What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 236 added, 159 removed, 674 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

First Quarter

( UNAUDITED )

Second Quarter First Six Months

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

23 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

First Quarter

( UNAUDITED )

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

4 unchanged sentences

Net change in cash flow hedges, net of tax of $( 48 ), $ — , $( 26 ) and $ — , respectively

( 148 ) 1 ( 77 ) 1

Total other comprehensive income (loss) ( 36 ) 152 51 ( 432 )

Comprehensive income (loss) 412 ( 428 )

Comprehensive income 412 450 824 22

Comprehensive income attributable to non-controlling interest — — — —

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

Comprehensive income attributable to KDP $ 412 $ 450 $ 824 $ 22

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

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, December 31,

( UNAUDITED )

June 30, December 31,

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

28 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, 1,417,325,379 and 1,407,260,676 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Common stock, $ 0.01 par value, 2,000,000,000 shares authorized, 1,417,441,055 and 1,407,260,676 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 21,743 21,677

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

First Quarter

( UNAUDITED )

First Six Months

(in millions) 2021 2020

30 unchanged sentences

Other, net 3 3

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

Net cash used in investing activities $ ( 200 ) $ ( 92 )

KEURIG DR PEPPER INC.

1 unchanged sentence

( UNAUDITED, CONTINUED)

First Quarter

First Six Months

(in millions) 2021 2020

Financing activities:

Proceeds from issuance of common stock $ 140 $ —

Proceeds from unsecured credit facility — 1,000

Proceeds from senior unsecured notes 2,150 —

Net payment of commercial paper — ( 387 )

Proceeds from structured payables 35 44

Payments on structured payables ( 41 ) ( 107 )

Payments on Notes

Proceeds from issuance of Notes

$ 2,150 $ 1,500

Payments on term loan ( 425 ) ( 405 )

Payments on finance leases ( 15 ) ( 13 )

Repayments of Notes

( 3,595 ) ( 250 )

Proceeds from issuance of commercial paper 2,776 5,518

Repayments of commercial paper ( 1,453 ) ( 6,354 )

Proceeds from KDP Revolver

Repayments of KDP Revolver

Proceeds from sale of stock by JAB — 22

Repayments of 2019 KDP Term Loan

( 425 ) ( 730 )

Proceeds from structured payables 73 86

Repayments of structured payables ( 81 ) ( 227 )

Cash dividends paid ( 424 ) ( 423 )

Tax witholdings related to net share settlements ( 125 ) —

Proceeds from issuance of common stock 140 —

Tax withholdings related to net share settlements ( 125 ) —

Payments on finance leases ( 27 ) ( 24 )

Other, net ( 37 ) ( 19 )

16 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

Common Stock Issued

Paid-In Capital

Retained Earnings

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

(in millions, except per share data)

( UNAUDITED )

Common Stock Issued Additional

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

(in millions, except per share data) Shares Amount

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

8 unchanged sentences

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

Net income — — — 448 — 448 — 448

Other comprehensive income — — — — ( 36 ) ( 36 ) — ( 36 )

Dividends declared, $ 0.1875 per share

— — — ( 265 ) — ( 265 ) — ( 265 )

Shares issued under employee stock-based compensation plans and other 0.1 — — — — — — —

Stock-based compensation and stock options exercised — — 25 — — 25 — 25

Balance as of June 30, 2021

$ 1,417.4 $ 14 $ 21,743 $ 2,357 $ 128 $ 24,242 $ 1 $ 24,243

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

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

( UNAUDITED, CONTINUED )

Common Stock Issued Additional

11 unchanged sentences

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

Net income — — — 298 — 298 — 298

Other comprehensive income — — — — 152 152 — 152

Dividends declared, $ 0.15 per share

— — — ( 212 ) — ( 212 ) — ( 212 )

Proceeds from controlling shareholder stock transactions — — 22 — — 22 — 22

Shares issued under employee stock-based compensation plans and other 0.1 — — — — — — —

Stock-based compensation and stock options exercised — — 23 — — 23 — 23

Balance as of June 30, 2020

1,407.2 $ 14 $ 21,624 $ 1,613 $ ( 328 ) $ 22,923 $ — $ 22,923

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

13 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 "first quarter" indicate the Company's quarterly periods ended March 31, 2021 and 2020.

