What changed in this filing

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Item 1. Financial Statements

2023-04-27 compared with 2022-10-27 · 227 added, 402 removed, 623 unchanged (50% of the section changed)

3 unchanged sentences

( UNAUDITED )

Third Quarter First Nine Months

First Quarter

(in millions, except per share data) 2023 2022

3 unchanged sentences

Selling, general and administrative expenses 1,165 1,018

Impairment of intangible assets 311 — 311 —

Gain on litigation settlement — ( 299 )

5 unchanged sentences

Impairment of investments and note receivable — 6

Other expense (income), net 4 1 22 ( 6 )

Other (income) expense, net ( 20 ) 9

Income before provision for income taxes 581 765

13 unchanged sentences

( UNAUDITED )

Third Quarter First Nine Months

First Quarter

(in millions) 2023 2022

4 unchanged sentences

Net change in cash flow hedges, net of tax of $ 21 and $( 48 ), respectively

35 15 303 ( 62 )

Total other comprehensive (loss) income ( 214 ) ( 122 ) 17 ( 71 )

Total other comprehensive income 26 241

Comprehensive income including non-controlling interest 493 826

Comprehensive income attributable to non-controlling interest — —

Comprehensive (loss) income attributable to KDP $ ( 35 ) $ 407 $ 999 $ 1,231

Comprehensive income attributable to KDP $ 493 $ 826

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

2 unchanged sentences

( UNAUDITED )

September 30, December 31,

March 31, December 31,

(in millions, except share and per share data) 2023 2022

1 unchanged sentence

Cash and cash equivalents $ 204 $ 535

Restricted cash and cash equivalents 3 1

Trade accounts receivable, net 1,451 1,484

24 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, 1,416,251,307 and 1,418,119,197 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Common stock, $ 0.01 par value, 2,000,000,000 shares authorized, 1,403,720,858 and 1,408,394,293 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 21,210 21,444

Retained earnings 3,724 3,539

Accumulated other comprehensive loss ( 9 ) ( 26 )

Accumulated other comprehensive income 155 129

Total stockholders' equity 25,103 25,126

6 unchanged sentences

( UNAUDITED )

First Nine Months

First Quarter

(in millions) 2023 2022

11 unchanged sentences

Gain on disposal of property, plant and equipment ( 5 ) ( 38 )

Unrealized loss on foreign currency 22 1

Unrealized loss (gain) on derivatives 387 ( 94 )

Settlements of interest rate contracts 125 —

Equity in loss of unconsolidated affiliates 6 2

Impairment of intangible assets 311 —

Unrealized gain on foreign currency ( 2 ) ( 11 )

Unrealized gain on derivatives ( 95 ) —

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

Impairment on investments and note receivable of unconsolidated affiliate — 6

17 unchanged sentences

Other, net 1 3

Net cash used in investing activities $ ( 213 ) $ ( 350 )

Net cash (used in) provided by investing activities $ ( 105 ) $ 3

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

2 unchanged sentences

( UNAUDITED, CONTINUED)

First Nine Months

First Quarter

(in millions) 2023 2022

Financing activities:

Proceeds from issuance of Notes

$ 3,000 $ 2,150

Repayments of Notes

2 unchanged sentences

Repayments of commercial paper ( 3,258 ) ( 149 )

Repayments of 2019 KDP Term Loan

Proceeds from structured payables 34 38

2 unchanged sentences

Repurchases of common stock ( 231 ) —

Proceeds from issuance of common stock — 140

Tax withholdings related to net share settlements ( 31 ) ( 5 )

9 unchanged sentences

Capital expenditures included in accounts payable and accrued expenses $ 222 $ 139

Non-cash conversion of note receivable to investment in unconsolidated affiliate 6 —

Purchases of intangibles 22 —

Transaction costs included in accounts payable and accrued expenses 8 —

Supplemental cash flow disclosures of non-cash financing activities:

8 unchanged sentences

Common Stock Issued Additional

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

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

(in millions, except per share data) Shares Amount

4 unchanged sentences

— — — ( 282 ) — ( 282 ) — ( 282 )

Shares issued under employee stock-based compensation plans and other 0.4 — — — — — — —

Tax withholdings related to net share settlements — — ( 5 ) — — ( 5 ) — ( 5 )

Stock-based compensation and stock options exercised — — ( 16 ) — — ( 16 ) — ( 16 )

Balance as of March 31, 2022

1,418.5 14 21,764 3,518 215 25,511 — 25,511

Net income — — — 218 — 218 — 218

Other comprehensive loss — — — — ( 10 ) ( 10 ) — ( 10 )

Dividends declared, $ 0.1875 per share

— — — ( 265 ) — ( 265 ) — ( 265 )

Repurchases of common stock ( 6.6 ) — ( 232 ) — — ( 232 ) — ( 232 )

2 unchanged sentences

Stock-based compensation and stock options exercised — — 29 — — 29 — 29

Balance as of June 30, 2022

1,416.1 14 21,701 3,471 205 25,391 — 25,391

Net income — — — 180 — 180 ( 1 ) 179

Other comprehensive loss — — — — ( 214 ) ( 214 ) — ( 214 )

Dividends declared, $ 0.20 per share

— — — ( 284 ) — ( 284 ) — ( 284 )

Shares issued under employee stock-based compensation plans and other 0.2 — — — — — — —

Tax withholdings related to net share settlements — — ( 2 ) — — ( 2 ) — ( 2 )

Stock-based compensation and stock options exercised — — 31 — — 31 — 31

Balance as of September 30, 2022

Balance as of March 31, 2023

1,403.7 $ 14 $ 21,210 $ 3,724 $ 155 $ 25,103 $ ( 1 ) $ 25,102

KEURIG DR PEPPER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

( UNAUDITED, CONTINUED )

Common Stock Issued Additional

7 unchanged sentences

— — — ( 266 ) — ( 266 ) — ( 266 )

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

Shares issued under employee stock-based compensation plans and other 0.4 — — — — — — —

3 unchanged sentences

1,418.5 $ 14 $ 21,764 $ 3,518 $ 215 $ 25,511 $ — $ 25,511

Net income — — — 448 — 448 — 448

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

Dividends declared, $ 0.1875 per share

— — — ( 265 ) — ( 265 ) — ( 265 )

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

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

Balance as of June 30, 2021

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

Net income — — — 530 — 530 ( 1 ) 529

Other comprehensive loss — — — — ( 122 ) ( 122 ) — ( 122 )

Dividends declared, $ 0.1875 per share

— — — ( 266 ) — ( 266 ) — ( 266 )

Shares issued under employee stock-based compensation plans and other 0.5 — — — — — — —

Stock-based compensation and stock options exercised — — 21 — — 21 — 21

Balance as of September 30, 2021

1,417.9 $ 14 $ 21,764 $ 2,621 $ 6 $ 24,405 $ — $ 24,405

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.

