What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-07-28 · 207 added, 201 removed, 669 unchanged (38% of the section changed)

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EXECUTIVE SUMMARY

Financial Overview - Second Quarter of 2022 as compared to Second Quarter of 2021

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

As Reported, in millions (except EPS)

As Adjusted, in millions (except EPS)

Key Events During the Second Quarter of 2022

In April 2022, we announced a succession plan where Robert J.

Gamgort will transition from his position as President and Chief Executive Officer, remaining as our Executive Chairman of our Board.

Our Board appointed Ozan Dokmecioglu, currently Chief Financial Officer & President of International, as the Company's next President and Chief Executive Officer, effective July 29, 2022.

In connection with this leadership transition, George Lagoudakis, currently our Senior Vice President of Finance for Cold Beverages, was appointed to serve as our interim Chief Financial Officer, effective July 29, 2022, while we continue our external search for our permanent Chief Financial Officer.

In April 2022, we chose to undertake a strategic refinancing initiative, reducing our weighted average coupon rate on our Notes from 3.671% at March 31, 2022 to 3.595% after the refinancing.

Key Events During and Subsequent to the Third Quarter of 2022

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

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

On September 14, 2022, we announced that our Board approved a 6.7% increase in our annualized dividend rate to $0.80 per share, from the current annualized rate of $0.75 per share, effective with the regularly quarterly cash dividend announced on the same day.

As a result of our quarterly triggering events assessment, we recorded a non-cash impairment charge of $311 million in the Packaged Beverages segment for the Bai brand in the third quarter of 2022.

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

During the second quarter of 2022, we repurchased and retired $88 million of common stock.

We were added to the S&P 500 Index, effective prior to the open of trading on June 21, 2022.

During the second quarter, we acquired equity interests in Tractor Beverage and entered into an exclusive sales agreement, which leverages the strength of our fountain foodservice business and expands our FFS portfolio.

We also announced an agreement to acquire the global rights to the non-alcoholic, ready-to-drink cocktail brand Atypique, which is expected to close during the second half of 2022.

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

Uncertainties and Trends Affecting Our Business

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Some of these items, such as the ongoing COVID-19 pandemic and the invasion of Ukraine by Russia, and the resulting impacts on the global economy, including supply chain constraints and labor shortages, have led to inflation in input costs, logistics, manufacturing and labor costs.

During the first six months of 2022, we have experienced supply chain disruptions and a significant inflationary impact compared to the prior year period.

These impacts have created headwinds for our products that we expect to continue through the remainder of 2022.

During the first nine months of 2022, we have experienced supply chain disruptions and a significant inflationary impact compared to the prior year period.

These impacts have created headwinds for our products that we expect to continue through the remainder of the year.

As a result of these inflationary pressures, we have increased the pricing on a number of our products across our portfolio.

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Allowances for Expected Credit Losses (4)

For the second quarter of 2022:

For the third quarter of 2022:

Coffee Systems $ — $ 3 $ — $ 3

3 unchanged sentences

Total $ 1 $ 4 $ — $ 5

For the second quarter of 2021:

For the third quarter of 2021:

Coffee Systems $ 1 $ 1 $ — $ 2

3 unchanged sentences

Total $ 2 $ 2 $ — $ 4

For the first six months of 2022:

For the first nine months of 2022:

Coffee Systems $ 1 $ 6 $ — $ 7

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Total $ 4 $ 10 $ — $ 14

For the first six months of 2021:

For the first nine months of 2021:

Coffee Systems $ 3 $ 14 $ (2) $ 15

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References in the financial tables to percentage changes that are not meaningful are denoted by "NM".

Second Quarter of 2022 Compared to Second Quarter of 2021

Third Quarter of 2022 Compared to Third Quarter of 2021

Consolidated Operations

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

Second Quarter Dollar Percentage

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

Third Quarter Dollar Percentage

($ in millions, except per share amounts) 2022 2021 Change Change

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Selling, general and administrative expenses 1,196 1,040 156 15.0

Impairment of intangible assets 311 — 311 NM

Other operating income, net — — — NM

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Loss on early extinguishment of debt — — — NM

Impairment of investments and note receivable 6 — 6 NM

Other expense (income), net 4 1 3 NM

Income before provision for income taxes 183 678 (495) (73.0)

(Benefit) provision for income taxes (5) 165 (170) NM

Provision for income taxes 4 149 (145) NM

Net income including non-controlling interest 179 529 (350) (66.2)

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Gross margin 52.5 % 56.5 % (400) bps

Operating margin 16.1 % 23.4 % (730) bps

Operating margin 10.9 % 24.5 % NM

Effective tax rate 2.2 % 22.0 % NM

Sales Volume.

The following table provides the percentage change in sales volumes for the second quarter of 2022 compared to the prior year period:

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

Percentage Change

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NCB sales volume 4.7

Net sales increased $414 million, or 13.2%, to $3,554 million for the second quarter of 2022 compared to $3,140 million in the prior year period.

This performance reflected favorable net price realization of 10.4%, across all segments, and favorable volume/mix of 3.1%, slightly offset by unfavorable FX translation of 0.3%.

Net sales increased $372 million, or 11.4%, to $3,622 million for the third quarter of 2022 compared to $3,250 million in the prior year period.

This performance reflected favorable net price realization across all segments totaling 12.1%, primarily driven by price increases, slightly offset by unfavorable FX translation of 0.4% and unfavorable volume/mix of 0.3%.

Gross Profit.

Gross profit increased $6 million, or 0.3%, to $1,776 million for the second quarter of 2022 compared to $1,770 million in the prior year period.

This performance primarily reflected strong growth in net sales, the benefit of productivity, and reduced costs associated with COVID-19.

These benefits were partially offset by higher costs driven significantly by broad-based inflation, an unfavorable change in unrealized commodity mark-to-market impacts, and increased costs associated with productivity projects.

Gross profit increased $66 million, or 3.6%, to $1,901 million for the third quarter of 2022 compared to $1,835 million in the prior year period.

This performance primarily reflected the strong growth in net sales, partially offset by the impacts of broad-based inflation and an unfavorable change in unrealized commodity mark-to-market expense.

Gross margin decreased 400 bps versus the year ago period to 52.5%.

Selling, General and Administrative Expenses.

