— 562 2 35 599

K-Cup pods (2)

791 — — — 791

Appliances 127 — — — 127

Other 55 92 2 — 149

Net sales $ 973 $ 1,217 $ 306 $ 117 $ 2,613

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

(2) Represents net sales from owned brands, partner brands and private label owners.

Net sales for partner brands and private label owners are contractual and long-term in nature.

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:

Third Quarter

First Nine Months

First Quarter

(in millions) 2021 2020

2 unchanged sentences

Stock-based compensation expense, net of tax $ 21 $ 15

RESTRICTED STOCK UNITS

RESTRICTED SHARE UNITS

The table below summarizes RSU activity :

Weighted Average Grant Date Fair Value

Weighted Average Remaining Contractual Term (Years)

Aggregate Intrinsic Value

RSUs Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value

(in millions)

Outstanding as of December 31, 2020 26,688,304 $ 19.66 2.0 $ 854

Granted 3,712,188 27.96

Vested and released ( 9,401,295 ) 10.38 316

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:

(in millions)

Foreign Currency Translation Adjustments

Pension and PRMB Liabilities

Cash Flow Hedges

Accumulated Other Comprehensive (Loss) Income

Balance as of July 1, 2020

Other comprehensive income

Balance as of September 30, 2020

Balance as of January 1, 2020

Other comprehensive income (loss)

Balance as of September 30, 2020

Balance as of July 1, 2019

Other comprehensive income

Amounts reclassified from AOCI (1)

Balance as of September 30, 2019

Balance as of January 1, 2019

Other comprehensive income

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

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.

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

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

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

Historical information is utilized beyond reasonable and supportable forecast periods.

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

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

Forfeited ( 416,825 ) 24.05

Outstanding as of March 31, 2021 20,582,372 $ 25.30 2.8 $ 707

As of March 31, 2021, there was $ 373 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.8 years.

Total payments for the employees' tax obligations to the relevant taxing authorities were $ 125 million for the first quarter of 2021, which were funded through the issuance of shares in at-the-market offerings, known as an ATM program.

There were no such payments made during the first quarter of 2020.

This payment is reflected as a financing activity within the unaudited Condensed Consolidated Statements of Cash Flows.

The Company’s effective tax rates were as follows:

First Quarter

(in millions) 2021 2020

Allowance for Expected Credit Loss

Balance as of January 1, 2019

Charges to bad debt expense

Write-offs and adjustments

Balance as of December 31, 2019

Charges to bad debt expense

Write-offs and adjustments

Balance as of September 30, 2020

Effective tax rate 18.3 % 23.9 %

For the first quarter of 2021, the provision for income taxes was lower than the first quarter of 2020, which was primarily driven by the tax benefit received from excess tax deductions that were generated from the vesting of RSUs.

Investments in Unconsolidated Affiliates

The following table summarizes investments in unconsolidated affiliates as of March 31, 2021 and December 31, 2020:

March 31, December 31,

(in millions) Ownership Interest 2021 2020

BodyArmor 12.5 % $ 53 $ 51

Dyla LLC 12.4 % 12 12

Force Holdings LLC 33.3 % 5 5

Beverage startup companies (various) 13 15

Other (various) 5 5

Investments in unconsolidated affiliates $ 88 $ 88

KEURIG DR PEPPER INC.

2 unchanged sentences

Other Financial Information

CASH AND CASH EQUIVALENTS

The carrying value of cash, cash equivalents, restricted cash and restricted cash equivalents is valued as of the balance sheet date equating fair value and classified as Level 1.

The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported with the unaudited Condensed Consolidated Balance Sheets to the total of the same amounts shown in the unaudited Condensed Consolidated Statements of Cash Flows:

(in millions)

September 30, 2020

December 31, 2019

(in millions) March 31, 2021 December 31, 2020

Cash and cash equivalents $ 335 $ 240

Restricted cash and restricted cash equivalents (1)

Non-current restricted cash and restricted cash equivalents included in Other non-current assets

Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows $ 349 $ 255

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.