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

KDP's significant subsidiary, Maple Parent Holdings Corp., has a fiscal year end of the last Saturday in December, and its interim fiscal quarters end every thirteenth Saturday.

The fiscal year for Maple Parent Holdings Corp.

includes 53 weeks in 2022 and 52 weeks in 2021.

KDP does not adjust for the difference in fiscal year between KDP and Maple Parent Holdings Corp.

when applicable, as the difference is within the range permitted by the Exchange Act.

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

USE OF ESTIMATES

5 unchanged sentences

Actual amounts may differ from these estimates .

SIGNIFICANT ACCOUNTING POLICY CHANGES

Stock-Based Compensation Expense

Prior to January 1, 2022, the Company recorded forfeitures as incurred.

Effective January 1, 2022, the Company changed its accounting policy election to record expense only for awards expected to vest.

Estimated forfeiture rates are based on historical data and are periodically reassessed.

The cumulative effect of this change in accounting policy was recorded effective January 1, 2022.

The impact of forfeitures on stock-based compensation has historically been insignificant to the Company.

Repurchases of Common Stock

In 2021, our Board authorized a four-year share repurchase program of up to $4 billion of our outstanding common stock.

Shares repurchased under the program are retired, and the excess purchase price over the par value is recorded to additional paid-in capital.

REPORTABLE SEGMENTS

As of January 1, 2023, the Company revised its segment structure to align with changes in how the Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources.

This change had no impact on the Company’s consolidated results of operations or financial position.

Prior period segment results have been recast to reflect the Company’s new reportable segments.

Refer to Note 6 for additional information on the Company’s reportable segments and Note 7 for the Company’s disaggregated revenue portfolio for each reportable segment.

The change in segment structure also resulted in a change to the Company’s reporting units.

Refer to Note 3 for additional information on the Company’s reporting units.

RECENTLY ADOPTED ACCOUNTING STANDARDS

As of January 1, 2023, the Company adopted ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations .

The objective of ASU 2022-04 is to require entities to disclose information about the use of supplier finance programs in connection with the purchase of goods and services.

While the adoption of ASU 2022-04 did not have a material impact on the Company’s unaudited condensed consolidated financial statements, it did impact the nature of the disclosures.

The previous disclosure was specific to the amount of KDP’s outstanding payment obligations that were voluntarily elected by the supplier and sold to financial institutions as informed by the third party administrators.

ASU 2022-04 instead requires disclosure of the amount of KDP’s outstanding obligations loaded into the supplier finance programs by the Company at each reporting period regardless of whether the outstanding obligation has been elected by the supplier to be sold to financial institutions.

Refer to Note 13 for additional information on the Company’s obligations to participating suppliers.

KEURIG DR PEPPER INC.

1 unchanged sentence

(UNAUDITED, CONTINUED)

UNALLOCATED CORPORATE COST ALIGNMENT

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

Refer to Note 6 for current year presentation.

The following table summarizes the revised and prior presentations of income from operations at the segment level:

(in millions) Third Quarter 2021

First Nine Months 2021

Segment Results – Income from operations Current Presentation Prior Presentation Current Presentation Prior Presentation

Coffee Systems $ 365 $ 334 $ 1,088 $ 992

Packaged Beverages 291 288 731 721

Beverage Concentrates 287 286 780 778

Latin America Beverages 37 37 95 95

Unallocated corporate costs ( 185 ) ( 150 ) ( 525 ) ( 417 )

Income from operations $ 795 $ 795 $ 2,169 $ 2,169

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2022, the FASB issued ASU 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations .

The objective of ASU 2022-04 is to require entities to disclose information about the use of supplier finance programs in connection with the purchase of goods and services.

ASU 2022-04 is effective for all entities for annual periods beginning after December 15, 2022.

The Company is currently evaluating ASU 2022-04 but expects the impact to be immaterial to KDP’s current consolidated financial statement disclosures.

Long-term Obligations and Borrowing Arrangements

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

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

(in millions) March 31, 2023 December 31, 2022

$ 11,575 $ 11,568

2 unchanged sentences

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

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

(in millions) March 31, 2023 December 31, 2022

Commercial paper notes $ 664 $ 399

1 unchanged sentence

Short-term borrowings and current portion of long-term obligations $ 2,310 $ 895

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

SENIOR UNSECURED NOTES

1 unchanged sentence

(in millions, except %)

Issuance Maturity Date Rate September 30, 2022 December 31, 2021

2023 Merger Notes May 25, 2023 4.057 % $ — $ 1,000

Issuance Maturity Date Rate March 31, 2023 December 31, 2022

2023 Notes December 15, 2023 3.130 % $ 500 $ 500

9 unchanged sentences

2032 Notes April 15, 2032 4.050 % 850 850

2038 Notes May 1, 2038 7.450 % — 125

2038 Merger Notes May 25, 2038 4.985 % 211 211

10 unchanged sentences

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

On January 24, 2022, KDP redeemed and retired the remainder of its 2038 Notes.

The loss on early extinguishment of the 2038 Notes was approximately $ 45 million, comprised of the make-whole premium and the write-off of the associated unamortized fair value adjustment related to the DPS Merger.

On April 22, 2022, the Company undertook the 2022 Strategic Refinancing and completed the issuance of the 2029 Notes, the 2032 Notes, and the 2052 Notes.