SG&A expenses increased $165 million, or 15.9%, to $1,204 million for the second quarter of 2022 compared to $1,039 million in the prior year period.

The increase was driven by higher logistics costs, driven by both inflation and product mix, and an unfavorable change in unrealized commodity mark-to-market impacts.

SG&A expenses increased $156 million, or 15.0%, to $1,196 million for the third quarter of 2022 compared to $1,040 million in the prior year period.

The increase was driven by the impact of broad-based inflation, an unfavorable change in unrealized commodity mark-to-market impacts, increased marketing and other operating costs.

Impairment of Intangible Assets.

Impairment of intangible assets reflected a non-cash impairment charge of $311 million in the third quarter of 2022 associated with Bai, an indefinite lived brand asset.

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

Income from Operations.

Income from operations decreased $162 million, or 22.1%, to $572 million for the second quarter of 2022 compared to $734 million in the prior year period, primarily driven by increased SG&A expenses.

Operating margin decreased 730 bps versus the year ago period to 16.1%.

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

Interest Expense.

Interest expense increased $50 million, or 40.0%, to $175 million for the second quarter of 2022 compared with $125 million in the prior year period.

This change was primarily driven by unfavorable unrealized mark-to-market losses of $62 million on interest rate contracts and the unfavorable comparison to realized gains on certain interest rate contracts in the prior year period, which was partially offset by reduced interest expense on our senior unsecured notes as a result of deleveraging and our strategic refinancing initiatives.

Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt reflected a loss of $169 million during the second quarter of 2022 related to our 2022 Strategic Refinancing.

There was no loss on early extinguishment of debt during the prior year period.

Impairment of Investments and Note Receivable.

Impairment of investments and note receivable reflected an impairment charge of $6 million in the second quarter of 2022 associated with the wind-down of Bedford.

Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Interest expense increased $91 million, or 78.4%, to $207 million for the third quarter of 2022 compared with $116 million in the prior year period.

This change was primarily driven by unfavorable unrealized mark-to-market losses of $113 million on interest rate contracts, which were partially offset by the favorable comparison to realized gains on certain interest rate contracts and our strategic refinancing initiatives.

Effective Tax Rate.

The effective tax rate was (2.3)% for the second quarter of 2022, compared to 26.9% in the prior year period, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes.

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

Net Income Attributable to KDP.

Net income decreased $230 million, or 51.3%, to $218 million for the second quarter of 2022 as compared to $448 million in the prior year period, driven by the loss on early extinguishment of debt, lower income from operations and increased interest expense, partially offset by the decrease in our effective tax rate.

Diluted EPS decreased 51.6% to $0.15 per diluted share for the second quarter of 2022 as compared to $0.31 in the prior year period.

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

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

Results of Operations by Segment

The following tables set forth net sales and income from operations for our segments for the second quarter of 2022 and 2021, as well as other amounts necessary to reconcile our segment results to our consolidated results presented in accordance with U.S.

The following tables set forth net sales and income from operations for our segments for the third quarter of 2022 and 2021, as well as other amounts necessary to reconcile our segment results to our consolidated results presented in accordance with U.S.

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

The prior period segment disclosures reflect the revised presentation.

Second Quarter

Third Quarter

(in millions) 2022 2021

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Net sales $ 3,622 $ 3,250

Second Quarter

Third Quarter

(in millions) 2022 2021

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

Second Quarter Dollar Percent

Third Quarter Dollar Percent

(in millions) 2022 2021 Change Change

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Sales Volume.

K-Cup pod volume grew 4.7% in the second quarter of 2022 compared to 0.2% in the year ago period, driven by t he early completion of our coffee recovery program, which enabled us to rebuild retailer and partner inventories and restore customer service levels.

Brewer volume decreased 4.2% in the quarter, driven by the unfavorable comparison to significant brewer shipment growth of 29.0% in the year ago period.

Net sales increased 8.5% to $1,195 million for the second quarter of 2022 compared to net sales of $1,101 million in the prior year period, reflecting favorable net price realization of 5.8% and volume/mix growth of 3.3%, driving growth in net sales for both K-cup pods and brewers.

These benefits were slightly offset by unfavorable FX translation of 0.6%.

K-Cup pod volume grew 3.5% in the third quarter of 2022 compared to the prior year period, reflecting continued improvement following the completion of our coffee recovery program in the second quarter of 2022.

Brewer volume decreased 15.3% compared to the prior year period, as continuing improvements in consumer mobility resulted in brewer shipments returning to more normalized levels.

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

Income from Operations.

Income from operations decreased $40 million, or 11.3%, to $315 million for the second quarter of 2022, compared to $355 million for the prior year period, as a result of broad-based inflation, investments to accelerate coffee recovery, increases in other operating costs, and increased expenses associated with productivity projects, partially offset by the benefits of pricing actions and the benefit of productivity.

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

Operating margin declined 720 bps versus the year ago period to 24.4%.

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

Second Quarter Dollar Percent

Third Quarter Dollar Percent

(in millions) 2022 2021 Change Change

1 unchanged sentence

Income from operations 10 291 (281) (96.6)

Operating margin 13.7 % 17.4 % (370) bps

Operating margin 0.6 % 18.8 % NM

Sales Volume.

Sales volume for the second quarter of 2022 increased 1.0% compared to the prior year period, due primarily to strength in CSDs, Core, Motts, Hawaiian Punch, and Polar, which was partially offset by reductions in contract manufacturing and Bai.

Net sales increased 12.8% to $1,689 million for the second quarter of 2022, compared to $1,498 million in the prior year period, driven by favorable net price realization of 11.0%, primarily driven by price increases, and volume/mix growth of 1.9%, slightly offset by unfavorable FX translation of 0.1%.

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

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

Income from Operations.

Income from operations decreased $29 million, or 11.1%, to $232 million for the second quarter of 2022, compared to $261 million for the prior year period, driven by broad-based inflation, higher costs associated with increased volume and increases in other operating costs, partially offset by the impact of net sales growth and productivity.

Operating margin declined 370 bps versus the year ago period to 13.7%.

Income from operations decreased $281 million, or 96.6%, to $10 million for the third quarter of 2022, compared to $291 million for the prior year period, primarily driven by the $311 million non-cash impairment charge for Bai.