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

ALLOWANCE FOR EXPECTED CREDIT LOSSES

Activity in the allowance for expected credit losses account during the periods presented was as follows:

(in millions) Allowance for Expected Credit Losses

Balance as of December 31, 2020 $ 21

Charges to bad debt expense 1

Write-offs and adjustments —

Balance as of March 31, 2021 $ 22

ACCOUNTS PAYABLE

KDP has an agreement with a third party administrator which allows participating suppliers to track payments from KDP, and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions.

Suppliers can sell one or more of KDP's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted.

KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.

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

KDP has been informed by the third party administrator that as of March 31, 2021 and December 31, 2020, $ 2,777 million and $ 2,578 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)

SELECTED BALANCE SHEET INFORMATION

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

September 30,

March 31, December 31,

(in millions) 2021 2020

Raw materials $ 259 $ 260

Work-in-progress 7 6

Finished goods 600 520

Total 866 786

Allowance for excess and obsolete inventories ( 25 ) ( 24 )

5 unchanged sentences

Prepaid marketing 15 15

Spare parts 60 55

Assets held for sale 2 2

7 unchanged sentences

Equity securities without readily determinable fair values 1 1

Non-current restricted cash and restricted cash equivalents

Related party notes receivable (3)

Other 128 125

Total other non-current assets $ 1,187 $ 894

The decrease in assets held for sale was due to the assets included in sale-leaseback transactions that closed during the period.

Refer to Note 8 for additional information about the transactions.

The remaining amounts were comprised of property, plant and equipment expected to be sold within the next twelve months.

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

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

Refer to Note 4 for additional information .

The fair value of marketable securities was $ 42 million and $ 41 million as of March 31, 2021 and December 31, 2020, respectively.

KEURIG DR PEPPER INC.

1 unchanged sentence

(Unaudited, Continued)

September 30,

March 31, December 31,

(in millions) 2021 2020

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Total other non-current liabilities $ 1,367 $ 1,119

ACCOUNTS PAYABLE

KDP has an agreement with a third party administrator which allows participating suppliers to track payments from KDP , and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions.

Suppliers can sell one or more of KDP 's payment obligations at their sole discretion and the rights and obligations of KDP to its suppliers are not impacted.

KDP has no economic interest in a supplier’s decision to enter into these agreements and no direct financial relationship with the financial institutions.

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

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.

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)

Balance as of January 1, 2021 $ 95 $ ( 4 ) $ ( 14 ) $ 77

Other comprehensive income 16 — 68 84

Amounts reclassified from accumulated other comprehensive income — — 3 3

Net current period other comprehensive income 16 — 71 87

Balance as of March 31, 2021 $ 111 $ ( 4 ) $ 57 $ 164

Balance as of January 1, 2020

$ 104 $ — $ — $ 104

Other comprehensive loss ( 583 ) ( 1 ) — ( 584 )

Balance as of March 31, 2020 $ ( 479 ) $ ( 1 ) $ — $ ( 480 )

KEURIG DR PEPPER INC.

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(Unaudited, Continued)

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

First Quarter

(in millions) Income Statement Caption 2021 2020

Cash Flow Hedges:

Interest rate contracts Interest expense $ — $ —

FX contracts Cost of sales 5 —

Income tax benefit ( 2 ) —

Total, net of tax $ 3 $ —

Commitments and Contingencies

1 unchanged sentence

The Company is involved from time to time in various claims, proceedings, and litigation.

The Company establishes reserves for specific legal proceedings when the Company determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated.

The 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.

KDP establishes reserves for specific legal proceedings when the Company determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated.

KDP 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.

Antitrust Litigation

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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.

The claims asserted and relief sought in the JBR, Inc.

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

Beginning in March 2014, twenty-seven putative class actions asserting similar claims and seeking similar relief were filed on behalf of purported direct and indirect purchasers of KGM’s products in various federal district courts.

5 unchanged sentences

filed suit against KGM (McLane Company, Inc.

Keurig Green Mountain, Inc.) in the SDNY asserting similar claims and was also transferred into the Multidistrict Antitrust Litigation.

Keurig Green Mountain, Inc.) in the SDNY asserting similar claims and also was transferred into the Multidistrict Antitrust Litigation.

These actions are now pending in the SDNY (In re:

1 unchanged sentence

Discovery in the Multidistrict Antitrust Litigation commenced in December 2017.