The discount associated with these notes was approximately $ 16 million, and the Company incurred $ 23 million in debt issuance costs.

The proceeds from the issuance were used to voluntarily prepay and retire the remaining 2023 Merger Notes and to tender portions of the 2025 Merger Notes, the 2028 Merger Notes, the 2038 Merger Notes, and the 2048 Merger Notes.

The Company recorded approximately $ 169 million of loss on early extinguishment of debt, comprised of the tender and make-whole premiums, the write-off of debt issuance costs, and the impact of terminating reverse treasury lock contracts.

KEURIG DR PEPPER INC.

3 unchanged sentences

Revolving Credit Agreement

On February 23, 2022, KDP terminated the 2021 364-Day Credit Agreement and the KDP Revolver.

The loss on early extinguishment of these instruments was approximately $ 3 million, comprised of termination fees and the write-off of the associated deferred financing fees.

There were no amounts drawn upon the 2021 364-Day Credit Agreement or the KDP Revolver prior to termination.

Also on February 23, 2022, KDP entered into the 2022 Revolving Credit Agreement among KDP, as borrower, the lenders from time to time party thereto and JPMorgan Chase, Bank, N.A., as administrative agent.

The Company incurred approximately $ 4 million in deferred financing fees related to the issuance.

The following table summarizes information about the 2022 Revolving Credit Agreement:

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

(in millions) March 31, 2023 December 31, 2022

Issuance Maturity Date Capacity Carrying Value Carrying Value

1 unchanged sentence

February 23, 2027 $ 4,000 $ — $ —

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

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

Borrowings under the 2022 Revolving Credit Agreement will bear interest at a rate per annum equal to, at KDP's option, an adjusted SOFR rate plus a margin of 0.875 % to 1.500 % or a base rate plus a margin of 0.000 % to 0.500 %, in each case, depending on the rating of certain index debt of KDP.

The 2022 Revolving Credit Agreement contains customary representations and warranties for investment grade financings.

The 2022 Revolving Credit Agreement also contains (i) certain customary affirmative covenants, including those that impose certain reporting and/or performance obligations on KDP and its subsidiaries, (ii) certain customary negative covenants that generally limit, subject to various exceptions, KDP and its subsidiaries from taking certain actions, including, without limitation, incurring liens, consummating certain fundamental changes and entering into transactions with affiliates, (iii) a financial covenant in the form of a minimum interest coverage ratio (as defined therein) of 3.25 to 1.00 and (iv) customary events of default (including a change of control) for financings of this type.

As of September 30, 2022, KDP was in compliance with its minimum interest coverage ratio relating to the 2022 Revolving Credit Agreement .

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

As of March 31, 2023, KDP was in compliance with its minimum interest coverage ratio relating to the 2022 Revolving Credit Agreement .

Commercial Paper Program

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

Third Quarter First Nine Months

First Quarter

(in millions, except %) 2023 2022

3 unchanged sentences

In addition to the portion of the 2022 Revolving Credit Agreement reserved for issuance of letters of credit, KDP has an incremental letter of credit facility.

Under this facility, $ 150 million is available for the issuance of letters of credit, $ 96 million of which was utilized as of September 30, 2022 and $ 54 million of which remains available for use.

Under this facility, $ 150 million is available for the issuance of letters of credit, $ 68 million of which was utilized as of March 31, 2023 and $ 82 million of which remains available for use.

FAIR VALUE DISCLOSURES

2 unchanged sentences

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

The fair value of KDP's Notes was $ 10,253 million and $ 13,078 million as of September 30, 2022 and December 31, 2021, respectively.

The fair value of KDP's Notes was $ 10,777 million and $ 10,495 million as of March 31, 2023 and December 31, 2022, respectively.

KEURIG DR PEPPER INC.

3 unchanged sentences

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

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

(in millions) U.S.

Refreshment Beverages U.S.

Coffee International Total

Balance as of January 1, 2023 $ 8,714 $ 8,622 $ 2,736 $ 20,072

Foreign currency translation — — 45 45

Balance as of September 30, 2022 $ 9,732 $ 5,260 $ 4,500 $ 532 $ 20,024

Balance as of March 31, 2023 $ 8,714 $ 8,622 $ 2,781 $ 20,117

INTANGIBLE ASSETS OTHER THAN GOODWILL

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

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

(in millions) March 31, 2023 December 31, 2022

$ 19,363 $ 19,291

3 unchanged sentences

Total $ 22,116 $ 21,993

(1) The decrease in brands with indefinite lives was driven by the impairment of the Bai brand asset of $ 311 million and foreign currency translation of $ 184 million during the first nine months of 2022.

Refer to Impairment Testing below for further information about the impairment charge.

(2) The Company executed five agreements to acquire distribution rights during the first nine months of 2022, which resulted in an increase of approximately $ 11 million.

(1) The change in brands with indefinite lives was primarily driven by foreign currency translation of $ 72 million during the first quarter of 2023.

(2) The Company acquired certain distribution rights from Nutrabolt during the first quarter of 2023 for approximately $ 51 million.

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

2 unchanged sentences

Trade names 127 ( 104 ) 23 127 ( 101 ) 26

Brands 51 ( 20 ) 31 51 ( 19 ) 32

Contractual arrangements 24 ( 10 ) 14 24 ( 10 ) 14

51 ( 11 ) 40 21 ( 8 ) 13

Distribution rights 29 ( 18 ) 11 29 ( 16 ) 13

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

(1) During the third quarter of 2022, the Company closed on the acquisition of Atypique, which was recorded as a definite-lived brand asset of $30 million with an estimated useful life of five years.

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

Third Quarter First Nine Months

First Quarter

(in millions) 2023 2022

8 unchanged sentences

IMPAIRMENT TESTING

KDP conducts impairment tests on goodwill and all indefinite lived intangible assets annually on October 1, or more frequently if circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company performed an analysis as of September 30, 2022 to evaluate whether any triggering events occurred during the quarter.

Management identified specific performance and margin challenges for Bai, an indefinite lived brand asset, and performed a Step 1 quantitative discounted cash flow analysis using the income approach.