Other drivers of the change included the benefit of strong net sales growth, partially offset by broad-based inflation, higher operating costs, and increased marketing expenses.

BEVERAGE CONCENTRATES

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

Second Quarter Dollar Percent

Third Quarter Dollar Percent

(in millions) 2022 2021 Change Change

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Sales volume.

Sales volume for the second quarter of 2022 increased 3.5% compared to the prior year period, driven primarily by Canada Dry and Dr Pepper, partially offset by Schweppes.

Net sales increased 22.7% to $460 million in the second quarter of 2022, compared to $375 million for the prior year period, reflecting higher net price realization of 19.2%, largely driven by the favorable comparison to our prior year customer trade accrual, as well as price increases, and volume/mix growth of 3.7%.

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

Net sales increased 17.1% to $459 million in the third quarter of 2022, compared to $392 million for the prior year period, reflecting higher net price realization of 16.6% and volume/mix growth of 0.7%.

These benefits were slightly offset by unfavorable FX translation impacts of 0.2%.

Income from Operations.

Income from operations increased $69 million, or 27.1%, to $324 million for the second quarter of 2022 compared to $255 million in the prior year period.

This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation.

Operating margin increased 240 bps versus the year ago period to 70.4% primarily due to the favorable comparison to our prior year customer trade accrual.

Income from operations increased $60 million, or 20.9%, to $347 million for the third quarter of 2022 compared to $287 million in the prior year period.

This performance reflected the benefits of strong net sales growth and lower marketing expense, partially offset by broad-based inflation.

Operating margin increased 240 bps versus the year ago period to 75.6%.

LATIN AMERICA BEVERAGES

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

Second Quarter Dollar Percent

Third Quarter Dollar Percent

(in millions) 2022 2021 Change Change

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Sales Volume.

Sales volume for the second quarter of 2022 as compared to the prior year period increased 7.5%, led by Peñafiel, Squirt and Clamato, driven by strong in-market execution and improvements in consumer mobility.

Net sales grew 26.5% to $210 million for the second quarter of 2022, compared to $166 million in the prior year period, reflecting favorable net price realization of 14.5% and volume/mix growth of 12.0%.

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

Net sales grew 26.9% to $198 million for the third quarter of 2022, compared to $156 million in the prior year period, reflecting favorable net price realization of 17.3% and volume/mix growth of 11.5%, partially offset by unfavorable FX translation impacts of 1.9%.

Income from Operations.

Income from operations increased $14 million, or 38.9%, to $50 million for the second quarter of 2022 compared to $36 million in the prior year period, reflecting the benefit of net sales growth and productivity, partially offset by the impacts of broad-based inflation and higher costs associated with increased volumes.

Operating margin increased 210 bps versus the year ago period to 23.8% despite inflationary headwinds.

First Six Months of 2022 Compared to First Six Months of 2021

Income from operations increased $2 million, or 5.4%, to $39 million for the third quarter of 2022 compared to $37 million in the prior year period, reflecting the benefit of net sales growth, partially offset by the impacts of broad-based inflation, higher costs associated with increased volumes, and higher marketing expense.

Operating margin decreased 400 bps versus the year ago period to 19.7%.

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

Consolidated Operations

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

First Six Months Dollar Percentage

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

First Nine Months Dollar Percentage

($ in millions, except per share amounts) 2022 2021 Change Change

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Selling, general and administrative expenses 3,418 3,040 378 12.4

Impairment of intangible assets 311 — 311 NM

Gain on litigation settlement (299) — (299) NM

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Percentage Change

K-Cup pods (0.4) %

Brewers (4.6)

Net sales increased $590 million, or 9.8%, to $6,632 million for the first six months of 2022 compared to $6,042 million in the prior year period.

This performance reflected favorable net price realization of 8.4% across all segments and volume/mix growth of 1.5%, as expected reductions in our Coffee Systems segment during the first quarter of 2022 moderated volume gains in our other segments.

K-Cup pod volume 0.9 %

Brewer volume

CSD sales volume 2.1

NCB sales volume 2.8

Net sales increased $962 million, or 10.4%, to $10,254 million for the first nine months of 2022 compared to $9,292 million in the prior year period.

This performance reflected favorable net price realization across all segments totaling 9.7% and volume/mix growth of 0.9%, as expected reductions driven by our coffee recovery program during the first quarter of 2022 moderated volume gains in our other segments.

These benefits were slightly offset by unfavorable FX translation of 0.2%.

Gross Profit.

Gross profit increased $56 million, or 1.7%, to $3,426 million for the first six months of 2022 compared to $3,370 million in the prior year period.

This performance primarily reflected strong growth in net sales, partially offset by higher costs significantly driven by broad-based inflation and an unfavorable change in unrealized commodity mark-to-market impacts.

Gross profit increased $122 million, or 2.3%, to $5,327 million for the first nine months of 2022 compared to $5,205 million in the prior year period.

This performance primarily reflected the strong growth in net sales and the benefit of productivity, partially offset by broad-based inflation and an unfavorable change in unrealized commodity mark-to-market impacts.

Gross margin decreased 400 bps versus the year ago period to 52.0%.

Selling, General and Administrative Expenses.

SG&A expenses increased $222 million, or 11.1%, to $2,222 million for the first six months of 2022 compared to $2,000 million in the prior year period.

The increase was driven by higher logistics costs, driven by both inflation and product mix, and increases in other operating costs.

These drivers were partially offset by the impact of a change in our accounting policy related to the recognition of forfeitures for our stock awards of $40 million during the first quarter of 2022.

SG&A expenses increased $378 million, or 12.4%, to $3,418 million for the first nine months of 2022 compared to $3,040 million in the prior year period.

The increase was driven by higher logistics costs and increases in other operating expenses.

Impairment of Intangible Assets.

Impairment of intangible assets reflected a non-cash impairment charge of $311 million associated with Bai, an indefinite lived brand asset.

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

Gain on litigation settlement .

Gain on litigation settlement reflects the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor.

Gain on litigation settlement reflects the portion of the settlement payment from BodyArmor which was allocated to the gain on the full settlement of the existing claims against BodyArmor in the second quarter of 2022.

Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Other Operating Income, net.

Other operating income, net increased $31 million for the first six months of 2022 compared to the prior year period, primarily driven by a $38 million gain on an asset sale-leaseback transaction related to our strategic asset investment program in the current period.