Except as otherwise specified, references to the "second quarter" indicate the Company's quarterly periods ended June 30, 2021 and 2020.

PRINCIPLES OF CONSOLIDATION

14 unchanged sentences

Actual amounts may differ from these estimates .

RECLASSIFICATIONS

The Company reclassified amounts in the Financing Activities section of the unaudited condensed consolidated Statement of Cash Flows for the first six months of 2020 in order to conform to current year presentation.

Refer to Note 2 for additional information about changes to the maturities of KDP’s commercial paper.

(in millions) Prior Presentation First Six Months of 2020

Proceeds from commercial paper Net (repayment) issuance of commercial paper $ 5,518

Repayments of commercial paper Net (repayment) issuance of commercial paper ( 6,354 )

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

RECENTLY ADOPTED PROVISIONS OF U.S.

3 unchanged sentences

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Long-term Obligations and Borrowing Arrangements

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

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

(in millions) June 30, 2021 December 31, 2020

$ 11,721 $ 13,065

4 unchanged sentences

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

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

(in millions) June 30, 2021 December 31, 2020

Commercial paper notes $ 1,323 $ —

9 unchanged sentences

(in millions, except %)

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

Issuance Maturity Date Rate June 30, 2021 December 31, 2020

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

30 unchanged sentences

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.

On May 25, 2021, the Company repaid the 2021 Merger Notes at maturity using commercial paper.

KEURIG DR PEPPER INC.

3 unchanged sentences

The KDP Credit Agreements consist of the following:

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

(in millions) June 30, 2021 December 31, 2020

Issuance Maturity Date Available Balances Carrying Value Carrying Value

7 unchanged sentences

Carrying amount $ — $ 423

(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 .

(1) The KDP Revolver has $ 200 million letters of credit availability and none utilized as of June 30, 2021.

As of June 30, 2021, KDP 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.

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

In March 2021, KDP 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.

KDP 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 KDP 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.

2 unchanged sentences

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

First Quarter

Second Quarter First Six Months

(in millions, except %) 2021 2020 2021 2020

1 unchanged sentence

Weighted average borrowing rates 0.26 % 1.10 % 0.26 % 1.68 %

In April 2021, KDP began issuing commercial paper notes with maturities greater than 90 days.

KDP continues to classify its commercial paper notes as short-term, as maturities do not exceed one year.

Letter of Credit Facility

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

Under this facility, $ 100 million is available for the issuance of letters of credit, $ 44 million of which was utilized as of March 31, 2021 and $ 56 million of which remains available for use.

In addition to the portion of the KDP Revolver reserved for issuance of letters of credit, KDP 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, 2021 and $ 56 million of which remains available for use.

FAIR VALUE DISCLOSURES

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

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

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

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

The fair value of KDP's Notes was $ 13,342 million and $ 15,274 million as of June 30, 2021 and December 31, 2020, respectively.

KEURIG DR PEPPER INC.

6 unchanged sentences

Foreign currency translation 54 19 12 3 88

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

Balance as of June 30, 2021 $ 9,849 $ 5,333 $ 4,548 $ 542 $ 20,272

INTANGIBLE ASSETS OTHER THAN GOODWILL

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

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

(in millions) June 30, 2021 December 31, 2020

$ 19,941 $ 19,874

3 unchanged sentences

Total $ 22,611 $ 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.

(1) The increase of $ 67 million in brands with indefinite lives was due to foreign currency translation during the first six months of 2021.

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

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

7 unchanged sentences

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

First Quarter

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

10 unchanged sentences

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.

The Company also performed an analysis as of June 30, 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.

7 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 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.

The restructuring and integration program resulted in cumulative pre-tax charges of approximately $ 679 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through June 30, 2021.

Restructuring and integration charges on the DPS Integration Program were as follows:

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

Restructuring and integration charges $ 49 $ 52 $ 92 $ 105

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

5 unchanged sentences

Cash payments

Balance as of March 31, 2021 $ 18

Balance as of June 30, 2021 $ 17

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 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.

1 unchanged sentence

(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.

4 unchanged sentences

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.