As a result of this analysis, KDP recorded an impairment charge of $ 311 million in the Packaged Beverages segment for the Bai brand in the third quarter of 2022.

No other triggering events impacting goodwill or indefinite lived intangible assets were identified during the period.

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

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

The Company’s reporting units are as follows:

Reportable Segments Reporting Units

Refreshment Beverages U.S.

Beverage Concentrates

International Canada Beverage Concentrates

Canada Coffee

Latin America Beverages

Management performed a step 0 analysis as of the effective date of the goodwill for the impacted reporting units.

The Company also performed an analysis as of March 31, 2023 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.

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

12 unchanged sentences

The Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines and monitors the market position of the programs upon execution of a hedging transaction and at least on a quarterly basis.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

INTEREST RATES

4 unchanged sentences

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 September 30, 2022, economic interest rate derivative instruments have maturities ranging from January 2027 to April 2032.

Additionally, during the quarter ended June 30, 2022, KDP entered into reverse treasury lock contracts in order to manage the interest rate risk related to changes in value of the tender offers in the 2022 Strategic Refinancing prior to the pricing date.

These contracts terminated during the quarter ended June 30, 2022, and the realized losses associated with these contracts are reported in loss on early extinguishment of debt in the unaudited Condensed Consolidated Statements of Income.

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

As of March 31, 2023, economic interest rate derivative instruments have maturities ranging from February 2033 to December 2036.

Cash Flow Hedges

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

In April 2022, concurrently with the 2022 Strategic Refinancing, KDP terminated $ 1.5 billion of notional amount of the forward starting swaps.

Upon termination, KDP received $ 125 million to settle the contracts with the counterparties, which will be amortized to interest expense over the respective terms of the issued Notes.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

On September 30, 2022, KDP de-designated $500 million of notional amount of the forward starting swaps.

As the forecasted debt transaction is still probable to occur, the fair value of the these instruments as of September 30, 2022 was recorded in AOCI.

Changes in fair value of the these instruments from the point of de-designation will be recorded as unrealized gains or losses in interest expense in the unaudited Condensed Consolidated Statements of Income.

As of September 30, 2022, the remaining forward starting swaps designated as cash flow hedges have a mandatory termination date in May 2025.

During the first quarter of 2023, KDP terminated the remaining forward starting swaps which were designated as cash flow hedges.

As the forecasted debt transaction associated with the terminated forward starting swaps was no longer considered probable, the realized gains associated with the termination were recorded in interest expense during the first quarter of 2023.

FOREIGN EXCHANGE

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

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

KDP is exposed to foreign exchange risk in its international subsidiaries or with certain counterparties in foreign jurisdictions, which may transact in currencies that are different from the functional currencies of KDP’s legal entities.

Additionally, the balance sheets of each of the Company’s Canadian and Mexican businesses are subject to exposure from movements in exchange rates.

Economic Hedges

3 unchanged sentences

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

As of September 30, 2022, these FX contracts have maturities ranging from October 2022 to September 2024.

As of March 31, 2023, these FX contracts have maturities ranging from April 2023 to September 2024.

Cash Flow Hedges

4 unchanged sentences

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

As of September 30, 2022, these FX contracts have maturities ranging from October 2022 to October 2024.

As of March 31, 2023, these FX contracts have maturities ranging from April 2023 to October 2024.

Economic Hedges

3 unchanged sentences

Changes in the fair value of these instruments are recorded in earnings throughout the term of the derivative instrument and are reported in the same line item of the unaudited Condensed Consolidated Statements of Income as the hedged transaction.

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

As of September 30, 2022, these commodity contracts have maturities ranging from October 2022 to February 2024.

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

As of March 31, 2023, these commodity contracts have maturities ranging from April 2023 to June 2024.

KEURIG DR PEPPER INC.

3 unchanged sentences

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

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

(in millions) March 31, 2023 December 31, 2022

Interest rate contracts

2 unchanged sentences

Receive-fixed, pay-variable interest rate swaps, not designated as hedging instruments 700 1,900

Swaptions, not designated as hedging instruments 500 —

Forward contracts, not designated as hedging instruments 589 490

11 unchanged sentences

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

(in millions) Balance Sheet Location September 30, 2022 December 31, 2021

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

(in millions) Balance Sheet Location March 31, 2023 December 31, 2022

FX contracts Prepaid expenses and other current assets $ 5 $ 8

7 unchanged sentences

Interest rate contracts Other non-current liabilities 123 194

FX contracts Other non-current liabilities — 9

Commodity contracts Other non-current liabilities 3 1

5 unchanged sentences

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

(in millions) Balance Sheet Location September 30, 2022 December 31, 2021

(in millions) Balance Sheet Location March 31, 2023 December 31, 2022

FX contracts Prepaid expenses and other current assets $ 17 $ 21

2 unchanged sentences

FX contracts Other current liabilities $ 11 $ 3

Interest rate contracts Other current liabilities — 8

FX contracts Other non-current liabilities 2 —

Interest rate contracts Other non-current liabilities — 128

IMPACT OF DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

2 unchanged sentences

Amounts include both realized and unrealized gains and losses.

Third Quarter First Nine Months

First Quarter

(in millions) Income Statement Location 2023 2022

Interest rate contracts Interest expense $ ( 96 ) $ 67

Interest rate contracts Loss on early extinguishment of debt — — 31 —

FX contracts Cost of sales 1 5

FX contracts Other expense (income), net ( 10 ) ( 7 ) ( 9 ) 4

FX contracts Other (income) expense, net — 8

Commodity contracts Cost of sales ( 15 ) ( 97 )

2 unchanged sentences

The following table presents the amount of (gains) losses, net, reclassified from AOCI into the unaudited Condensed Consolidated Statements of Income related to derivative instruments designated as cash flow hedging instruments during the periods presented:

Third Quarter First Nine Months

First Quarter

(in millions) Income Statement Location 2023 2022

Interest rate contracts Interest expense $ ( 2 ) $ — $ ( 4 ) $ —

Interest rate contracts (1)