Other operating income, net increased $31 million for the first nine months of 2022 compared to the prior year period, primarily driven by a $38 million gain on an asset sale-leaseback transaction related to our strategic asset investment program in the first quarter of 2022.

Income from Operations.

Income from operations increased $164 million, or 11.9%, to $1,538 million for the first six months of 2022 compared to $1,374 million in the prior year period, primarily driven by the gain on the litigation settlement, increased gross profit and the gain related to our strategic asset investment program, partially offset by increased SG&A expenses.

Operating margin increased 50 bps versus the year ago period to 23.2%.

Income from operations decreased $237 million, or 10.9%, to $1,932 million for the first nine months of 2022 compared to $2,169 million in the prior year period, primarily driven by the non-cash impairment of Bai of $311 million, which was partially offset by the gain on the litigation settlement.

Other factors include higher SG&A expenses, partially offset by increased gross profit.

Operating margin decreased 450 bps versus the year ago period to 18.8%.

Interest Expense.

Interest expense increased $98 million, or 37.0%, to $363 million for the first six months of 2022 compared to $265 million for the prior year period.

This change was primarily driven by unfavorable unrealized mark-to-market losses of $141 million on interest rate contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of deleveraging and our strategic refinancing initiatives.

Interest expense increased $189 million, or 49.6%, to $570 million for the first nine months of 2022 compared to $381 million for the prior year period.

This change was primarily driven by the unfavorable comparison of unrealized mark-to-market losses of $254 million on interest rate contracts, which was partially offset by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives.

Loss on Early Extinguishment of Debt.

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

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

Gain on sale of equity method investment.

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Impairment of Investments and Note Receivable.

Impairment on investments and note receivable reflected an impairment charge of $12 million in the first six months of 2022 associated with the wind-down of Bedford.

Impairment on investments and note receivable reflected a non-cash impairment charge of $12 million in the first nine months of 2022 associated with the wind-down of Bedford.

Refer to Note 12 of the Notes to our Unaudited Condensed Consolidated Financial Statements for further information.

Effective Tax Rate.

The effective tax rate decreased 560 bps to 17.9% for the first six months of 2022, compared to 23.5% in the prior year period, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes and the favorable mix of the Company’s incremental income in low tax jurisdictions in the current period, partially offset by the unfavorable comparison to the excess tax deductions that were generated from the vesting of RSUs during the first six months of 2021.

The effective tax rate decreased 750 bps to 15.4% for the first nine months of 2022, compared to 22.9% in the prior year period, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes and the favorable mix of our incremental income in low tax jurisdictions in the current period, partially offset by the unfavorable comparison to the excess tax deductions that were generated from the vesting of RSUs during the first nine months of 2021.

Net Income Attributable to KDP.

Net income attributable to KDP increased $30 million, or 3.9%, to $803 million for the first six months of 2022 as compared to $773 million in the prior year period, driven by higher income from operations, the decrease in our effective tax rate in the first six months of 2022 and the gain on the sale of our investment in BodyArmor, partially offset by the unfavorable comparison to the loss on early extinguishment of debt, increased interest expense and the impairment on the investments and note receivable associated with the wind-down of Bedford.

Diluted EPS increased 3.7% to $0.56 per diluted share as compared to $0.54 in the prior year period.

Net income attributable to KDP decreased $320 million, or 24.6%, to $983 million for the first nine months of 2022 as compared to $1,303 million in the prior year period, primarily driven by lower income from operations, increased interest expense, and the unfavorable change in loss on early extinguishment of debt, partially offset by the decrease in our effective tax rate.

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

Results of Operations by Segment

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

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

The prior period segment disclosures reflect the revised presentation.

(in millions) First Six Months

(in millions) First Nine Months

Net sales 2022 2021

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

First Six Months Dollar Percent

First Nine Months Dollar Percent

(in millions) 2022 2021 Change Change

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Sales Volume.

K-Cup pod volume was relatively flat for the first six months of 2022 compared to the prior year period, as gains in volume during the second quarter of 2022 offset negative volume comparisons in the first quarter of 2021, reflecting t he early completion of our coffee recovery program, which enabled us to rebuild retailer and partner inventories and restore customer service levels through the first half of the year.

Brewer volume decreased 4.6% in the first six months of 2022, driven by the unfavorable comparison to significant brewer shipment growth of 41.3% in the prior year period.

Net sales increased 2.0% to $2,288 million for the first six months of 2022 compared to $2,243 million in the prior year period, driven by favorable net price realization of 4.5%, partially offset by volume/mix declines of 2.2% and unfavorable FX translation effects of 0.3%.

K-Cup pod volume increased 0.9% for the first nine months of 2022 compared to the prior year period, as the segment was implementing its coffee recovery program to increase pod manufacturing output and rebuild finished goods inventories to satisfy strong consumer demand and restore customer service levels.

Brewer volume decreased 8.9% in the first nine months of 2022, driven by the unfavorable comparison to significant brewer shipment growth of 22.5% in the prior year period.

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

Income from Operations.

Income from operations decreased $140 million, or 19.4%, to $583 million for the first six months of 2022, compared to $723 million in the prior year period, as a result of broad-based inflation and lower volume/mix.

These decreases were partially offset by the benefits of pricing actions, productivity, and reduced costs related to COVID-19.

Operating margin declined 670 bps versus the year ago period to 25.5% due to these inflationary and volume headwinds.

Income from operations decreased $210 million, or 19.3%, to $878 million for the first nine months of 2022, compared to $1,088 million in the prior year period, as a result of broad-based inflation, particularly in green coffee, lower volume/mix, unfavorable mark-to-market impacts and increased costs associated with productivity projects.

These decreases were partially offset by the benefits of pricing actions and productivity.

Operating margin declined 690 bps versus the year ago period to 25.1% due to these inflationary headwinds.

PACKAGED BEVERAGES

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

First Six Months Dollar Percent

First Nine Months Dollar Percent

(in millions) 2022 2021 Change Change

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Income from operations 728 731 (3) (0.4)

Operating margin 22.7 % 15.7 % NM

Operating margin 14.8 % 16.8 % (200) bps

Sales Volume.