The Company enters into interest rate swaps to provide predictability in the Company 's overall cost structure and to manage the balance of fixed-rate and variable-rate debt.

KDP primarily enters into receive-fixed, pay-variable and receive-variable, pay-fixed swaps and swaption contracts.

A natural hedging relationship exists in which changes in the fair value of the instruments act as an economic offset to changes in the fair value of the underlying items.

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

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

As of June 30, 2021, economic interest rate derivative instruments have maturities ranging from September 2021 to May 2028.

Cash Flow Hedges

1 unchanged sentence

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.

As of June 30, 2021, the forward starting swaps have mandatory termination dates ranging from June 2022 to May 2025.

FOREIGN EXCHANGE

2 unchanged sentences

Economic Hedges

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.

During the second quarter and first six months 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 April 2021 to September 2024 as of March 31, 2021.

These FX contracts have maturities ranging from July 2021 to September 2024 as of June 30, 2021.

Cash Flow Hedges

1 unchanged sentence

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 April 2021 to November 2022 as of March 31, 2021.

These FX contracts, carried at fair value, have maturities ranging from July 2021 to March 2023 as of June 30, 2021.

Economic Hedges

KDP centrally manages the exposure to volatility in the prices of certain commodities used in its production process and transportation through various derivative contracts.

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

During the first quarter of 2021 and 2020, the Company held forward, future, swap and option contracts that economically hedged certain of its risks.

During the second quarter and first six months 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 April 2021 to January 2024 as of March 31, 2021.

These commodity contracts have maturities ranging from July 2021 to January 2024 as of June 30, 2021.

KEURIG DR PEPPER INC.

3 unchanged sentences

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

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

(in millions) June 30, 2021 December 31, 2020

Interest rate contracts

1 unchanged sentence

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

Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments 250 —

Swaptions, not designated as hedging instruments 250 —

Forward contracts, not designated as hedging instruments 522 476

10 unchanged sentences

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

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

(in millions) Balance Sheet Location June 30, 2021 December 31, 2020

Interest rate contracts Prepaid expenses and other current assets $ 2 $ —

Commodity contracts Prepaid expenses and other current assets 104 45

7 unchanged sentences

Commodity contracts Other non-current liabilities 3 2

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Designated as Hedging Instruments

1 unchanged sentence

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 $ —

(in millions) Balance Sheet Location June 30, 2021 December 31, 2020

FX contracts Prepaid expenses and other current assets $ 1 $ —

FX contracts Other current liabilities $ 12 $ 12

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

FX contracts Other non-current liabilities 3 —

Interest rate contracts Other non-current liabilities 101 —

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

2 unchanged sentences

Amounts include both realized and unrealized gains and losses.

First Quarter

Second Quarter First Six Months

(in millions) Income Statement Location 2021 2020 2021 2020

6 unchanged sentences

IMPACT OF CASH FLOW HEDGES

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

The following table presents the amount of (gain) 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:

Second Quarter First Six Months

(in millions) Income Statement Location 2021 2020 2021 2020

6 unchanged sentences

Some lease agreements contain standard renewal provisions that allow the Company to renew the lease at rates equivalent to fair market value at the end of the lease term.

The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants, except for leases of certain manufacturing properties that contain residual value guarantees at the end of the term.

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

The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants, except for leases of certain manufacturing properti es and of our Frisco headquarters, which contain residual value guarantees at the end of the respective lease terms that approximate a percentage of the cost of the asset as of the inception of the lease.

The Company considers the possibility of incurring costs associated with the residual value guarantees to be remote.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

The following table presents the components of lease cost:

First Quarter

Second Quarter First Six Months

(in millions) 2021 2020 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 Quarter

First Six Months

(in millions) 2021 2020

4 unchanged sentences

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Weighted average discount rate

4 unchanged sentences

Finance leases 12 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:

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, 2021 were as follows:

(in millions) Operating Leases Finance Leases

5 unchanged sentences

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

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.

As of June 30, 2021, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 301 million.

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

KEURIG DR PEPPER INC.