Interest expense $ ( 68 ) $ —

FX contracts Cost of sales ( 1 ) 3

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

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

3 unchanged sentences

The following table presents the components of lease cost:

Third Quarter First Nine Months

First Quarter

(in millions) 2023 2022

4 unchanged sentences

Variable lease cost (1)

Short-term lease cost 1 — 1 —

Sublease income ( 1 ) — ( 1 ) ( 1 )

Total lease cost $ 77 $ 65

1 unchanged sentence

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

First Nine Months

First Quarter

(in millions) 2023 2022

7 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Weighted average discount rate

4 unchanged sentences

Finance leases 9 years 9 years

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Future minimum lease payments for non-cancellable leases that have commenced and are reflected on the unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 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 March 31, 2023 were as follows:

(in millions) Operating Leases Finance Leases

4 unchanged sentences

Present value of minimum lease payments $ 915 $ 706

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

SIGNIFICANT LEASES THAT HAVE NOT YET COMMENCED

As of September 30, 2022, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 205 million.

As of March 31, 2023, the Company has entered into leases that have not yet commenced with estimated aggregated future lease payments of approximately $ 208 million.

These leases are expected to commence between the fourth quarter of 2023 and 2025, with initial lease terms ranging from 4 years to 10 years.

ASSET SALE-LEASEBACK TRANSACTION

The Company entered into a sale-leaseback transaction with the Veyron SPEs during the first nine months of 2022.

The Company entered into a sale-leaseback transaction with the Veyron SPEs during the first quarter of 2023.

The following table presents details of the transaction.

The gain on the sale-leaseback is recorded in Other operating (income) expense, net, and the leaseback is accounted for as an operating lease.

The gain on the sale-leaseback is recorded in Other operating income, net, and the leaseback is accounted for as an operating lease.

(in millions) Sale Proceeds Carrying Value Gain on Sale

March 31, 2023 (1)

$ 77 $ 39 $ 38

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

The initial term of the leaseback is 15 years, with two 10-year renewal options.

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

The initial term of the leaseback is approximately 15 years, with two 10-year renewal options.

The renewal options are not reasonably assured as (i) the Company's position that the dynamic environment in which it operates precludes the Company's ability to be reasonably certain of exercising the renewal options in the distant future and (ii) the options are contingent on the Company remaining investment grade and no change-in-control as of the end of the lease term.

1 unchanged sentence

Refer to Note 15 for additional information about the RVG associated with the asset sale-leaseback transaction.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Effective January 1, 2023, the Company revised its segment structure to align with changes in how the Company’s Chief Operating Decision Maker manages the business, assesses performance and allocates resources.

The Company's reportable segments consist of the following:

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

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

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

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

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

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

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

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

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

Refreshment Beverages segment reflects sales in the U.S.

from the manufacture and distribution of branded concentrates, syrup and finished beverages, including the sales of the Company's own brands and third-party brands, to third-party bottlers, distributors and retailers.

Coffee segment reflects sales in the U.S.

from the manufacture and distribution of finished goods relating to the Company's K-Cup pods, single-serve brewers and accessories, and other coffee products to partners, retailers and directly to consumers through the Company’s Keurig.com website.

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

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

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

Segment results are based on management reports.

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

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

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

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

Effective January 1, 2022, the Company updated its presentation 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.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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

Third Quarter First Nine Months

First Quarter

(in millions) 2023 2022

Segment Results – Net sales

Coffee Systems $ 1,209 $ 1,155 $ 3,497 $ 3,398

Packaged Beverages 1,756 1,547 4,925 4,352

Beverage Concentrates 459 392 1,278 1,095

Latin America Beverages 198 156 554 447

Refreshment Beverages $ 2,007 $ 1,781

Coffee 931 943

International 415 354

Net sales $ 3,353 $ 3,078

Segment Results – Income from operations

Coffee Systems $ 295 $ 365 $ 878 $ 1,088

Packaged Beverages 10 291 728 731

Beverage Concentrates 347 287 915 780

Latin America Beverages 39 37 114 95

Refreshment Beverages $ 490 $ 704

Coffee 232 255

International 80 64

Unallocated corporate costs ( 218 ) ( 57 )

Income from operations $ 584 $ 966

(in millions) March 31, 2023 December 31, 2022

Identifiable operating assets

Refreshment Beverages $ 28,991 $ 28,987

Coffee 14,155 14,220

International 6,903 6,873

Segment total 50,049 50,080

Unallocated corporate assets 602 757

Total identifiable operating assets 50,651 50,837

Investments in unconsolidated affiliates 1,009 1,000

Total assets $ 51,660 $ 51,837

KEURIG DR PEPPER INC.

1 unchanged sentence

(UNAUDITED, CONTINUED)

Revenue Recognition

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

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

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

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

Sales taxes and other similar taxes are excluded from revenue.

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

The following table disaggregates KDP's revenue by product portfolio and by reportable segment:

(in millions) U.S.

Refreshment Beverages U.S.

Coffee International Total

For the first quarter of 2023:

$ 1,970 $ — $ 253 $ 2,223

K-Cup pods — 771 117 888

Appliances — 125 12 137

Other 37 35 33 105

Net sales $ 2,007 $ 931 $ 415 $ 3,353

For the first quarter of 2022:

$ 1,753 $ — $ 203 $ 1,956

K-Cup pods — 749 106 855

Appliances — 161 17 178

Other 28 33 28 89

Net sales $ 1,781 $ 943 $ 354 $ 3,078

LRB represents net sales of owned and partner brands within our portfolio and includes CSDs, NCBs, and contract manufacturing of KDP branded products for our bottlers and distributors.

K-Cup pods represents net sales from owned brands, partner brands, and private label owners.

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

Earnings Per Share

1 unchanged sentence

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

Third Quarter First Nine Months

First Quarter

(in millions, except per share data) 2023 2022

5 unchanged sentences

Diluted EPS 0.33 0.41

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Stock-Based Compensation

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

Third Quarter First Nine Months

First Quarter

(in millions) 2023 2022

1 unchanged sentence

$ 29 $ ( 15 )

Income tax benefit ( 5 ) ( 4 ) ( 6 ) ( 12 )

Income tax (benefit) expense ( 5 ) 4

Stock-based compensation expense, net of tax $ 24 $ ( 11 )

(1) Effective January 1, 2022, the Company changed its accounting policy for stock-based compensation expense with respect to forfeitures.