Separately, a statement of claim was filed in 2014 against KGM and Keurig Canada Inc.

in Ontario, Canada by Club Coffee L.P., a Canadian manufacturer of single serve beverage pods, claiming damages of CDN $ 600 million and asserting a breach of competition law and false and misleading statements by KGM .

Separately, a statement of claim was filed in September 2014 against KGM and Keurig Canada Inc.

in Ontario, Canada by Club Coffee L.P., a Canadian manufacturer of single serve beverage pods, asserting a breach of competition law and false and misleading statements by Keurig.

In July 2020, KGM reached an agreement with the putative indirect purchaser class plaintiffs in the Multidistrict Antitrust Litigation to settle the claims asserted in their complaint for $ 31 million.

The settlement class consists of individuals and entities in the United States that purchased, from persons other than KGM and not for purposes of resale, KGM manufactured or licensed single serve beverage portion packs during the applicable class period (beginning in September 2010 for most states).

The agreement remains subject to court approval, prior to which putative class members will be given notice and the opportunity to opt out of the settlement.

KDP intends to vigorously defend the remaining pending lawsuits brought by Treehouse, JBR, McLane, the putative direct purchaser class and Club Coffee.

The court granted preliminary approval of the settlement in December 2020, and the Company paid the settlement amount in January 2021.

Putative class members have the opportunity to object or opt out of the settlement, and a final approval hearing is scheduled in June 2021.

KDP intends to vigorously defend the remaining lawsuits brought by Treehouse, JBR, McLane, the putative direct purchaser class and Club Coffee.

At this time, the Company is unable to predict the outcome of these lawsuits, the potential loss or range of loss, if any, associated with the resolution of these lawsuits or any potential effect they may have on the Company or its operations.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Proposition 65 Litigation

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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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

In August 2020, the court granted the defendants' motion for summary judgment, effectively ending CERT's Proposition 65 litigation at the trial court level.

CERT has filed its appeal brief, and the Company intends to continue vigorously defending itself in this action.

However, the Company believes that the likelihood that it will incur a material loss in connection with the CERT litigation is remote and accordingly, no loss contingency has been recorded.

Related Parties

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 holds a significant but non-controlling interest in KDP.

As of March 31, 2021, JAB beneficially owned approximately 33 % of KDP's outstanding common stock.

JAB and its affiliates 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.

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Refer to Note 12 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:

The Coffee Systems segment reflects sales in the U.S.

and Canada of the manufacture and distribution of finished goods relating to the Company 's coffee system, K-Cup pod s and brewers.

The Packaged Beverages segment reflects sales in the U.S.

and Canada from the manufacture and distribution of finished beverages and other products, including sales of the Company 's own brands and third-party brands, through both the DSD system and the WD system.

The Beverage Concentrates segment reflects sales of the Company 's branded concentrates and syrup to third-party bottlers primarily in the U.S.

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.

Segment results are based on management reports.

Net sales and income from operations are the significant financial measures used to assess the operating performance of the Company 's operating segments.

Intersegment sales are recorded at cost and are eliminated in the unaudited Condensed Consolidated Statements of Income.

“ Unallocated corporate costs ” are excluded from the Company 's measurement of segment performance and include unrealized commodity derivative gains and losses, and certain general corporate expenses.

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)

Segment Results – Net sales

Coffee Systems

Packaged Beverages

Beverage Concentrates

Latin America Beverages

Third Quarter

First Nine Months

(in millions)

Segment Results – Income from operations

Coffee Systems

Packaged Beverages

Beverage Concentrates

Latin America Beverages

Unallocated corporate costs

Income from operations

Revenue Recognition

The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied.

Branded product sales, which include CSD , NCB , K-Cup pod s and appliances, occur once control is transferred upon delivery to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods.

The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers.

Sales taxes and other similar taxes are excluded from revenue.

Costs associated with shipping and handling activities, such as merchandising, are included in SG&A expenses as revenue is recognized.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

The following table disaggregates the Company 's revenue by portfolio:

(in millions)

Coffee Systems

Packaged Beverages

Beverage Concentrates

Latin America Beverages

For the third quarter of 2020:

K-Cup pods (2)

For the first nine months of 2020:

K-Cup pods (2)

For the third quarter of 2019:

K-Cup pods (2)

For the first nine months of 2019:

K-Cup pods (2)

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

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.

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