Sales volume for the first six months of 2022 increased 2.0% compared to the prior year period, due primarily to strength in CSDs, Motts, Core, Polar and Hawaiian Punch, which were partially offset by reductions in contract manufacturing and Bai.

Net sales increased 13.0% to $3,169 million in the first six months of 2022, compared to $2,805 million in the prior year period, driven by favorable net price realization of 9.7% and volume/mix growth of 3.3%.

Sales volume for the first nine months of 2022 increased 1.1% compared to the prior year period, due primarily to strength in CSDs, Motts, Core, Polar and Hawaiian Punch, which were partially offset by reductions in contract manufacturing and Bai.

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

Income from Operations.

Income from operations increased $278 million, or 63.2%, to $718 million for the first six months of 2022 compared to $440 million for the prior year period, driven by the benefits of net sales growth, the gain on the settlement of litigation with BodyArmor of $271 million, asset sale-leaseback activity in the first six months of 2022 relating to our strategic asset initiative, and productivity.

These increases were partially offset by the increased costs due to the impacts of broad-based inflation and higher costs associated with higher volumes.

Income from operations decreased $3 million, or 0.4%, to $728 million for the first nine months of 2022 compared to $731 million for the prior year period, primarily driven by the $311 million non-cash impairment charge for Bai, which was partially offset by the gain on the settlement of litigation with BodyArmor of $271 million.

Other drivers included the benefits of net sales growth, asset sale-leaseback activity in the first nine months of 2022 relating to our strategic asset initiative, and productivity, partially offset by broad-based inflation and higher costs to serve the ongoing strong consumer demand.

BEVERAGE CONCENTRATES

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

First Six Months Dollar Percent

First Nine Months Dollar Percent

(in millions) 2022 2021 Change Change

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Sales Volume.

Sales volume for the first six months of 2022 increased 2.8% compared to the prior year period, primarily driven by Dr Pepper and Canada Dry, partially offset by Crush and Schweppes.

Net sales increased 16.5% to $819 million in the first six months of 2022, compared to $703 million in the prior year period, reflecting higher net price realization of 13.8%, driven by price increases, as well as the favorable comparison to our prior year customer trade accrual, and volume/mix growth of 2.8%, slightly offset by unfavorable FX translation effects of 0.1%.

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

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

Income from Operations.

Income from operations increased $75 million, or 15.2%, to $568 million for the first six months of 2022 compared to $493 million in the prior year period.

This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation and costs associated with productivity initiatives.

Operating margin decreased 70 bps versus the year ago period to 69.4%.

Income from operations increased $135 million, or 17.3%, to $915 million for the first nine months of 2022 compared to $780 million in the prior year period.

This performance reflected the impact of net sales growth, partially offset by broad-based inflation.

Operating margin increased 40 bps versus the year ago period to 71.6%.

LATIN AMERICA BEVERAGES

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

First Six Months Dollar Percent

First Nine Months Dollar Percent

(in millions) 2022 2021 Change Change

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Sales Volume.

Sales volume for the first six months of 2022 as compared to the prior year period increased 6.6%, led by Squirt and Peñafiel, driven by strong in-market execution and improvements in consumer mobility.

Net sales grew 22.3% to $356 million for the first six months of 2022, compared to $291 million in the prior year period, reflecting favorable net price realization of 12.4% and volume/mix growth of 10.3%, slightly offset by unfavorable FX translation of 0.4%.

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

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

Income from Operations.

Income from operations increased $17 million, or 29.3%, to $75 million for the first six months of 2022 compared to $58 million in the prior year period, driven by the benefit of net sales growth, partially offset by the impacts of broad-based inflation, higher costs associated with higher volumes and higher marketing expense.

Operating margin increased 120 bps versus the year ago period to 21.1% despite inflationary headwinds.

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

Operating margin decreased 70 bps versus the year ago period to 20.6%.

NON-GAAP FINANCIAL MEASURES

To supplement the consolidated financial statements presented in accordance with U.S.

GAAP, we have presented for certain constant currency adjusted or adjusted financial measures for the second quarter and first six months of 2022 and 2021, which are considered non-GAAP financial measures.

GAAP, we have presented for certain constant currency adjusted or adjusted financial measures for the third quarter and first nine months of 2022 and 2021, which are considered non-GAAP financial measures.

The non-GAAP financial measures provided should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S.

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For each period, management adjusts for (i) the unrealized mark-to-market impact of derivative instruments not designated as hedges in accordance with U.S.

GAAP that do not have an offsetting risk reflected within the financial results;

GAAP that do not have an offsetting risk reflected within the financial results, as well as the unrealized mark-to-market impact of our Vita Coco investment;

(ii) the amortization associated with definite-lived intangible assets;

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and (vii) other certain items that are excluded for comparison purposes to prior year periods.

For the second quarter and first six months of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

For the third quarter and first nine months of 2022, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(ii) productivity expenses;

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(ix) transaction costs for significant business combinations (completed or abandoned) excluding the DPS Merger;

and (x) foundational projects, which are transformative and non-recurring in nature.

For the second quarter and first six months of 2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(x) foundational projects, which are transformative and non-recurring in nature;

and (xi) impairment recognized on the Bai brand.

For the third quarter and first nine months of 2021, the other certain items excluded for comparison purposes include (i) restructuring and integration expenses related to significant business combinations;

(ii) productivity expenses;

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

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

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

KEURIG DR PEPPER INC.

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

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Other operating income, net Income from operations Operating margin

For the Second Quarter of 2022

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Impairment of intangible assets Income from operations Operating margin

For the Third Quarter of 2022

Reported $ 1,721 $ 1,901 52.5 % $ 1,196 $ 311 $ 394 10.9 %

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Productivity (30) 30 (27) — 57

Impairment of intangible assets — — — (311) 311

Non-routine legal matters — — (2) — 2

COVID-19 (3) 3 (2) — 5

Transaction costs — — (1) — 1

Foundational projects — — (1) — 1

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Constant currency adjusted 54.7 % 26.1 %

For the Second Quarter of 2021

For the Third Quarter of 2021

Reported $ 1,415 $ 1,835 56.5 % $ 1,040 $ — $ 795 24.5 %

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COVID-19 (3) 3 (1) — 4

Transaction costs — — (1) — 1

Malware incident — — 1 — (1)