The cumulative effect of this change resulted in a one-time reduction in stock-based compensation expense of $ 40 million recognized in the first quarter of 2022.

Refer to Note 1 for additional information.

(1) The Company recorded a one-time $ 40 million reduction to stock-based compensation expense as a result of the change in forfeiture policy in the first quarter of 2022.

RESTRICTED SHARE UNITS

6 unchanged sentences

Forfeited ( 184,830 ) 28.24

Outstanding as of September 30, 2022 20,313,145 $ 27.48 1.8 $ 728

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Restructuring and Integration Costs

The Company implements restructuring programs from time to time and incurs costs that are designed to improve operating effectiveness and lower costs.

When the Company implements these programs, the Company incurs expenses, such as employee separations, lease terminations and other direct exit costs, that qualify as exit and disposal costs under U.S.

The Company also incurs expenses that are an integral component of, and directly attributable to, its restructuring activities, which do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments, implementation costs and other incremental costs.

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

DPS INTEGRATION PROGRAM

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

Although the program was initially expected to be completed in 2021, as a result of delays due to COVID-19, KDP will continue to recognize expenditures for certain initiatives which began during the integration period and are expected to be completed in 2022.

The restructuring and integration program resulted in cumulative pre-tax charges of approximately $ 881 million, primarily consisting of professional fees related to the integration and transformation and costs associated with severance and employee terminations, through September 30, 2022.

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

Third Quarter First Nine Months

(in millions) 2022 2021 2022 2021

Restructuring and integration charges $ 33 $ 53 $ 91 $ 145

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

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

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

(in millions) Restructuring Liabilities

Balance as of January 1, 2022 $ 19

Charges to expense

Cash payments

Balance as of September 30, 2022 $ 15

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Revenue Recognition

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

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

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

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

Sales taxes and other similar taxes are excluded from revenue.

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

The following table disaggregates KDP's revenue by portfolio:

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

For the third quarter of 2022:

$ — $ 825 $ 452 $ 147 $ 1,424

— 827 4 51 882

K-Cup pods (2)

913 — — — 913

Appliances 225 — — — 225

Other 71 104 3 — 178

Net sales $ 1,209 $ 1,756 $ 459 $ 198 $ 3,622

For the third quarter of 2021:

$ — $ 728 $ 386 $ 115 $ 1,229

— 705 2 41 748

K-Cup pods (2)

848 — — — 848

Appliances 243 — — — 243

Other 64 114 4 — 182

Net sales $ 1,155 $ 1,547 $ 392 $ 156 $ 3,250

For the first nine months of 2022:

$ — $ 2,319 $ 1,260 $ 400 $ 3,979

— 2,289 10 154 2,453

K-Cup pods (2)

2,675 — — — 2,675

Appliances 621 — — — 621

Other 201 317 8 — 526

Net sales $ 3,497 $ 4,925 $ 1,278 $ 554 $ 10,254

For the first nine months of 2021:

$ — $ 2,063 $ 1,077 $ 324 $ 3,464

— 1,959 9 123 2,091

K-Cup pods (2)

2,582 — — — 2,582

Appliances 627 — — — 627

Other 189 330 9 — 528

Net sales $ 3,398 $ 4,352 $ 1,095 $ 447 $ 9,292

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

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

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

The Company’s effective tax rates were as follows:

Third Quarter First Nine Months

(in millions) 2022 2021 2022 2021

Effective tax rate 2.2 % 22.0 % 15.4 % 22.9 %

The following is a reconciliation of the provision for income taxes computed at the U.S.

federal statutory tax rate to the provision for income taxes reported in the unaudited Condensed Consolidated Statements of Income:

Third Quarter First Nine Months

(in millions) 2022 2021 2022 2021

Statutory federal income tax rate 21.0 % 21.0 % 21.0 % 21.0 %

State income taxes, net 1.7 % 3.0 % 3.3 % 3.5 %

Impact of non-U.S.

operations (1)

( 5.9 ) % 0.3 % ( 1.7 ) % — %

Tax credits (1)

( 11.7 ) % ( 1.7 ) % ( 3.2 ) % ( 1.5 ) %

taxation of foreign earnings (1)

11.2 % 1.7 % 3.1 % 1.3 %

Deferred rate change (2)

( 18.5 ) % ( 0.7 ) % ( 7.8 ) % ( 0.1 ) %

Uncertain tax positions 0.4 % ( 0.2 ) % 0.1 % 0.1 %

Excess tax deductions on stock-based compensation (3)

— % ( 0.1 ) % ( 0.1 ) % ( 1.7 ) %

Other 4.0 % ( 1.3 ) % 0.7 % 0.3 %

Total provision for income taxes 2.2 % 22.0 % 15.4 % 22.9 %

(1) For the third quarter and first nine months of 2022, primarily driven by the Company’s incremental income in low tax jurisdictions.

(2) For the third quarter and first nine months of 2022, primarily driven by the revaluation of state deferred tax liabilities due to state legislative changes.

(3) For the first nine months of 2022, primarily driven by the unfavorable comparison to the excess tax deductions that were generated from the vesting of RSUs during the first nine months of 2021.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

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

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

Bedford 30.0 % $ — $ —

Outstanding as of March 31, 2023 18,874,241 $ 28.57 1.8 $ 666

As of March 31, 2023, there was $ 226 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted average period of 3.4 years.

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

(in millions) Ownership Interest March 31, 2023 December 31, 2022

Nutrabolt 29.8 % $ 885 $ 874

Tractor 19.2 % 48 49

Athletic Brewing 13.1 % 50 51

Dyla LLC 12.4 % 12 12

6 unchanged sentences

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

TRACTOR INVESTMENT

In May 2022, the Company invested $ 44 million in exchange for equity interests in Tractor.

The Company also issued a $ 6 million convertible note to Tractor with an annual interest rate of LIBOR + 5 % and a term of six months.