18 unchanged sentences

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

First Quarter

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

5 unchanged sentences

Net sales $ 3,140 $ 2,864 $ 6,042 $ 5,477

First Quarter

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

11 unchanged sentences

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

First Quarter

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

Second Quarter First Six Months

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

1 unchanged sentence

Weighted average common shares outstanding 1,417.4 1,407.2 1,413.4 1,407.1

Earnings per common share — basic $ 0.23 $ 0.11

Net income attributable to KDP $ 325 $ 156

Weighted average common shares outstanding 1,409.2 1,407.0

Effect of dilutive securities:

RSUs 16.0 12.7

Stock options 0.3 0.4

Dilutive effect of stock-based awards 10.7 14.3 13.5 13.7

Weighted average common shares outstanding and common stock equivalents 1,428.1 1,421.5 1,426.9 1,420.8

Earnings per common share — diluted $ 0.23 $ 0.11

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

Basic EPS $ 0.32 $ 0.21 $ 0.55 $ 0.32

Diluted EPS 0.31 0.21 0.54 0.32

Stock-Based Compensation

Stock-based compensation expense is recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income.

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

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

Total stock-based compensation expense $ 23 $ 23 $ 48 $ 42

Income tax benefit ( 4 ) ( 4 ) ( 8 ) ( 8 )

Stock-based compensation expense, net of tax $ 19 $ 19 $ 40 $ 34

RESTRICTED SHARE UNITS

The table below summarizes RSU activity :

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

(in millions)

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

Granted 3,972,147 28.28

Vested and released ( 9,431,933 ) 10.42 317

Forfeited ( 1,038,984 ) 25.00

Outstanding as of June 30, 2021 20,189,534 $ 25.39 2.6 $ 711

As of June 30, 2021, there was $ 344 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.7 years.

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

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

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

KEURIG DR PEPPER INC.

2 unchanged sentences

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.

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

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

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

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

Sales taxes and other similar taxes are excluded from revenue.

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

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

The following table disaggregates KDP's revenue by portfolio:

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

For the first quarter of 2021:

For the second quarter of 2021:

$ — $ 711 $ 368 $ 122 $ 1,201

K-Cup pods (2)

831 — — — 831

— 673 4 44 721

Appliances 210 — — — 210

Other 60 114 3 — 177

Net sales $ 1,101 $ 1,498 $ 375 $ 166 $ 3,140

For the second quarter of 2020:

$ — $ 621 $ 304 $ 91 $ 1,016

K-Cup pods (2)

830 — — — 830

— 662 2 28 692

Appliances 173 — — — 173

1 unchanged sentence

Net sales $ 1,043 $ 1,392 $ 309 $ 120 $ 2,864

For the first quarter of 2020:

For the first six months of 2021:

$ — $ 1,335 $ 691 $ 209 $ 2,235

K-Cup pods (2)

1,734 — — — 1,734

— 1,254 7 82 1,343

Appliances 384 — — — 384

Other 125 216 5 — 346

Net sales $ 2,243 $ 2,805 $ 703 $ 291 $ 6,042

For the first six months of 2020:

$ — $ 1,184 $ 606 $ 173 $ 1,963

K-Cup pods (2)

1,621 — — — 1,621

— 1,224 4 63 1,291

Appliances 300 — — — 300

7 unchanged sentences

(UNAUDITED, CONTINUED)

Stock-Based Compensation

Stock-based compensation expense is primarily recorded in SG&A expenses in the unaudited Condensed Consolidated Statements of Income.

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

First Quarter

(in millions) 2021 2020

Total stock-based compensation expense $ 25 $ 19

Income tax benefit recognized in the Statements of Income ( 4 ) ( 4 )

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

RESTRICTED SHARE UNITS

The table below summarizes RSU activity :

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

(in millions)

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

Granted 3,712,188 27.96

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

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

Second Quarter First Six Months

(in millions) 2021 2020 2021 2020

Effective tax rate 26.9 % 26.6 % 23.5 % 25.7 %

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.

For the second quarter of 2021, the provision for income taxes was higher than the second quarter of 2020, which was primarily driven by the increase on the revaluation of state deferred tax liabilities due to state legislative changes in 2021.

This increase was slightly offset by the decrease of U.S.

taxation of foreign earnings.