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

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

Interest expense Loss on early extinguishment of debt Impairment of investments and note receivable Other expense (income), net Income before provision for income taxes (Benefit) provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the Second Quarter of 2022

Interest expense Other expense (income), net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the Third Quarter of 2022

Reported $ 207 $ 4 $ 183 $ 4 2.2 % $ 180 $ 0.13

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Amortization of intangibles — — 33 8 25 0.02

Amortization of deferred financing costs (1) — — — 1 — 1 —

Amortization of fair value debt adjustment (5) — 5 1 4 —

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Productivity — — 57 10 47 0.03

Impairment of investment — — (6) — 6 — 6 —

Impairment of intangible assets — — 311 77 234 0.16

Loss on early extinguishment of debt — — — — — (0.01)

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COVID-19 — — 5 1 4 —

Transaction costs — — — — 1 — 1 —

Foundational projects — — 1 1 — —

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Constant currency adjusted 23.1 %

For the Second Quarter of 2021

For the Third Quarter of 2021

Reported $ 116 $ 1 $ 678 $ 149 22.0 % $ 530 $ 0.37

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Productivity — — 44 11 33 0.02

Loss on early extinguishment of debt — — — (1) 1 —

Non-routine legal matters — — 7 2 5 —

COVID-19 — — 4 1 3 —

Transaction costs — — 1 — 1 —

Malware incident — — (1) (1) — —

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

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(in millions) Reported Items Affecting Comparability Adjusted

For the second quarter of 2022:

For the third quarter of 2022:

Income from operations

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Total income from operations $ 394 $ 553 $ 947

For the second quarter of 2021:

For the third quarter of 2021:

Income from operations

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Reported Impact of Foreign Currency Constant Currency

For the second quarter of 2022:

For the third quarter of 2022:

Coffee Systems 4.7 % 0.5 % 5.2 %

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Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the second quarter of 2022:

For the third quarter of 2022:

Income from operations

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Reported Items Affecting Comparability Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the second quarter of 2022:

For the third quarter of 2022:

Operating margin

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CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

Second Quarter of 2022 Compared to Second Quarter of 2021

The following discussion of our results for the second quarter of 2022 is presented on a constant currency adjusted basis.

Third Quarter of 2022 Compared to Third Quarter of 2021

The following discussion of our results for the third quarter of 2022 is presented on a constant currency adjusted basis.

These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates.

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Constant Currency Net Sales.

Constant currency net sales increased 13.5% in the second quarter of 2022 compared to the prior year period, driven by favorable net price realization of 10.4% and volume/mix growth of 3.1%.

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

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations decreased 0.6% compared to the prior year period, primarily driven by the impact of broad-based inflation, higher costs due to higher volumes, and increases in other operating costs, partially offset by the strong growth in net sales and the benefit of productivity.

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

Constant Currency Adjusted Interest Expense.

Constant currency adjusted interest expense decreased 10.1% compared to the prior year period, driven by reduced interest expense on our senior unsecured notes as a result of deleveraging and our strategic refinancing initiatives, partially offset by the unfavorable comparison to realized gains on certain interest rate contracts in the prior year period.

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

Constant Currency Adjusted Effective Tax Rate.

The c onstant currency adjusted effective tax rate was 22.6% for the second quarter of 2022 compared to 25.7% for the prior year period, primarily driven by our incremental income in low tax jurisdictions and the revaluation of state deferred tax liabilities due to state legislative changes.

The c onstant currency adjusted effective tax rate was relatively flat, with a rate of 23.1% for the third quarter of 2022 compared to 23.2% for the prior year period.

Constant Currency Adjusted Net Income Attributable to KDP.

Constant currency adjusted net income attributable to KDP increased 3.3% compared to the prior year period, as the impacts of lower interest expense and our reduced effective tax rate were slightly offset by the decline in income from operations.

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

Constant Currency Adjusted Diluted EPS .

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Constant Currency Net Sales.

Constant currency net sales increased 9.1%, reflecting higher net price realization of 5.8% and volume/mix growth of 3.3%, driving growth in net sales for both K-cup pods and brewers.

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

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2022 decreased 8.4% compared to the prior year period, driven by increased costs due to the impacts of broad-based inflation, investments to accelerate coffee recovery and increases in other operating costs.

These decreases were partially offset by the benefit of pricing actions and the benefit of productivity.

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

PACKAGED BEVERAGES

Constant Currency Net Sales.

Constant currency net sales increased 12.9%, reflecting favorable net price realization of 11.0%, primarily driven by price increases, and volume/mix growth of 1.9%.

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

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2022 decreased 14.5% compared to the prior year period, driven primarily by broad-based inflation, higher costs associated with increased volume and increases in other operating costs, partially offset by the impact of net sales growth and productivity.

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

BEVERAGE CONCENTRATES

Constant Currency Net Sales.

Constant currency net sales increased 22.9%, reflecting higher net price realization of 19.2%, predominantly driven by the favorable comparison to our prior year customer trade accrual, as well as price increases, and volume/mix growth of 3.7%.

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

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2022 increased 27.6% compared to the prior year period.

This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation.

Constant currency adjusted income from operations for the third quarter of 2022 increased 21.0% compared to the prior year period.

This performance reflected the benefits of net sales growth and lower marketing expense, partially offset by the impacts of broad-based inflation.

LATIN AMERICA BEVERAGES

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Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the second quarter of 2022 increased 35.1% compared to the prior year period, reflecting the benefit of net sales growth and productivity, partially offset by the impacts of broad-based inflation and higher costs associated with increased volumes.

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

KEURIG DR PEPPER INC.