The convertible note was converted into equity interests during the second quarter of 2022, increasing the Company’s total ownership in Tractor to 19.2 %.

BEDFORD INVESTMENT

In December 2021, Bedford began procedures to wind down the company.

As part of the wind down procedures, KDP and ABI agreed to together fund a $ 68 million credit agreement to Bedford.

KDP will fund 30 % of this loan, in line with the Company’s ownership percentage in Bedford.

Approximately $ 14 million of the Company’s responsibility under this credit agreement has been funded through September 30, 2022.

The Company recorded no impairment losses related to this credit agreement in the third quarter of 2022 and $ 12 million in the first nine months of 2022.

BODYARMOR INVESTMENT

In January 2022, KDP agreed to a $ 350 million payment from BodyArmor for a full settlement of all of the claims under the litigation against BodyArmor and in complete satisfaction of the holdback amount owed to ABC in association with the sale of ABC’s equity interest in BodyArmor in 2021.

ABC received the settlement payment in January 2022 and the lawsuit was dismissed.

The Company allocated approximately $ 300 million of the settlement for resolution of the prior litigation, of which $ 299 million was recorded to Gain on litigation settlement and $ 1 million was applied against outstanding receivables from BodyArmor.

Approximately $ 28 million of the $ 299 million gain on litigation settlement was held in unallocated corporate costs as a recovery of legal fees incurred during the litigation process, with the remaining $ 271 million of the $ 299 million recorded to our Packaged Beverages segment.

Approximately $ 50 million of the $ 350 million payment was allocated to the settlement of the holdback liability, which was recorded to Gain on the sale of our equity method investment.

The Company’s effective tax rates were as follows:

First Quarter

(in millions) 2023 2022

Effective tax rate 19.6 % 23.5 %

The change in the effective tax rate was largely driven by the tax benefit received from favorable adjustments upon foreign tax return filing and excess tax deductions that were generated from the vesting of RSUs during the first quarter of 2023.

KEURIG DR PEPPER INC.

1 unchanged sentence

(UNAUDITED, CONTINUED)

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income

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

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

For the third quarter of 2022:

Beginning balance $ 47 $ ( 7 ) $ 165 $ 205

Other comprehensive (loss) income ( 249 ) — 36 ( 213 )

Amounts reclassified from AOCI — — ( 1 ) ( 1 )

Total other comprehensive (loss) income ( 249 ) — 35 ( 214 )

Balance as of September 30, 2022 $ ( 202 ) $ ( 7 ) $ 200 $ ( 9 )

For the third quarter of 2021:

Beginning balance $ 223 $ ( 4 ) $ ( 91 ) $ 128

Other comprehensive (loss) income ( 137 ) — 10 ( 127 )

Amounts reclassified from AOCI — — 5 5

Total other comprehensive (loss) income ( 137 ) — 15 ( 122 )

Balance as of September 30, 2021 $ 86 $ ( 4 ) $ ( 76 ) $ 6

For the first nine months of 2022:

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

For the first quarter of 2023:

Beginning balance $ ( 86 ) $ ( 10 ) $ 225 $ 129

Other comprehensive (loss) income ( 283 ) ( 3 ) 302 16

Other comprehensive income (loss) 108 — ( 30 ) 78

Amounts reclassified from AOCI — — ( 52 ) ( 52 )

Total other comprehensive (loss) income ( 283 ) ( 3 ) 303 17

Balance as of September 30, 2022 $ ( 202 ) $ ( 7 ) $ 200 $ ( 9 )

For the first nine months of 2021:

Total other comprehensive income (loss) 108 — ( 82 ) 26

Balance as of March 31, 2023 $ 22 $ ( 10 ) $ 143 $ 155

For the first quarter of 2022:

Beginning balance $ 81 $ ( 4 ) $ ( 103 ) $ ( 26 )

Other comprehensive (loss) income ( 9 ) — ( 74 ) ( 83 )

Other comprehensive income 99 — 140 239

Amounts reclassified from AOCI — — 2 2

Total other comprehensive (loss) income ( 9 ) — ( 62 ) ( 71 )

Balance as of September 30, 2021 $ 86 $ ( 4 ) $ ( 76 ) $ 6

Total other comprehensive income 99 — 142 241

Balance as of March 31, 2022 $ 180 $ ( 4 ) $ 39 $ 215

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

Third Quarter First Nine Months

First Quarter

(in millions) Income Statement Caption 2023 2022

Cash Flow Hedges:

Interest rate contracts Interest expense $ ( 2 ) $ — $ ( 4 ) $ —

Interest rate contracts (1)

Interest expense $ ( 68 ) $ —

FX contracts Cost of sales — 3

2 unchanged sentences

Total, net of tax $ ( 52 ) $ 2

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

Refer to Note 4 for additional information on the terminated forward starting swaps.

KEURIG DR PEPPER INC.

4 unchanged sentences

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

September 30, December 31,

March 31, December 31,

(in millions) 2023 2022

22 unchanged sentences

Total other non-current assets $ 1,160 $ 1,252

(1) Equity securities are comprised of assets held in a rabbi trust in connection with a non-qualified defined contribution plan, as well as our ownership interest in Vita Coco.

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

Unrealized mark-to market gains and losses are recorded to Other (income) expense, net.

For the first quarter of 2023 and 2022, the Company recorded an unrealized mark-to-market gain of $ 8 million and loss of $ 3 million, respectively, on its investment in Vita Coco.

KEURIG DR PEPPER INC.

1 unchanged sentence

(UNAUDITED, CONTINUED)

September 30, December 31,

March 31, December 31,

(in millions) 2023 2022

23 unchanged sentences

ACCOUNTS PAYABLE

KDP has agreements with third party administrators which allow participating suppliers to track payments from KDP, and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions.

KDP has agreements with third party administrators which allow participating suppliers to track payment obligations from KDP, and if voluntarily elected by the supplier, to sell payment obligations from KDP to financial institutions.

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

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

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

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

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

The amount of the outstanding obligations confirmed as valid included in accounts payable as of March 31, 2023 and December 31, 2022 was $ 3,903 million and $ 4,113 million respectively.