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

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

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

(in millions) Ownership Interest June 30, 2021 December 31, 2020

BodyArmor 12.5 % $ 52 $ 51

1 unchanged sentence

Force Holdings LLC (1)

Beverage startup companies (various) 13 15

Beverage startup companies (2)

(various) 11 15

Other (various) 6 5

Investments in unconsolidated affiliates $ 86 $ 88

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

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

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

Other Financial Information

2 unchanged sentences

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

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

(in millions) June 30, 2021 December 31, 2020

Cash and cash equivalents $ 167 $ 240

1 unchanged sentence

Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the unaudited Condensed Consolidated Statement of Cash Flows $ 170 $ 255

(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.

(1) Restricted cash and cash equivalents as of June 30, 2021 primarily represent amounts held in escrow in connection with the acquisitions of Core Nutrition LLC and Big Red Group Holdings, LLC, which have a corresponding holdback liability recorded in other current liabilities, as shown below.

The decrease during the first six months of 2021 was primarily driven by the release of $10 million from escrow in April 2021 related to the 2017 acquisition of Bai Brands LLC.

ALLOWANCE FOR EXPECTED CREDIT LOSSES

2 unchanged sentences

Balance as of December 31, 2020 $ 21

Charges to bad debt expense 1

Provision (reversal) for allowance for expected credit losses ( 13 )

Write-offs and adjustments 1

Balance as of March 31, 2021 $ 22

Balance as of June 30, 2021 $ 9

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

ACCOUNTS PAYABLE

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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)

KDP has been informed by the third party administrator that as of June 30, 2021 and December 31, 2020, $ 2,901 million and $ 2,578 million, respectively, of KDP's outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

SELECTED BALANCE SHEET INFORMATION

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

March 31, December 31,

June 30, December 31,

(in millions) 2021 2020

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

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

The fair value of marketable securities was $ 44 million and $ 41 million as of June 30, 2021 and December 31, 2020, respectively.

KEURIG DR PEPPER INC.

1 unchanged sentence

(UNAUDITED, CONTINUED)

March 31, December 31,

June 30, December 31,

(in millions) 2021 2020

23 unchanged sentences

Total other non-current liabilities $ 1,491 $ 1,119

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Accumulated Other Comprehensive Income (Loss)

1 unchanged sentence

(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

For the second quarter of 2021:

Beginning balance $ 111 $ ( 4 ) $ 57 $ 164

Other comprehensive income 112 — ( 152 ) ( 40 )

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

Amounts reclassified from AOCI — — 4 4

Other comprehensive income, net 112 — ( 148 ) ( 36 )

Balance as of June 30, 2021 $ 223 $ ( 4 ) $ ( 91 ) $ 128

For the second quarter of 2020:

Beginning balance $ ( 479 ) $ ( 1 ) $ — $ ( 480 )

Other comprehensive income 151 — 1 152

Balance as of June 30, 2020 $ ( 328 ) $ ( 1 ) $ 1 $ ( 328 )

For the first six months of 2021:

Beginning balance $ 95 $ ( 4 ) $ ( 14 ) $ 77

Other comprehensive income 128 — ( 84 ) 44

Amounts reclassified from AOCI — — 7 7

Other comprehensive income, net 128 — ( 77 ) 51

Balance as of June 30, 2021 $ 223 $ ( 4 ) $ ( 91 ) $ 128

For the first six months of 2020:

Beginning balance $ 104 $ — $ — $ 104

Other comprehensive loss ( 432 ) ( 1 ) 1 ( 432 )

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Continued)

Balance as of June 30, 2020 $ ( 328 ) $ ( 1 ) $ 1 $ ( 328 )

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

First Quarter

Second Quarter First Six Months

(in millions) Income Statement Caption 2021 2020 2021 2020

2 unchanged sentences

FX contracts Cost of sales 4 — 9 —

Total 4 — 9 —

Income tax benefit — — ( 2 ) —

Total, net of tax $ 4 $ — $ 7 $ —

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Commitments and Contingencies

32 unchanged sentences

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.

Final approval of the settlement was granted by the court 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

8 unchanged sentences

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.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Related Parties

1 unchanged sentence

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.

As of June 30, 2021, JAB beneficially owned approximately 33 % of KDP's outstanding common stock.

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

10 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