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

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Gain on litigation settlement Other operating income, net Income from operations Operating margin

For the First Six Months of 2022

Cost of sales Gross profit Gross margin Selling, general and administrative expenses Impairment of intangible assets Gain on litigation settlement Other operating income, net Income from operations Operating margin

For the First Nine Months of 2022

Reported $ 4,927 $ 5,327 52.0 % $ 3,418 $ 311 $ (299) $ (35) $ 1,932 18.8 %

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Productivity (86) 86 (73) — — — 159

Impairment of intangible assets — — — (311) — — 311

Non-routine legal matters — — (9) — — — 9

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Constant currency adjusted 54.1 % 24.5 %

For the First Six Months of 2021

For the First Nine Months of 2021

Reported $ 4,087 $ 5,205 56.0 % $ 3,040 $ — $ — $ (4) $ 2,169 23.3 %

7 unchanged sentences

COVID-19 (22) 22 (9) — — — 31

Transaction costs — — (1) — — — 1

Malware incident — — 3 — — — (3)

4 unchanged sentences

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

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other expense (income), net Income before provision for income taxes (Benefit) provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the First Six Months of 2022

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other expense (income), net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the First Nine Months of 2022

Reported $ 570 $ 217 $ (50) $ 12 $ 22 $ 1,161 $ 179 15.4 % $ 983 $ 0.69

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Productivity — — — — — 159 32 127 0.09

Impairment of intangible assets — — — — — 311 77 234 0.16

Impairment of investment — — — (12) 12 — 12 0.01

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

For the First Six Months of 2021

Interest expense Loss on early extinguishment of debt Gain on sale of equity method investment Impairment of investments and note receivable Other expense (income), net Income before provision for income taxes Provision for income taxes Effective tax rate Net income attributable to KDP Diluted earnings per share

For the First Nine Months of 2021

Reported $ 381 $ 105 $ — $ — $ (6) $ 1,689 $ 387 22.9 % $ 1,303 $ 0.91

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COVID-19 — — — — — 31 8 23 0.02

Transaction costs — — — — — 1 — 1 —

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

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(in millions) Reported Items Affecting Comparability Adjusted

For the first six months of 2022:

For the first nine months of 2022:

Income from operations

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Total income from operations $ 1,932 $ 579 $ 2,511

For the first six months of 2021:

For the first nine months of 2021:

Income from operations

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Reported Impact of Foreign Currency Constant Currency

For the first six months of 2022:

For the first nine months of 2022:

Coffee Systems 2.9 % 0.4 % 3.3 %

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Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the first six months of 2022:

For the first nine months of 2022:

Income from operations

5 unchanged sentences

Reported Items Affecting Comparability Adjusted Impact of Foreign Currency Constant Currency Adjusted

For the first six months of 2022:

For the first nine months of 2022:

Operating margin

5 unchanged sentences

CONSTANT CURRENCY ADJUSTED RESULTS OF OPERATIONS

First Six Months of 2022 Compared to First Six Months of 2021

The following discussion of our results for the first six months of 2022 is presented on a constant currency adjusted basis.

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

The following discussion of our results for the first nine months of 2022 is presented on a constant currency adjusted basis.

These adjusted financial results are calculated on a constant currency basis by converting our current-period local currency financial results using the prior-period foreign currency exchange rates

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Constant Currency Net Sales.

Constant currency net sales increased 9.9% in the first six months of 2022 compared to the prior year period, driven by favorable net price realization of 8.4% and volume/mix growth of 1.5%.

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

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations decreased 0.9% compared to the prior year period, primarily driven by the impact of broad-based inflation and increases in other operating costs, partially offset by the strong growth in net sales.

Other drivers of the change included the benefit of productivity and a $38 million gain on an asset sale-leaseback transaction related to our strategic asset investment program.

Constant currency adjusted income from operations increased 0.2% compared to the prior year period, primarily driven by the strong growth in net sales, the benefit of productivity and a $38 million gain on an asset sale-leaseback transaction related to our strategic asset investment program.

These benefits were almost entirely offset by the impact of broad-based inflation and increases in other operating costs.

Constant Currency Adjusted Interest Expense.

Constant currency adjusted interest expense decreased 15.5% compared to the prior year period, driven by reduced interest expense on our senior unsecured notes as a result of our strategic refinancing initiatives and continued deleveraging.

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

Constant Currency Adjusted Effective Tax Rate.

The c onstant currency adjusted effective tax rate was 22.7% for the first six months of 2022 compared to 24.1% for the prior year period, primarily driven by our incremental income in low tax jurisdictions during the first six months of 2022.

The c onstant currency adjusted effective tax rate was 22.9% for the first nine months of 2022 compared to 23.7% for the prior year period, primarily driven by our incremental income in low tax jurisdictions during the first nine months of 2022.

Constant Currency Adjusted Net Income Attributable to KDP.

Constant currency adjusted net income attributable to KDP increased 2.2% compared to the prior year period, as the impacts of lower interest expense and the decrease in our effective tax rate were partially offset by the decline in income from operations.

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

Constant Currency Adjusted Diluted EPS.

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Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the first six months of 2022 decreased 16.5% compared to the prior year period, as a result of broad-based inflation and lower volume/mix.

Constant currency adjusted income from operations for the first nine months of 2022 decreased 16.2% compared to the prior year period, as a result of broad-based inflation, particularly in green coffee, and lower volume/mix.

These decreases were partially offset by the benefits of pricing actions and increased productivity.

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Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the first six months of 2022 decreased 1.6% compared to the prior year period, driven by increased costs due to the impacts of broad-based inflation, higher costs associated with higher volumes and increases in other operating costs.

These declines were partially offset by the benefits of net sales growth, asset sale-leaseback activity in the first six months of 2022 relating to our strategic asset initiative, and increased productivity.

Constant currency adjusted income from operations for the first nine months of 2022 increased 2.1% compared to the prior year period, driven by the benefits of net sales growth, increased productivity, and asset sale-leaseback activity in the first nine months of 2022 relating to our strategic asset initiative.

These benefits were partially offset by broad-based inflation, higher costs associated with higher volumes and increases in other operating costs.

BEVERAGE CONCENTRATES

Constant Currency Net Sales.

Constant currency net sales increased 16.6%, reflecting higher net price realization of 13.8%, driven by price increases, as well as the favorable comparison to our prior year customer trade accrual, and volume/mix growth of 2.8%.

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

Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the first six months of 2022 increased 15.9% compared to the prior year period.

Constant currency adjusted income from operations for the first nine months of 2022 increased 17.8% compared to the prior year period.

This performance reflected the impact of net sales growth, partially offset by the impacts of broad-based inflation.

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Constant Currency Adjusted Income from Operations.

Constant currency adjusted income from operations for the first six months of 2022 increased 26.7% compared to the prior year period, driven by higher net price realization and favorable volume/mix, partially offset by broad-based inflation, higher costs associated with higher volumes, and higher marketing expense.