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Commitments and Contingencies

1 unchanged sentence

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

As of September 30, 2022 and December 31, 2021, the Company had litigation reserves of $ 10 million and $ 14 million, respectively.

As of March 31, 2023 and December 31, 2022, the Company had litigation reserves of $ 18 million and $ 12 million, respectively.

KDP has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.

12 unchanged sentences

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

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

Beginning in 2014, a number of putative class actions asserting similar claims and seeking similar relief to the matters described above were filed on behalf of purported direct purchasers of Keurig’s products in various federal district courts.

33 unchanged sentences

Additionally, as the timelines in these cases may be beyond our control, we cannot assure you if or when there will be material developments in these matters.

PROPOSITION 65 LITIGATION

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

Brad Barry LLC, et al., Case No.

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

Keurig, as part of a joint defense group organized to defend against the lawsuit, disputed CERT's claims and asserted multiple affirmative defenses.

The case was scheduled to proceed to a third phase for trial on damages, remedies and attorneys' fees, but such trial did not occur in light of California’s Office of Environmental Health Hazard Assessment proposal of a new Proposition 65 regulation clarifying that cancer warnings are not required for chemicals, such as acrylamide, that are present in coffee as a result of roasting coffee beans.

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

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

CERT appealed the trial court’s ruling, and the California Court of Appeals affirmed the trial court’s ruling in October 2022.

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

KEURIG DR PEPPER INC.

2 unchanged sentences

Transactions with Variable Interest Entities

TRANSACTIONS WITH VEYRON SPEs

The Company has a number of leasing arrangements and one licensing arrangement with special purpose entities associated with the same sponsor, which are referred to as the Veyron SPEs.

The Veyron SPEs are VIEs for which KDP is not the primary beneficiary.

The Veyron SPEs are VIEs for which KDP is not the primary beneficiary, as KDP has limited power based on the contractual agreements to direct the activities that most significantly impact the VIEs’ performance.

Leasing Arrangements

As of September 30, 2022, the Company has entered into twelve lease transactions with the Veyron SPEs, eleven of which were associated with asset sale-leaseback transactions.

Refer to Note 5 for additional information about the current period asset sale-leaseback transactions.

As of March 31, 2023, the Company has entered into sixteen lease transactions with the Veyron SPEs, fifteen of which were associated with asset sale-leaseback transactions.

Refer to Note 5 for additional information about the current period asset sale-leaseback transaction.

Each lease has a RVG based on a percentage of Veyron SPEs’s purchase price;

1 unchanged sentence

As such, the Company recorded each lease obligation excluding the associated RVG.

The aggregate maximum undiscounted RVG associated with the leasing arrangements as of September 30, 2022 and December 31, 2021 were $ 602 million and $ 549 million, respectively.

The aggregate maximum undiscounted RVG associated with the leasing arrangements as of March 31, 2023 and December 31, 2022 were $ 653 million and $ 650 million, respectively.

This aggregate maximum value assumes that the fair value of each property at the end of either the original lease term or renewal term is equal to zero, which the Company has concluded is not probable.

The following table provides the carrying amounts of the right-to-use assets and lease obligations recorded on the Company’s Consolidated Balance Sheets associated with these leasing arrangements related to the VIEs as of September 30, 2022 and December 31, 2021.

(in millions) September 30, 2022 (1)

(in millions) March 31, 2023 (1)

December 31, 2022 (2)

Current assets $ 21 $ 19

Non-current assets $ 430 $ 430

1 unchanged sentence

Non-current liabilities 419 419

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

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

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

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

Licensing Arrangement

1 unchanged sentence

All obligations with respect to the guarantee will cease upon termination of the distribution agreement, which would occur upon notice by ABC not to renew the distribution agreement, KDP no longer being investment grade at the end of the term, or the sale of the distribution rights by the Veyron SPEs.

As of September 30, 2022, KDP has not recorded a liability as it is not probable that the Company will have to make any payments required under the residual value guarantee, as the fair value of the distribution rights is not expected to fall below $ 142 million over the term of the agreement.

As of September 30, 2022, KDP had $ 102 million in fixed service fee commitments related to the 15-year distribution agreement which was effective on December 28, 2020, with Veyron SPEs.

As of March 31, 2023, KDP has not recorded a liability as it is not probable that the Company will have to make any payments required under the residual value guarantee, as the fair value of the distribution rights is not expected to fall below $ 142 million over the term of the agreement.

As of March 31, 2023, KDP had $ 98 million in fixed service fee commitments related to the 15-year distribution agreement which was effective on December 28, 2020, with Veyron SPEs.

These commitments were used to assist the Veyron SPEs in obtaining financing.

4 unchanged sentences

Fixed service fees $ 5 $ 8 $ 8 $ 7 $ 8 $ 8

KEURIG DR PEPPER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, CONTINUED)

TRANSACTION WITH NUTRABOLT

The Company has a preferred equity investment in Nutrabolt, which will earn the greater of (i) a 5 % annual coupon on the preferred equity units plus any accretion for amounts not yet paid or (ii) KDP’s share of Nutrabolt’s earnings as if KDP’s preferred equity was converted into common units.

As the other investors of Nutrabolt have to share in Nutrabolt's earnings with KDP if in excess of the 5 % annual coupon, the other investors lack certain characteristics of a controlling financial interest, which qualifies Nutrabolt as a VIE.

KDP is not the primary beneficiary of the VIE and therefore is not required to consolidate Nutrabolt, as the primary shareholder of the VIE has control over the board and decision-making for the activities that most significantly impact the VIE’s economic performance, including sales, marketing, and operations.

KDP has no obligation to provide additional funding to Nutrabolt, and thus the Company’s maximum exposure and risk of loss related to Nutrabolt is limited to the carrying value of KDP’s investment.

Refer to Note 10 for the carrying value of the Company’s investment in Nutrabolt.

Restructuring Liabilities

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

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

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

(in millions) Restructuring Liabilities

Balance as of January 1, 2023 $ 55

Charges to expense

Cash payments

Balance as of March 31, 2023 $ 26

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