Constant currency adjusted income from operations for the first nine months of 2022 increased 21.6% compared to the prior year period, driven by the benefits of net sales growth and productivity, partially offset by the impacts of broad-based inflation, higher costs associated with incremental volumes, and increased marketing expense.

CRITICAL ACCOUNTING ESTIMATES

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Cost inflation for certain inputs could put pressure on achieving cash flow projections and rising interest rates could cause unfavorable changes in the discount rates utilized in the discounted cash flow analyses.

As of June 30, 2022, we did not identify any indications that the carrying amount of any goodwill or any intangible assets may not be recoverable.

During the third quarter of 2022, the Company recorded an impairment charge of $ 311 million for Bai, an indefinite lived brand asset.

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

LIQUIDITY AND CAPITAL RESOURCES

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We continue to manage all aspects of our business, including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies through our integration and productivity initiatives, and developing new opportunities for growth such as innovation and agreements with partners to distribute brands that are accretive to our portfolio.

The following summarizes our cash activity for the first six months of 2022 and 2021:

Cash, cash equivalents, restricted cash and restricted cash equivalents decreased $14 million from December 31, 2021 to June 30, 2022 primarily as a result of deleveraging, offset by proceeds from the cash settlement with BodyArmor.

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

Cash, cash equivalents, restricted cash and restricted cash equivalents increased $360 million from December 31, 2021 to September 30, 2022 primarily as a result of proceeds from the cash settlement with BodyArmor.

Cash generated by our foreign operations is generally repatriated to the U.S.

periodically, as working capital funding requirements in those jurisdictions allow.

Foreign cash balances were $255 million and $216 million as of June 30, 2022 and December 31, 2021, respectively.

Foreign cash balances were $435 million and $216 million as of September 30, 2022 and December 31, 2021, respectively.

Additionally, in April 2022, we chose to undertake a strategic refinancing initiative, issuing approximately $3 billion of senior unsecured notes and using the net proceeds to voluntarily prepay and retire several tranches of existing senior unsecured notes with higher interest rates, which reduced our overall interest payments and our annual cash requirements.

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Sources of Liquidity - Operations

Net cash provided by operating activities increased $200 million for the first six months of 2022, as compared to the first six months of 2021, driven by the increase in net income adjusted for non-cash items, led by the $349 million gain from BodyArmor, partially offset by a decline in working capital.

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

Cash Conversion Cycle

6 unchanged sentences

The following table summarizes our cash conversion cycle:

September 30,

Cash conversion cycle (71) (66)

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Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted.

We have been informed by the third party administrators that as of June 30, 2022 and December 31, 2021, $3,698 million and $3,194 million, respectively, of our outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

The amounts settled through the program and paid to the financial institutions were $1,808 million and $1,572 million for the first six months of 2022 and 2021, respectively.

We have been informed by the third party administrators that as of September 30, 2022 and December 31, 2021, $3,923 million and $3,194 million, respectively, of our outstanding payment obligations were voluntarily elected by the supplier and sold to financial institutions.

The amounts settled through the program and paid to the financial institutions were $2,830 million and $2,492 million for the first nine months of 2022 and 2021, respectively.

Impact of the CARES Act

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These transactions are accounted for as sale-leaseback transactions.

Proceeds from sales of property, plant and equipment were $ 78 million and $ 15 million for the first six months of 2022 and 2021, respectively.

We received $ 77 million of cash proceeds from our strategic asset investment program during the first nine months of 2022, which are included in Proceeds from sales of property, plant and equipment in the statement of cash flows.

Principal Uses of Capital Resources

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Deleveraging and Other Debt Repayments

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

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

Regular Quarterly Dividends

For the first six months of 2022, we have declared total dividends of $0.375 per share.

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

Repurchases of Common Stock

Our Board authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock potentially enabling us to return value to shareholders.

We repurchased and retired $ 88 million of common stock during the first six months of 2022.

We repurchased and retired $ 88 million of common stock during the first nine months of 2022.

Capital Expenditures

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and Allentown, Pennsylvania, in 2022 and 2021, in order to optimize our supply chain network through integration and productivity projects and to mitigate risk of business interruption.

Purchases of property, plant and equipment were $ 186 million and $ 204 million for the first six months of 2022 and 2021, respectively.

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the first six months of 2022 and 2021 primarily related to the manufacturing and warehousing facilities discussed above.

Capital expenditures included in accounts payable and accrued expenses were $ 138 million and $ 213 million for the first six months of 2022 and 2021, respectively, which primarily related to these investments.

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

Capital expenditures, which includes both purchases of property, plant and equipment and amounts included in accounts payable and accrued expenses, for the first nine months of 2022 and 2021 primarily related to the manufacturing and warehousing facilities discussed above.

Capital expenditures included in accounts payable and accrued expenses were $ 179 million and $ 180 million for the first nine months of 2022 and 2021, respectively, which primarily related to these investments.

Investments in Unconsolidated Affiliates

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We have invested in the expansion of our DSD network through transactions with strategic independent bottlers to ensure competitive distribution scale for our brands.

From time to time, we additionally acquire brand ownership companies to expand our portfolio.

These transactions are generally accounted for as an asset acquisition, as the majority of the transaction price represents the acquisition of an intangible asset.

Purchases of intangible assets were $ 10 million and $ 12 million for the first six months of 2022 and 2021, respectively.

Purchases of intangible assets were $41 million and $ 31 million for the first nine months of 2022 and 2021, respectively.

Uncertainties and Trends Affecting Liquidity

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The summarized financial information for the Parent and Guarantors were as follows:

(in millions) For the First Six Months of 2022

(in millions) For the First Nine Months of 2022

Net sales $ 6,133

1 unchanged sentence

Net income attributable to KDP 983

(in millions) June 30, 2022 December 31, 2021

(in millions) September 30, 2022 December 31, 2021

Current assets $ 2,093 $ 1,594

6 unchanged sentences

$ 21,356 $ 20,595

(1) Includes $2 million and $209 million of intercompany receivables due to the Parent and Guarantors from the Non-Guarantors as of June 30, 2022 and December 31, 2021, respectively.

(2) Includes $62 million and $40 million of intercompany payables due to the Non-Guarantors from the Parent and Guarantors as of June 30, 2022 and December 31, 2021, respectively.

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

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

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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 2. Management’s Discussion and Analysis